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Rodney Hide redux

It’s amazing what happens when you only look at one element of planning and then slap your own anti-urban ideology on top of it. Let’s just change a few things in Rodney Hide’s column today:

There are many reasons why Auckland house prices are high. A lack of tax isn’t one of them.

One reason is that Auckland councils have for years run a deliberate policy to hike house prices. The council doesn’t put it that bluntly, calling it “protecting amenity” or a “allowing for the kiwi dream“. But the policy works by hiking house prices.

The policy’s purpose is to get us to live in huge houses on the edge of the city. That way we will be more likely to drive and the mountains of cash that councils have sunk into road and motorways over the years won’t look such a waste.

And so Aucklanders are priced out of the housing market. The council forces us to build huge houses by limiting development density through a wide variety of planning rules. It’s a double whammy. The roads burn through ratepayers’ and taxpayers’ cash. Plus the “push-the-roads” policy prices Aucklanders out of the housing market.

The policy works by the council imposing a huge number of planning rules which limit density: height limits, density controls, yard controls, setback requirements, single-use rules and so forth. In the places where people most want to live and where prices are increasing the fastest, the planning rules actively stop the construction of more housing. It’s the planning rules that make building apartments, terraced houses and townhouses in the inner suburbs so difficult.

It’s said that the housing market isn’t working. Actually, it’s working perfectly. The council is artificially holding down the development potential of land in the inner suburbs and people are bidding up the price of the precious little that is available. That’s how a market works when there is a shortage.

The result is easily seen. Average section prices in New Zealand account for 40 per cent of the cost of a new house. In Auckland it’s 60 per cent. There’s a 20 per cent council planning tax on Auckland houses.

It’s not hard to make houses more affordable in Auckland. Just loosen the rules. The one part of Auckland where apartments have been allowed fairly easily over the past decade, the city centre, is the one part of Auckland without a shortage of affordable housing.

Unlock the planning rulebook and house prices would tumble. At the very least, the heat would be taken out of the market. Auckland families and couples would once again be able to afford a house. But the council is heading in the opposite direction.

The Auckland Plan is to sprawl 40% of the predicted extra one million Aucklanders beyond the planning fence. Sprawling them out means huge environmental effects and billions of dollars spent on infrastructure to enable development in places where people actually aren’t so keen on living.

The plan is to spread urban development across a vast tract of Auckland’s most highly productive soils to the south and northwest, destroying fragile ecosystems and requiring the construction of vastly expensive new infrastructure like wastewater treatment plants, motorways, hospitals, schools and so on. That sprawl is only going to occur by limiting the potential for intensification and pushing house prices even higher. That’s why couples and young families can’t afford a house. The council doesn’t want them to live in a apartments or terraced houses near train stations, but in giant houses on the urban periphery.

It’s not like there aren’t options: 93 per cent of Aucklanders quite happily live within the Auckland urban area. But the area within the fence is less than 12 per cent of the council’s land area. Auckland’s people density is apparently not high enough for the government to invest in public transport, even though it is twice the density of Brisbane or Perth

Auckland is packed tight like an old European city as people want to live in the inner suburbs. The council’s aim is to sprawl us out like Atlanta or Houston.

There’s a reason for high house prices. It’s us. We have been voting for years for councils promising trains, “smart growth” and a “compact” city. Despite this, our planners continue to promote sprawl and the government refuses to invest in public transport. This is why young families and couples can’t afford a house.

It’s our votes that are doing it. It’s that simple.

Much better.

42 comments to Rodney Hide redux

  • TheBigWheel

    Gets my vote!

  • Steve D

    Yeah, maybe if we fill all the remaining farmland from the Kaipara to the Bombays with four-lane arterials and Lockwood houses, people can get a house for $220k and stop complaining about how expensive the existing suburbs are – oh, wait…

    http://www.trademe.co.nz/property/residential-property-for-sale/auckland/manukau-city/price-range-150000-250000

  • Stu Donovan

    This is awesome.

    I wish libertarian types would stop rallying against the MUL for just one a second and take the time to understand the multitude of other policies that subsidise vehicle use, encourage sprawl, and also contribute to unaffordable housing, e.g. parking requirements.

    I’m not even convinced that the MUL is the single most important binding constraint on property prices; there’s many other causes of high property prices that I would focus on addressing first. The fact that they don’t take a more balanced approach suggests their intellectual consistency has been completely subverted by an ideological attachment to private vehicles.

    • Peter M

      If it was still 1986 and house prices were going up much faster on the edge of the city than in the inner suburbs and public transport patronage was dropping like a stone, then they might have a point about the MUL.

      But it’s not 1986. It’s 2012.

    • Filde

      Naive simplicity. This is where the free folk just get it so wrong.

  • I still believe only two things will help “housing affordability”-
    1- Remove Loss attributing deductions or bring in a CGT (or both)
    2- Council/State Housing

    Neither main political party has had the balls to do the first, and is the latter likely to happen these days? Central Govt is ideologically opposed to it and AC is busy trying to sell of $100M of their own real estate..

    Is there an option 3?

    • Peter M

      Yes there is an option 3. Make it easier to build more houses in places where people want to live. As the post says, there’s no shortage of affordable housing in the city centre.

      Also while I’m not necessarily opposed to a capital gains tax, I think it needs to be recognised that solving housing affordability problems by making it tougher to be a landlord may help those getting onto the property ladder, but that’s likely to be at the cost of those renting (because there’ll be a reduced supply of rental properties). As those renting are likely to be poorer than those on the cusp of buying, there’s a risk that CGT will actually harm those in the most need.

      That’s why I prefer solutions which focus on increasing the supply of housing, particularly the supply of affordable housing typologies in places where people want to live.

      • Thanks Peter-

        Let’s make it about me then, sick of renting, trying to buy- but (at least in my neighbourhood) supply of housing to purchase is severely limited by the number of places only available to rent (subsidised by loss attributing etc)

        What’s the answer that will work for me?

        Moving out of the hood is the only option not in the mix…

        • jonno1

          Um, you do know that LAQCs are a thing of the past, don’t you? They’re now LTCs which don’t permit rorts like claiming WFF by artificially reducing taxable income (which I believe did happen). I won’t mention which government closed that loophole!

          BTW, I do have some rentals, but try as I might, I can’t seem to make a tax loss. Very annoying. OTOH, they produce a very low yield while rates and other fixed charges are increasing apace. But yes, there’s capital gain over time (on paper anyway) that roughly keeps pace with inflation. In common with most property investors I buy and hold (or maybe switch), so CGT is pretty well irrelevant. For traders it’s also irrelevant as they already pay tax on realised profits at their marginal rate, typically 33%, which is more than twice the proposed CGT rate. And in CGT regimes such as Australia it hasn’t reduced housing costs, it just increases rents as others have pointed out.

          And finally, residential property has to be owned by someone, whether it’s the occupier, a private individual or a property company. The market will determine the mix.

      • Peter M

        Yeah so a CGT might mean that a property investor sells up and you’re able to purchase that place. You win, but who loses? Probably someone a bit worse off than you who was only able to rent as the supply of rental housing contracts.

        • Tricky eh?

          UPDATE: David Shearer just said on the telly he wants a CGT. Never seems to happen when in power though

        • Peter M

          CGT has been a Labour policy since before the last election and it’s probably not a bad policy in terms of raising revenue and encouraging investment in more productive areas than the property market. I just don’t think it’ll do great things for renters.

          • Simon C

            Peter, the fact that a minority of people in Auckland hold an increasing percentage of the property is a big reason for the shortage (My manager at work has about five properties for example). Past generations never had to deal with a significant amount of properties being investment portfolios and therefore not for sale. I am actually in favour of limiting the number of investment properties to one extra over and above the family dwelling per family. I think it would open up a lot more housing for sale, and therefore bring down the price and like Geoff I am a renter who is trying to save for my first home but wondering if I will ever be able to afford it. The fact that so many people are investing their wealth in property is just damaging for the nation’s prosperity as it is just such a passive form of investment compared to investment in our infrastructure and companies which would create much more wealth for the country. Anything that weans NZers off property investment is good in my books.

          • That is exactly what a CGT addresses.

          • Peter M

            Agree that a CGT will be good for people looking to buy a house. Just unless it’s accompanied by an increase in housing supply I can see it being bad for renters (or at least not being good for renters). Increasing housing supply for both home owners and investors (and therefore increasing the rental market) could be good for everyone.

            After all, there are quite a lot of people who will never realistically be able to buy a house – or those who simply don’t want to.

          • Yes because a decline in home ownership is no kind of crisis, but an absence of somewhere for people to live is. Renting should be a stable and viable way to live.

          • Trev

            Though of course having more people renting and home ownership (and its capital appreciation) in fewer and fewer people also negatively impacts on social equity.

          • One thing that would make renting easier in NZ for families would be if it was harder to remove tenants, especially on the sale of a property. Now in NZ if you sell a property, the tenant only needs to receive 45 days notice and about the same if you or a relation of yours are moving into the property.

            This means NZ tenants are always have the sword of Democles hanging over them and that is very difficult as a family. I think there should be a facility to sign a fixed termn lease just like commercial premises where tenants cant be removed even if the property changes hands. This is common in countries like Germany where some people rent for decades and invest their money in the capoital markets instead. Currently the Residential Tenancies Act does not allow tenants any security to their tenure and so we are all obsessed with buying.

            Ideologically, I dont have a problem with a CGT but it hasnt stopped a rampant housing market in Australia. It isnt a silver bullet and we need to look at a package of measures.

          • Steve D

            goosoid: We already have fixed-term tenancies like you describe. They can only be terminated or altered by mutual consent, or if the house is mortgaged and the bank forecloses. They don’t terminate when the property changes hands. They don’t seem to be used much in Auckland, though I have done one here. In Wellington on the other hand it’s usual for rented properties to have a 12-month fixed term tenancy.

            http://www.dbh.govt.nz/tenancy-az-f

          • Steve, they’re normally no more than a year, though, and then revert to periodic. There’s just not the culture of long-term renting here, and there’s also a lot of ignorance about how stable a fixed-term tenancy agreement really is. I know more than average about renting and I didn’t realise that sale of residential property didn’t terminate a fixed-term tenancy.

            Toss in that a lot of rentals are of rubbish quality, and why would anyone want to be looking to sign a long-term agreement with someone who has no legal constraints on how much they can increase the rent?

          • Steve D

            Totally agree that New Zealand’s rental houses are rubbish. It’s good that Labour intend to actually set some standards for them, which might help things a little. There’s no “culture of long-term renting” as you say, but the legal facility that goosoid wanted does already exist in the Residential Tenancies Act. You don’t want to sign up to rent one of this country’s mouldy woodpiles for years on end, but that doesn’t mean you can’t.

            By the way, a fixed term tenancy cannot have the rent increased unless the agreement specifies an increase, the same as a commercial lease. If you use the standard form from DBH (http://www.dbh.govt.nz/UserFiles/File/Publications/Tenancy/pdf/Residential-Tenancy-Agreement.pdf), there’s no increase at all.

            But no matter what the renting laws are, there’s no security like ownership, and any policy of “housing affordability” should mean people can afford that security and not have to settle for renting.

  • JeffT

    Gee, he makes it sound like urban sprawl is all the fault of local councils and there’s been no central government involvement, The current Ak council wants in-fill but has pressure from government for more brown and greenfield development, as we all know.
    Gotta hand it to central government politicians, they are the masters at shifting accountability.

  • RHarris

    One thing Rodney got right is “There are many reasons why Auckland house prices are high. A lack of tax isn’t one of them.”. There is already a CGT, if you buy a property to sell it is taxed. Trying to add to this with more taxes will have little effect but will add some revenue to government. It won’t make things affordable but hurt tenants I feel.

    Yes NZ needs to shift their focus away from property investment but I don’t think a CGT is the only way of doing it. Also people have to move away from the idea they have a god given right to buy in Grey Lynn, etc etc. Like they say its a property ladder to move up not start at the top. If this happened maybe we could see less property headlines in the paper about people not being able to afford million dollar homes.

    • If CGT isn’t the answer what is? Removing the Loss attributing company loop holes?

    • RHarris – That isnt quite true. You only need to pay income tax on the capital you receive from the sale of a property if you are “in the business” of selling property. If you have a couple of rentals and every 5 years you sell one, there will be no income tax payable on that.

      So it is only big developers who buy with the intention of flicking straight on that currently pay tax on that capital gain. Personally I think the mum and dad investors are the problem here and they are not caught. Big investors are usually adding to the housing pool whereas the small residential property investors are just clipping the ticket.

      The depreciation rules are pretty much gone now though the new “look through” companies (whcih replaced LAQCs) and limited partnerships allow losses to be passed straight to the stakeholders.

      My knowledge here comes from being a commercial/property lawyer for 9 years.

    • The problem with that particular law is that it’s so airy-fairy that avoiding the obligation if you sell less than one house a year is a piece of cake. You also get to avoid the tax if you buy the house with the apparent intention of renting it out and then flog it off a bit later. There is no bright-line rule about what constitutes purchase with the intent and purpose of resale, so it’s something that gets dragged through the tax disputes process and that costs IRD money.

  • Just gone back to the original; he’s getting pwnd in the comments…!

    • Rob Mayo

      Yes, RH is getting slapped around in those comments on his missive..and so he should…idiot that he is….and not even a halfway decent ballroom dancer!

  • Nick R

    Great stuff Peter. It’s laughable how the anti-planning “defenders of freedom” ignore how incredibly contrived and regulated the so called kiwi way of life is.

  • Kent Lundberg

    This is an awesome hack. Perhaps we can automate a “find and replace” system to filter the rest of the crap that is coming out of the media about planning.

  • ricardo

    I think Rodney Hide makes a lot of sense on many issues…but he is clearly out of touch on housing affordability.

  • Bob

    Funny he never mentioned any of this when the member for Epsom. The residents of parnell would really be rapt to have no subdivisions controls on their high demand land.

  • Steve West

    Rodney’s comments are too funny – especially the part about density – selective use of data if ever. In relation to the CGT, how about funding the IRD so they can enforce the existing legislation first? Property speculation/trading is taxable -http://www.ird.govt.nz/resources/1/8/183605804358bfcf96fa964e9c145ab7/ir361.pdf

  • Jeff H

    CGT won’t achiveve nuch. The tax deductability of mortgage interest by landlords is by far the main driver of the geared speculative capital gains games that many so called investors play. Remove this and you even the playing field between landlords and would be homebuyers and turn rental dumps back into well cared for family homes.

  • RHarris

    ITs crazy to blame high house prices solely on property investors. THey make such a small percentage of sales. To help stabilise house prices will take a number of initiatives not just blaming one group. Anyway any initiatives don’t mean 3 bedroom villas in Ponsonby are suddenly going to be $300K which some people seem to think.

    Funny also these density numbers are skewed to met agendas. One minute were so dense we need to sprawl, next were not dense enough for trains.

  • Ian

    Love the comment about relaxed rules resulted in there being sufficient apartments built in Auckland Central but not a word about the build quality of those apartments. Many of them are leaky buildings that most people wont touch with a barge pole. This is what drove down prices for central apartments. And why didn’t we hear this when he was a member of parliament?

    • It’s not Rodney!
      And he’d never say a thing against the leaky buildings because he hates regulation. The market delivered the leaky buildings because there was too much regulation and the market couldn’t assert its will correctly, that’ll be Rodney’s response.

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