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Hamilton's Land Shortage Problem

OPINION: There has been a lot of criticism of Kiwibuild, some of it fair, and some of it not. The great housing crisis is a media click-bait title for a combination of issues that should not be combined. For instance, it is not fair to complain that Kiwibuild won’t solve homelessness. In most cases, these people need a mental health response or drug addiction treatment, not a new house. Kiwibuild was never intended to address that particular issue.

Even focusing on the specific issue of housing affordability reveals complex factors. The problem isn’t simply the house price – Auckland is much cheaper than New York or London. The problem is price compared to income – New York and London have much higher wages, so Auckland ranks worse on the affordability tables. The smart solution is to boost incomes (by boosting productivity, otherwise it is just inflationary). But nobody in government has a clue how to do that. Statistics show the inflation-adjusted average income for the country has remained static since 1960.

House prices are set by supply and demand. If we look at demand, we can blame immigrants for a housing shortage, but annual population growth is just 2%. We can blame investors buying rental properties, but there is also a rental shortage. We can blame developers, as often happens, but they are the ones building houses to meet the demand.

The data reveals that land price has risen twice as fast as overall house prices, while construction costs have tracked with inflation. This means we really should be talking about the land crisis. Yet we live in a country with one of the lowest population densities in the world. We do not have a land shortage.

But if we look at supply, we see massive hurdles on land for sections in every major centre. Councils have been restricting subdivisions by an overdose of bureaucracy and development constraints. The government knows this, which is why Special Housing Areas were created in the last couple of years to bypass council procedures. Kiwibuild is making good use of these.

The government also issued a National Policy Statement in 2016, a rare tool of the Resource Management Act, to force councils into improving supply of land that is ready to build on. The Urban Development Capacity statement was driven by the Productivity Commission’s recommendations, and directs councils to “provide sufficient development capacity supported by infrastructure to meet demand for housing and business places.” 

Hamilton’s solution to the National Policy Statement has been to declare 50% of new builds over the next 10-15 years will be in urban intensification – that is knocking down old houses to build blocks of flats, and is arguably a good thing because a compact city allows for a more efficient public transport system. The term “compact city is littered through the District Plan, and is the current fashion in urban design, stemming from the United Nations’ 1992 Earth Summit in Rio de Janerio. I will delveinto this more in a later column.

There are three significant problems with this. The first is that the existing infrastructure in areas for urban intensification may not cope. The council often cuts back on essential infrastructure spending in order to balance the books. In the 2009 and 2011 financial years, HCC slashed infrastructure spending by half, and in 2017 by two thirds. This is the core business of councils, yet money remained available for pet projects. As I write this, flooding has damaged houses in Dinsdale because the underfunded council stormwater systems was overloaded. 

Secondly, while the council changed the District Plan rules to allow urban intensification (smaller section sizes, duplexes, fewer boundary height controls, etc), it forgot that other people have rules too. Most of the land council staff identified for intensification is covered by covenants on the property titles. The sections are not allowed to be subdivided.

This means the council is failing to meet its obligations under the National Policy Statement, and there is less than 5 years’ supply of infill housing available. Given the length of time it takes to open up new areas, Hamilton’s growth is going to be affected.

Thirdly, intensification needs to be financially viable. To cover the cost of knocking down an existing building before a block of flats can be put up, new sections in the suburbs need to be priced out of reach to force people into the compact city model. This is what has been driving council planning for a decade, and the impact on new home buyers has been crippling. For some people, the dream of an efficient public transport system has been very expensive indeed.




 

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