Housing economy played like a monopoly game but too important to be left to chance

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The housing crisis is the issue of the moment but is at risk of being appropriated by a multitude of interests, many of them vested, each who frame the debate – and the solutions, in their own ways.

There are at least two important elements – a housing affordability problem, and a housing availability problem. It’s now almost an unreachable ‘kiwi dream’ to own your own home, especially in Auckland, but these days many kiwis also struggle to find one to live in. Property prices are out of control, property wealth is accumulating in the hands of the few, there’s a housing shortage, overcrowding, homelessness.

Developers and land interests would have us believe both housing affordability and availability would be solved by freeing up land supply. But a recent report, ‘Long Term Vacant Residentially Owned Land in Auckland’, commissioned by the Auckland Council, found about 8000 vacant, residentially zoned sites already available for development within Auckland’s urban limits. They found ‘significant development opportunity for new housing on plan-enabled residentially zoned land within Auckland’s built up area’, including new parcels, free-standing vacant land, and newly subdivided sites not yet built on. The study found the main reason owners of vacant, residentially zoned sites weren’t developing their land, was because the benefits of holding on for later speculative profits outweighed financial and building risks and development costs.

The potential for housing development on readily available land doesn’t seem get to the attention it deserves, with a “strong bias toward greenfield development on the urban fringe” according to the report. That bias in favour of greenfields development has been accelerated for the long term with the removal of the Auckland Regional Council and the Metropolitan Urban Limit, and in the short term through the fast tracked Special Housing Area sites, brought in through the Housing Accord between the Council and the Government. There’s actually a lot of residential land currently available, and lots also being built on – if you haven’t noticed Kumeu, Riverhead, Westgate, Hobsonville, Silverdale, Pokeno, Karaka, Long Bay, Orewa and more. The Unitary Plan indicates relentless more capacity though infrastructure servicing is not so well provided.

But a sudden rush of land supply hasn’t helped speed up additional housing availability, with few houses developed in the SHAs so far. Given the limited capacity of the building industry, and existing trade shortages, only so many houses can be built in so much time. And even in a setting of unlimited land supply, owners will still stage the release of property for sale to retain a premium and not flood the market.

Housing availability through land supply doesn’t necessarily lead to housing affordability either. About 1000 new houses are currently being built in my hometown of Kumeu, with another 2,500 expedited through local SHAs. But still, large houses on small sites are on the market for around $900,000. The word around town is that both offshore and domestic investors are buying many of them for rental and capital gains.

The Reserve Bank refers to the ‘tax preferred status of housing, especially investor-related housing”, driving speculation, and prices up. The potential for tax free capital gains provides a pretty strong incentive for those with equity to buy and sell property in any context. If you’re lucky enough to already own property in Auckland, or somehow have enough equity, you can make money quick by getting on the property ladder and becoming a landlord and speculator. That drives the prices up for everyone else and further locks low income earners out of the market.

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TV programmes like ‘The Block’, and ‘Our First Home’ celebrate quick and dirty property speculation and the resulting capital gains, trading houses like they’re disposable commodities. In ‘Our First Home’, the winning speculators “pocketed $194,000 profit” over the course of the 10 week competition.
The Auckland housing economy in particular is like a game of monopoly, where winners and losers are clearly defined and sitting at opposite sides of the table. -Fortunes are not decided by virtue or hard work, but by access to property ownership and the ongoing financial leverage it provides in a predominantly housing economy. But housing is a human right, it shouldn’t be left to chance, -or the free market.

Christine Rose is employed as Kauri DieBack Community Co-ordinator in a contract role to the Auckland Council. All opinions expressed herein are Christine’s own. No opinion or views expressed in this blog or any other media, shall be construed as the opinion of the Council or any other organisation.

32 COMMENTS

  1. Yes, the Auckland housing market does seem like a game of monopoly played out for real. The rich, living in multi-million dollar lifestyle mansions speculating whilst the middle and lower income earners, who just want a decent home for their families, watch helplessly as prices rise further out of reach every month.
    But as the main benefactors of this bubble are National’s and ACT’s rich mates I can’t think they will be busting their guts to do anything about it.

    • Yet house prices went up faster under Labour than National, and Roost reports that the affordability of housing today is better than it was under Labour.

      This is not an issue of which Govt. is in power. Auckland had a property spike leading up to 2007, under Labour. The problem is the lack of supply of housing, and that is being addressed. Too little, and too late as far as Auckland Council is concerned, but better late than never.

      • Nehemia,
        As Christine said;

        “The housing crisis is the issue of the moment but is at risk of being appropriated by a multitude of interests, many of them vested, each who frame the debate – and the solutions, in their own ways”

        You are the epitome of that statement of Christine’s.

        you talk as if you are only referring to the “housing bubble problem”

        This is only happening in a few areas and not all around NZ, but you couch your clever comment around prices rising as the norm.

        So come look around the country and will find your comment does not apply to most “Provincial regions.

        People we we have a two teir economny one for the rich and the rest of us with depressed stagnating house prices while Auckland plays the speculation game.
        http://business.financialpost.com/personal-finance/mortgages-real-estate/stubborn-sellers-killing-canada-real-estate-crash

        Oh don’t worry I did this in Toronto in 1988-92 but the whole Toronto market crashed and 1/3rd of the homes that went into default were placed in bank repossession so you will see this here soon enough.

        Then the rest of us will be destroyed along with your folly.

      • NW, if you keep pointing to the previous Labour government as an excuse, then what was the point in electing National? At what point does your party (National? Act?) take responsibility for it’s failure to address this issue?

  2. Further limit foreign investment ! Change laws to protect our citizens right to home ownership and avoid foreign take over of our country. Winston was right and he is not a racist. I am not a racist either but we need to take back control of our country for the benefit of the young and the elderly New Zealander’s first. We are offering up our best to the highest bidders and we are as greedy, in some ways, as some of those foreign investors and corporate psychopaths. Politicians and real estate agents and developers are mostly looking out for their own best interests and not what is good for the whole country and our young people who want to own their first home.
    Shame on self-centered greed and insular narrow minds.

  3. An efficiently administered CGT on housing is required but it is unlikely that on its own it would be sufficient.
    As all reputable economists and such like have been advising for YEARS the main benefit of CGT would be to remove the tax bias when making investment decisions. This would not only relieve house price pressure but would also free up investment capital for more productive, job creating schemes.

    Whilst the governments rhetoric with respect to regulatory constraints on supply has merit it will take many years for this to remedied.
    The quickest and most neutral way to mitigate the Auckland housing issue is by way of demand management; i.e,

    1) Cut immigration back for a minimum of 5, preferably 10, years to only include the most “desperately” needed skills, This will allow time for the supply /skills / cost issues to resolve
    2) Prohibit the foreign non resident (residency to be deemed to occur after a number years in the country) purchases of housing (there is also a VERY strong argument to extend this to agricultural land) and ensure this is monitored and enforced by way of a register. Note: the opinions that similar measures in Australia were ineffectual does not hold as the absence of a register and lack of policing never allowed the scheme to be efficiently applied.Contrary to the opinions of some (most of whom seem to have either an ideological or pecuniary interest) current immigrant and foreign purchases (check out the Auckland auctions) are more than sufficient to pump up the house prices. i.e. Housing is both a necessity and a store of value, it is basic micro economics that for such goods where there is a shortfall in supply and there is no substitute the price response (price elasticity) at the margin is very strong.

    The failure to take te measures is yet another signal that Key’s government has little concern for the welfare of ordinary NZ’s.

    • Australia has a CGT, a stamp duty and foreign ownership restrictions and their housing is going through the roof in some places.

      • That doesn’t mean that we don’t need them. It just means that we also need other policies such as stopping the banks from creating money and from loaning money from offshore to fund the house price bubble.

      • Read the comment;
        i.e. CGT is not on its OWN is insufficient and,
        the restrictions on foreign purchases of accommodation in Australia has never been effectively or efficiently administered.

      • So what if Australia has a CGT? Their property prices would increase even more if the capital gain was tax free.

      • The Titanic had lifeboats and lifejackets but most of its passengers still perished. The insufficiency of mitigating measures often means you need more, not less.

  4. While the status quo remains in place, that is do nothing but pretend you are doing something aka Nick Smith and his latest venture in smoke and mirrors, namely the $10000 home start joke, (yes Nick that should buy a bathroom vanity unit and letterbox at today’s inflated prices), this Ponzi scheme will only get worse.

    As you’ve identified already, the speculators are getting in early at Kumeu and logically as soon as new houses become available they will be more petrol poured on the fire as there will be more stock to play with. It will happen elsewhere.

    It’s not only first home buyers who are getting burnt here it’s anyone who simply wants to move in Auckland, as its highly likely you are going to take on debt you never would have prior to this mess. No wonder bank economists sing Nationals praises so regularly.

    There is another problem that is going to bite Auckland and therefore NZ and its moving these people around Auckland, the ones who actually end up living in these far flung suburbs. There is no planning I have seen to even consider this issue. Perhaps National envisage spending billions more on adding to the motorways that cost us all dearly. Worse Auckland Transport is about to end trains further west/north of Swanson right when a big development is happening in Kumeu and Huapai.

    So this mess worsens on many fronts with virtually no hope in sight but as they say the voters are always right and 47% of them voted for this!

  5. This is one of the best articles I have read about this issue! In particular two often missed points to the arguments.

    1 Housing availability through land supply doesn’t necessarily lead to housing affordability.

    2 The study found the main reason owners of vacant, residentially zoned sites weren’t developing their land, was because the benefits of holding on for later speculative profits outweighed financial and building risks and development costs.

    3 TV programmes like ‘The Block’, and ‘Our First Home’ celebrate quick and dirty property speculation and the resulting capital gains, trading houses like they’re disposable commodities

    4 The Reserve Bank refers to the ‘tax preferred status of housing, especially investor-related housing”, driving speculation, and prices up.

    The only things I disagree with is that a capital gains tax will solve the problem. I believe that the housing problem is extremely complex and a range of options need to be put together and in a way that does not ‘crash’ the market or target one group more than another. It needs to be looked at in conjunction with transport issues, low wages and high cost of building materials in this country, immigration and non resident investment.

    Why I am against capital gains (note I am not against property taxes I just think CGTis not going to work and will make things worse for renters).

    Simply put as 65% of house owning Kiwis are benefiting from higher prices. Trying to ‘punish’ them I do not think is an electable way to go forward as the Kiwis benefiting might be on low incomes that bought their house from way back. To combat this the ‘family home’ is not considered part of the capital gain.

    However with immigration, capital gains will not work as those coming into the country are buying their home too and can buy generally higher cost houses (driving demand again for high spec housing that locals can’t afford on local wages) and it is their family home so capital gains will not dampen this down at all.

    What a CGT will do is to stop people renting out properties and therefore drive up rents or make them get out of the industry. However with the Sallies not even willing to throw their hand in, do we want to further fuel a shortage of rental properties? Having lived through the 1990’s in Auckland and struggling even to find a room to rent as a student let alone a property it seems the same situation has returned. Even talk of a capital gains tax is making many rental investors take advantage of the optimal conditions for selling and get out of the business.

    The questions are, what is driving the demand for housing?
    What is stopping more affordable houses being built?

    Also as there are affordable options in Auckland why are people not buying them?

    There are apartments under $200k in Auckland City and family homes in unfashionable areas of Auckland for under $400k but you have to commute and this is where having an affordable reliable public transport system comes in as well.

    It’s a big question and I think it would be a shame if the most vulnerable people renters start getting caught up, good rental investors vacate and housing and our farming assets start to be owned by immigrants who even if they do have to pay 15% capital gains, are not really going to stop them as it only has to be paid for on sale, if they fall into tax conditions that set it off, and if they bother to pay it at all.

    • I definitely don’t think a Capital Gains Tax is the only answer to such a complex issue (however you frame it), but getting the tax and investment incentives right is clearly an important part of the mix. Also, I agree with you that the transport infrastructure issue is a real concern. The Unitary Plan gives us both intensification and sprawl – the worst of both worlds, but the planning for growth isn’t matched by funding tools or planning for infrastructure. It’s especially apparent in Kumeu given there’s a railway line and station right in the heart of the growth area, adjacent to the SHAs, but AT canned the long held plans for rail services from the area, last year!

    • I believe that the housing problem is extremely complex and a range of options need to be put together and in a way that does not ‘crash’ the market or target one group more than another.

      We’ve got two choices on that. Either the government steps in and crashes the market in a coordinated way thus keeping the economy ticking over or the market crashes to bring about the necessary correction and brings down the economy as well. Our choice but I’m sure that the greed of the home owners and speculators will prevent the government doing what’s needed thus we’ll have the latter and the home owners and speculators will blame the government rather than themselves.

      What a CGT will do is to stop people renting out properties and therefore drive up rents or make them get out of the industry.

      The answer to a shortage of houses today is the same as it was at the time of the First labour government – the government prints some money and uses it to build houses that it then rents out. Due to the need for denser cities those houses will need to be medium and high density so the cost of servicing them goes down and as they’ll be closer to the CBD travel will also be cheaper making them more affordable to live in.

  6. What to do?

    The questions are, what is driving the demand for housing?
    What is stopping more affordable houses being built?
    Also as there are affordable options in Auckland why are people not buying them?

    There needs to be more controls on immigration investment in this country.

    Ideas to dampen immigration demand could be..
    Property investment is not available as a criteria to gain residency status.
    You have to be a NZ resident to not pay a capital gains tax for 90% of the time you own the asset.
    You much make $50k per year profit and employ 2 NZ citizens or more to enter NZ under the business criteria.
    You can not own NZ property if you are not a NZ resident for 50% of the time.

    • Bollocks, my land lord lives in the US and only comes back to NZ every 10 years. He will be morgatage free or close to it, and my rent still goes up every year at least, and that’s with a long term lease. (And yes it is in my contract that they can keep raising the rent, every 6mths if they want to). I am an excellent tenant, and yet get inspected every 3 mths.

  7. What is stopping more affordable houses being built?

    Ideas,
    Allow ‘granny flats’ back for up to 2 people to live. No resource consents needed if within the same house. Just building consent for kitchen etc. At the moment to have granny , boomerang kids, or even a rental flat, you have to give your first born to the council along with at least $10,000 in fees to the resource consents department and their main worry is that they don’t get the fees. They are totally interested in making sure you DON’t have any affordable housing because they should get the fees.

    Get onto the commerce commission about Vector and Metro water and telecom about their ‘first’ charges and other infrastructure costs totally out of control.

    Make sure the huge vector and metro water and telecom charges are going to upgrade the networks NOT to shareholders and exec pockets. They should have to prove they have done ex amount of upgrading under law. Not keep having power outages and sewage spills while they rake in the fees.

    While they are at it, stop building motorways and start using rail to get people in. Make sure they have park and ride as in the rural areas there is no bus links. Get rail out to the SHA and subdivisions that are being built now. The consent fees of $7000 per dwelling should go straight into the transport coffers, not AK council going around wringing hands and saying they just can’t afford to do anything without more taxes and money someone has to give them. Look at all the new subdivisions and sections – where has the revenue gone?

    Get the commerce commission onto Bunnings, Placemakers, Mitre 10, Fletchers, get some costs how much was wood, gib, nails, etc etc 5 years ago – have they been ramping up the costs cos their profit are certainly healthy! Why do they all charge the same, is it a monopoly?

    Have decent design in the RMA, go for sustainability. No developer wants to build nice apartments if next door someone builds a dog blocking your view and light. You might go out of business real fast.

    Funny, that’s how they developed the AK CBD stigma. Building crap that nobody wants to live next door too, let alone live there.

    Have multi developments. 10% of a subdivision should be under $200k, 20% under $300k etc etc.

    Bring back state housing. Build more, stop selling them off.

    • “What is stopping affordable houses being built?” The obvious answer is that it makes no sense building a cheap house on dear land. So why is land so dear? Apart from the scarcity factor – too few houses and too many speculators, there is a culprit that almost no one has mentioned. The banks, manipulating the market.
      When I bought my first house in Australia years ago, I would not have got a mortgage unless I could repay it with less than 25% of my income. THat was probably also true in NZ. Today it is almost impossible even for two wage earners to buy a house.
      The banks, knowing that there is a scarcity, have deliberately offered cheap loans to home buyers and to speculators. This raises the price of houses, so the authentic buyers eventually drop out. The speculators however have seen their investment rise so more come into the market. That is where we are now and there will be a crash soon when the less brave start to panic.
      A CGT is no solution as it only works when house prices are rising. When prices fall the CGT achieves nothing. What is really necessary is a Land Tax. There is also a need to stop land purchasing totally. All land should be owned by the whole nation and be administered by the Government. It should only be possible to rent on long term lease. That will stop speculation dead.Also the banks must be stopped from creating money from nothing. But now I’m dreaming.

  8. Also as there are affordable options in Auckland why are people not buying them?
    Ideas.
    Banks need to start lending on apartments to first home owners if they have a 10% deposit. (At present I think you need 50% deposit for an apartment from some banks so generally only investors or more cashed up people can purchase them)
    More controls on leasehold leases, body corp fees and people profiting from this.
    Banks need to lend with a 20% deposit on properties under 40M2. This size is an option for many first homeowners but they can’t buy because of bank lending rules.

    This is putting the strain on family friendly homes under $400k in Auckland. If first home owners without kids were able to afford apartments then those first home owners with kids might have less competition for those homes which are on sections.

    • Also solve transport. People need to be able to live further out but still get into work affordably on rail which carries more people than buses and is faster.

  9. I don’t think we actually have a supply shortage, I think we have a distribution problem.

    Where I live in Mangawhai most of the houses are empty most of the time. They’re holiday homes, owned by people who own more than one house.

    Apparently there are about 20,000 homes empty in Auckland too, investors waiting for capital gains, tax free.

    I think the first biggest solution is to cease all land sales to non residents and non citizens immediately. To buy property you need to have a NZ passport, or a permanent residency stamp in your foreign passport.

    If you own property in NZ and you’re not a resident or citizen you’ve got five years to sell to someone who is.

    Watch the market correct overnight.

    When that’s done, we need to have a national conversation about our population, which is growing through immigration. How many people do we want in NZ? How crowded do we want to be?

  10. Reports from late last year showed that about 40 percent, if not more, of the buyers of residential property in Auckland are investors. That includes anyone from the small investor buying a second or third home for their retirement income, to the larger investors and speculators, some of whom are indeed land bankers.

    On the present market most Aucklanders will never afford their own homes, as a quarter of homes sold recently (I think stats for last month) were sold at over a million dollars.

    The median house price is now close to three quarters of a million dollars.

    To this day the government has sat with their big bum on both hands and done stuff all, except create more Special Housing Areas, which are partly also used again by land bankers to sit on, rather than build properties on.

    The government has been reluctant to establish a house buyers register, to find out how many homes are sold to overseas buyers and new migrants. Indeed migration is part of the demand also, accelerating the crisis, and following stupid, short term economic thinking the government seems happy with mass immigration, boosting demand and creating “growth”.

    One way to achieve immediate stabilisation would be to tighten criteria for immigration, and to reduce numbers of migrants into NZ. But again, government, Council, planners and developers have all signed up to let Auckland grow to 2.5 million population, ignoring the future challenges this will bring, like problems with sustainability.

    It starts with water supply, includes infrastructure and other issues, which are at least at times already a problem in the city of the present size.

    The idea seems to be to “share” the burden to pay for investment into future public transport, but also roading, water-supply and drainage, electricity and other infrastructure.

    For those that fancy a large city, go to other large cities around the world and see the problems they have. You are sold an illusion, and more citizens will mean more services and more stress and pressures. Having lived in large cities, used public transport there, I feel that we are presented a rosy picture far from what the reality will look like.

    And we are in a situation now, where only state intervention can address the challenges, like building more affordable homes. Auckland and New Zealand also have a lack of qualified builders to build the homes needed at present, so will NZers be hapy with more Filipino and Irish builders to do the work?

    It is beyond belief that we are where we are now, and that there is such inaction and even indifference. I am shocked at the short sightedness of government, but also many in the population, where opportunists join the Monopoly game and participate in speculation and cashing in capital gains at no tax.

    How damned backward is all this?!

  11. “TV programmes like ‘The Block’, and ‘Our First Home’ celebrate quick and dirty property speculation and the resulting capital gains, trading houses like they’re disposable commodities. In ‘Our First Home’, the winning speculators “pocketed $194,000 profit” over the course of the 10 week competition.”

    Those shows seem to be rather popular, and the participants are seen as kind of adorable “heroes”.

    This is typical for the commercially driven, consumerist society we have got now, after nearly three decades of neoliberal policy and indoctrination.

    Too many only think of number one, being themselves, and are ready opportunists, to outbid others, or to beat the competitor, at work, while shopping, in sports and also in home building and buying and selling.

    Me first is the motto, and get out of my way, I want, I want, I want MY goal to be achieved.

    It is like a disease that has struck society, like a cancer eating away the good values, turning people into being more like hunting animals.

    Where will it end? I suppose we will become more like a little America down under.

  12. 1) Nationalise the land. Put land in the ownership of the crown
    2) reimburse property owners for the value of the land over a 7 year payment timeframe to put less pressure on the accounts
    3) nz government to print its own money/issue bonds to pay foe land
    4) offer perpetual rights of occupancy for houses on the land
    5) implement a land tax payable to local government of 5-15-10% of the dwelling on the land

    Long term, this will bring down the value od houses as people wont be buying the land, they will only be buying the dwelling.
    it’s similar to leasehold, except the land tax will enable local fovt to invest more in infrastructure.

    Capital gains will be vastly diminished as the value is always in the land, not in the house.

    Having the land in the entire country vested in communal ownership via New Zealand government will lessen Aotearoas desirability as a location for money laundering foreigners to park their cash in a house/land.

    • I agree with you entirely, James, (see my comment above) and can see no other solutions that meet the requirements but judging by our lack of ratings, no one else thinks so. I would like someone to explain what is wrong with those suggestions.

    • offer perpetual rights of occupancy for houses on the land

      Not perpetual but lifetime. Perpetual leases are a problem as the millions of dollars paid out to farmers to take our own land back off them proves.

  13. A little birdie told me – He happened to be at an auction house, on the nth shore of Auckland and one person brought 26 properties that day.
    I wonder…. can one person live in 26 houses?
    Stop foreign ownership in New Zealand – if you are not a New Zealand citizen, then No Sale! Simple! Other countries seemed to know what’s good for them, and already do this, why does NZ have to be so slow to get on the bandwagon?
    I fear nothing will done though, with National in Government, they get votes and backhanders from this immigration lark!

  14. We have no houses because they have our money . The foreign owned banks made record profits from us last year. ( And so did the insurance scum ) What, about that is rocket surgery ?
    Rebel ! Purge NZ / Aotearoa of the Banks / re-nationalise our assets !
    Oh, I have to go. Here comes that Red Dot again.

  15. With all the so-called action to “improve” the housing crisis, which I suspect is worse than we are being told, it seems to my -admittedly uneducated- eye, that things are NOT improving. Unless, of course, you just happen to be a large corporation just itching to ‘invest’ in housing? Oh crap, I think I’ve just found the reason behind it all . . ..

  16. New Zealand migration hit a new annual record in March, as more students arrived from India and China and fewer locals left for Australia.

    The country had a net gain of 56,275 migrants in the year through March, 75 per cent higher than the 31,914 gain in the year earlier period, Statistics New Zealand said. Migrant arrivals were 16 per cent ahead of the year earlier period, while departures declined 13 per cent, the agency said.

    New Zealand annual migration has broken records for an eighth consecutive month as the nation’s economic prospects appear brighter than in many other countries. That’s helping stoke economic activity, pushing up demand for housing and cars while also reducing pressure on wage inflation by boosting the supply of labour.

    Sum up of affects.

    Ie migrations seems to be pushing up demand for housing and cars (transport).

    Reducing wages for locals.

    This doesn’t even include the off shore investors in the mix who are investing in property here without migrating here.

    So lets not punish the locals anymore and do what most other countries do, have controls on housing as an investment for foreign investments and migrants.

    Yes, we want migrants and we want foreign investment, but not in a way that disadvantages local people and drives down wages and up basic necessities like houses and rents and congests the roads because we have no reliable public transport.

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