Auckland’s housing problem: “me and Len are in the same paddock,” says Nick Smith

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Housing Minister Nick Smith has offered an olive branch to Auckland’s Mayor Len Brown after weeks of sniping over the super city’s Unitary Plan. Smith told deputy political editor Jessica Mutch on Q&A today that the government and council were not worlds apart in what they wanted to achieve to alleviate Auckland’s housing problem.

“There’s a lot more agreement between the Auckland Council and the government than what some might have you believe. We both agree that Auckland needs a lot more houses. 25,000 is the agreed shortage.

“Me and Len are in the same paddock,” Smith says.

He acknowledged there had been tensions: “There’s been a bit of constructive tension between the government and council,” describing his relationship with Mayor Brown as “constructive, robust”.

“We’ve just got more work to do. For instance, you know, if we look at the unitary plan, there are key parts of it that are a work in progress, where the council has said, “Well, this is sort of where we’re going. We’ve got some more detail to do.” And the government is saying, “Hey, we need to see that detail because we need to be satisfied that this plan is going to deliver affordable housing.”

He’s vowing to work closely with local government over Auckland’s housing crisis and says without the government on board it could take a decade for the Unitary Plan to come into effect.           

“If the government stood back and said, “This is only Auckland’s business. We’re not going to do anything,” then it would take between seven and 10 years for that unitary plan that the council has done tremendous work on to become operative. Now, Auckland can’t wait seven or 10 years. We’ve put a fast-track process in place that will enable that plan, which the council is looking to notify in September, to come into effect probably in about three years. My biggest concern, and where the dialogue between myself and Mayor Brown and his council is really important – well, OK, that’s in the three years. We can’t wait three years. We can’t allow house prices to go up in Auckland by another 50 grand a house next year. We need to have a discussion about some of the short-term measures that are required to take the heat out of the housing market.”

Tomorrow, Smith meets with Brown and Auckland Council officials to discuss the Unitary Plan.

Q + A – March 24, 2013

NICK SMITH
Housing Minister

Interviewed by JESSICA MUTCH

JESSICA                      Minister Nick Smith, thank you very much for joining me this morning.

NICK                             Pleasure.

JESSICA                      I want to start off by talking about the Auckland housing crisis, but let’s talk specifically first about housing affordability. The latest figures show that the average house price in Auckland is $618,000. Is that affordable for the average Kiwi?

NICK                             No, it’s not, and what we’ve seen over the last year is about house prices increasing about 10%. And you think of the average, you know, Auckland family beavering away, trying to save that deposit for a home see the price go up by $50,000 or $60,000, and we’re sort of losing that key part of the Kiwi dream. The very early colonisers that came out to New Zealand had that ambition to be able to own their little bit of their country.

JESSICA                      And is that an ambition we just have to let go?

NICK                             No, I’m one of those that is absolutely determined to ensure that ordinary, hard-working Kiwi families are able to reach that dream of owning. It’s a lot more than about just a house. It’s a home. It’s a place to celebrate birthdays, anniversaries. It gives you a stake in a community. One of my sort of most admired political leaders was Keith Holyoake, and one of his sayings was, you know, a capitalist society is great as long as everybody can be a capitalist. And to many people, that home is that block of capital. So it’s an economic asset. It’s a social asset. And for really a generation – 25 years – home ownership rates in New Zealand have been declining, and that’s why some change is required.

JESSICA                      So are we going to see two classes of New Zealanders – those that can afford that dream that you talk about and those that can’t?

NICK                             Well, that’s why the government is giving such a priority to housing policy. We need to look at land supply. We need to look at the cost of infrastructure, the cost of building materials, the cost of the labour and how efficiently we’re building our houses, and we need to look at the compliance costs. All five of those elements are absolutely critical if we’re going to get home ownership to be more affordable. We also need to note that if you look at New Zealand history post-war, the periods in which home ownership has improved is those areas where interest rates have been low. Now, we’ve worked incredibly hard over the last four or five years. We’ve got the lowest interest rates in 50 years. One of the biggest risks from the Reserve Bank, and also noted by the International Monetary Fund this week, is that if we don’t address these very rigid land-supply rules that are constraining cities like Auckland, they’re going to have to put interest rates up, and that’s bad for the economy, and that’s going to be bad for those aspirations of home ownership.

JESSICA                      It’s interesting that you bring that up, because the IMF this week has talked about soaring house prices that could then go and crash. Is housing even a good investment at the moment?

NICK                             Well, I think people will always want to own that home – not just for economic reasons, but for family security. You know, if you own your own home, you can do the alterations, make the house your place, not someone else’s place. You don’t have to think about the landlord giving you a ring and telling you you’re getting your 90 days’ notice. So I don’t think New Zealand should give up on that aspirational dream of families being able to own their own home, and the work the government’s doing in this housing space is very focused on that.

JESSICA                      So you’re perfectly happy with this idea of Auckland sprawling, basically, so that people can have that dream?

NICK                             My view is very strongly it’s a balance, righty-oh. Certainly it’s not my view that all of Auckland’s growth can be simply dealt with by the city growing. I think it has to be a mix. It’s a matter of getting some intensification and some greenfields development. And it’s about getting that right balance.

JESSICA                      Because that’s been the message from the council this week, and you haven’t agreed with their policy as a whole. They’re saying a little bit up and a little bit out. Do you agree with that or not?

NICK                             Oh, yes, I do. And there’s a lot more agreement between the Auckland Council and the government than what some might have you believe. We both agree that Auckland needs a lot more houses. 25,000 is the agreed shortage. Both the council and the government believe there’s about 20,000, 30,000 shortage of houses in Auckland right now.

JESSICA                      But that’s only short-term. Long-term—

NICK                             That’s right.

JESSICA                      …you’re going to need 400,000.

NICK                             And that’s where there’s also agreement. Both the Auckland Council and the government say we need about another 13,000 houses in Auckland per year. Now, there’s a power of work that’s gone into the Auckland Council’s new plan. It’s a step in the right direction. There’s quite a lot of detail we still don’t know.

JESSICA                      So when you say a step in the right direction, what do you mean? Do you support the plan or not?

NICK                             Well, the first thing is if we go back to the metropolitan urban limit, and we do need to learn the lessons of history.  The old Auckland Regional Council in 1999 set a plan for Auckland, and they said that 70% of the new houses in Auckland are going to be the intensified ones – you know, the apartments, the townhouses. Yet in reality what’s occurred over the last decade is the opposite – 70% of it’s been new greenfield. They haven’t met those targets of those additional apartments and townhouses, and as a consequence, we’ve neither provided the greenfield or the brownfield development and house prices have gone through the roof.

JESSICA                      Is that because there’s a bit of a hangover from this whole leaky homes, and you and the government don’t like this idea of in-fill housing?

NICK                             No, no, we see very much the solution as being a mix of both. But in developing the mix of both—

JESSICA                      What mix of both in what way? What’s the percentage you’re talking about?

NICK                             Well, we want to be satisfied that the way in which Auckland progresses— And frankly this is not just an issue for Auckland. If you look at house prices in Taupo, Christchurch—

JESSICA                      But we’re just talking specifically about Auckland at the moment.

NICK                             Yes, we are, but in all of those cities, you need to get the right balance so that houses in cities like Auckland, the ambition of Auckland being liveable, absolutely – but also affordable. And the history is one of quite unaffordable. Let me just give you the numbers. Over a period of just five years, section prices in Auckland have gone from $100,000 a section to $325,000 a section. And if the section’s worth 325 grand, then you’re not going to get a sort of affordable $150,000 house being built on it. So what the Productivity Commission said is unless you deal with this issue of land supply – and they use the word “excessive” land price – and the failure of rigid land regulation, we are not going to get houses being built that are of an affordable range for ordinary New Zealanders.

JESSICA                      And this is where the council disagrees with you, because Len Brown says the reality is we can’t solve Auckland’s houses challenges by land supply alone. You’re very keen that land supply is the key answer to this.

NICK                             No, we agree. No, me and Len are in the same paddock there. See—

JESSICA                      So is it land supply or not?

NICK                             You’re too simplistic in your language. You say land supply alone. No, I don’t, and that is why right at the beginning of the programme I said, “Look, this is about infrastructure cost, it is about the cost of materials.” You know, the Productivity Commission said that the price of building materials in New Zealand is about 30% higher than what it is in Australia. Well, that’s not good enough, and that is why the government’s doing a piece of work in that area as well. Where we do hold the view is that land supply is not the only issue around housing affordability, but it’s a very important one. The Productivity Commissioner has said that. Motu research has said that. If we look at all the international experience, it shows that, and that is why there’s this. Yeah, there’s a bit of constructive tension between the government and council.

JESSICA                      Constructive tension? What do you mean by that?

NICK                             Well, you see, the Auckland Council quite rightly is very focused, and Mayor Brown has been absolutely up front about wanting Auckland to be a liveable city.

JESSICA                      So let’s just be simple with this – you’re disagreeing on how this works. You’re combative when you’re meeting together.

NICK                             No, no, no, actually, I’ve met with Len Brown the very first week of taking up the role as Housing Minister. Met with his deputy, Penny. Scheduled to meet with both him and his senior team again tomorrow. At the same point, we’ve got officials meeting. There’s been a joint officials’ report that’s provided some really helpful data. We’ve just got more work to do. For instance, you know, if we look at the unitary plan, there are key parts of it that are a work in progress, where the council has said, “Well, this is sort of where we’re going. We’ve got some more detail to do.” And the government is saying, “Hey, we need to see that detail because we need to be satisfied that this plan is going to deliver affordable housing.”

JESSICA                      Is the government nervous that it’s losing control of Auckland and are you going to step in and intervene?

NICK                             Well, we’re already intervening. We’ve got a bill currently before Parliament in which we are speeding up the process of the unitary plan. If the government stood back and said, “This is only Auckland’s business. We’re not going to do anything,” then it would take between seven and 10 years for that unitary plan that the council has done tremendous work on to become operative. Now, Auckland can’t wait seven or 10 years. We’ve put a fast-track process in place that will enable that plan, which the council is looking to notify in September, to come into effect probably in about three years. My biggest concern, and where the dialogue between myself and Mayor Brown and his council is really important – well, OK, that’s in the three years. We can’t wait three years. We can’t allow house prices to go up in Auckland by another 50 grand a house next year. We need to have a discussion about some of the short-term measures that are required to take the heat out of the housing market.

JESSICA                      Just finally, on a personal level, how would you characterise your relationship with Mayor Len Brown?

NICK                             Oh, constructive, robust. Actually, I really enjoy working with him.

JESSICA                      Doesn’t sound very positive, but we’ll have to leave it there.

Len Brown tells Jessica: Minister more conciliatory

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