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Affordable housing (3); solving the problem

by Ian Apperley
We know we have a serious problem with housing affordability. We also know that it will be an election issue. Wellington is likely to see the problem intensify as house prices here keep going up. The issue is complex, so what to do?

I’ll start by apologising for the length of this article. There are a lot of different ways to address this issue, and I want to cover as many as I can.

One of the traps that we, the country, face is something in systems thinking called “policy resistance.” This occurs when we have a whole range of levers and factors we could use to try and resolve the housing affordability issue – but they work against each other. For example, one political party pulls a bunch of levers and another political party attempts to pull them in the other direction. This causes stasis and at worse unpredictability.

Defeating policy resistance requires everyone to work together – a fine hope in an election year. Anyway, on with some ideas on how to increase housing affordability.

Admitting we have a problem is a good start. The Wellington City Council sees it as a significant issue, while the National-led government refuses to admit it. In fact, National abolished the Housing Minister role in the most recent Cabinet reshuffle. Every party other than National sees it as an issue.

Clearly, we need more housing. To build a house, we need land. So we need to free up land. As we have seen this is not as easy as it sounds. Grenada is a case in point where ignorance and fear are attempting to stop a large block of land being freed. Education and some brute force may be required to overcome it. This is the responsibility of the city council.

Red tape needs to be burnt. As a system matures – in this case, the system by which you get permission to build housing – it becomes increasingly complex and the levers become redundant or rusty. No longer fit for purpose, the system becomes archaic. The city council must reduce red tape; that wouldn’t be difficult from a rational perspective. However it will run into people protecting their interests. The time to get consents is long, the quality of the process is low, and the variability of the results is wide. All of that could be changed, with a will.

The cost of construction materials must be reduced. The near-monopolistic system controlled by one private company making $9B per year. When it is cheaper to travel to another country, buy all your materials, and ship them back, something is wrong. This requires regulatory intervention from central Government who have failed to act.

House building rules need to be different according to where the house is to be built. For example, building a house on the flat in Miramar, exposed to the south, should demand a strong earthquake resilient build with excellent insulation and a heating source. Building a house in a place that is low earthquake risk and warm should require fewer build rules. This is a counter-intuitive lever in some respects in that it could increase red-tape. Again, it’s the responsibility of local councils.

We need to build smaller houses. We need to get over the idea of having a quarter-acre section with 150 square meter house in which two people rattle about. Smaller homes mean you get better use out of land and the costs of construction are reduced. This is our responsibility, the people; we need to progress this and let go of the dream we had in the 1950s.

Most Wellington land that is cheap and available in bulk is further away from the CBD. There is no point in building on the edge of the city limits if we can’t get people to work. Roading and public transport need to be sorted out. Right now, the costs of public transport, and the quality, coupled with choked roads, is slowing the ability to build further out. This issue in Wellington suffers from policy resistance more than any other with lobby groups, the city council, other local councils, the Regional Council, and central government all involved wildly pulling levers. They need to work together.

Wage growth needs to increase. There are a lot of statistics being thrown around. The reality is that most people can’t remember the last time they had a wage rise. There are so many actors managing this lever that it’s almost chaotic.

Health and Safety changes have not only significantly increased building costs, they have also introduced red tape and significant delays to construction. It’s so bad that, anecdotally, local construction companies are calling Worksafe to dob in their competitors. It doesn’t matter whether the competitors comply or not, it slows them down. As an aside, the laws have decreased safety in the industry as people carry out work themselves (knock your chimney down) and have also reduced the tax take as a “private” job is not considered covered under the Health and Safety laws. Health and Safety about house building need to be reviewed. This is central government’s responsibility.

There is no point in building hundreds of new homes if there is no water, sewage, power, gas, and other essential infrastructure. The Council needs to be ready to move quickly with a work force and chequebook when developments are proposed and agreed. More investment is required in infrastructure across the board as the population grows.

The Council should consider buying HNZ properties that are being hocked off or knocked down. There are a lot of them. There is also a lot of land lying around empty. That can be used for affordable housing. If HNZ is not going to look after their most vulnerable, then the Council should step in. Long-term, it also increases the city’s asset base.

HNZ needs to increase its stock. We have people living in cars and a waiting list of thousands while the number of houses has remained static for years. It’s not ok. Many houses in the Eastern Suburbs remain vacant, boarded up by HNZ, and some have been knocked down. Large plots of land sit idle that developers, the WCC, or HNZ could be using.

Rates are out of control. When you consider that in the next few years they will have increased 50% (and that will not include new rating valuations that will be due) it’s going to put serious pressure on people who are already on the line, as well as rent. The WCC needs to review spending spend and priorities to keep this in check.

The cost of housing in the regions is far less than cities. Wellington now has regular commuters, and people working remotely from Nelson and Gisborne, for example. $400,000 or less will buy you an excellent house, with all the mod-cons, a lot of land, in areas that are cheaper to live in and don’t suffer from Wellington’s weather.

Internationally, because of house unaffordability, people are starting to leave the cities. The age group that is on the move are Millennials. In the US, this is starting to cause concern, because it’s leaving an older population in the cities. In addition, naturally, the poor are moving to the regions. Increasingly, so are the middle-class. For Wellington, this is a big problem because most of our business is high-tech or office based. In other words, you don’t need to live in the city. There is a myth that globally people are moving into cities. It may have been true a decade ago. It’s not true now.

Back to our possible solutions.

London has a couple of different answers to the housing affordability issue. The first is building housing above public buildings and the second is floating housing. Building housing above our public buildings may not be so easily achieved in Wellington, but floating housing might be, though I suspect it would be expensive given the weather and the cost of that “real estate.”

There is a circular argument around tax and social intervention that goes something like this. Tax housing, somehow, then use the money to make housing more affordable, somehow. There are two problems with this approach. The first is that tax, by the time it gets to the end user, is mostly wasted. The bureaucratic overhead of processing that tax is massive. It’s like organisations that rely on donations but end up only paying out 1% of the total money collected to the cause. I’m not saying it’s 1%; I’m saying it’s a wasteful process. The second is that the social welfare system is geared to make it very, very difficult to get money from the state. It’s so negatively constructed that people who are forced into emergency housing are supposed to pay back extortionate amounts of money.

Tax is either pork barrelling in nature (especially this year) or meant to be punitive in nature (capital tax on selling a house slows investment.) It’s not a good lever.

To summarise. We need more land, we need less red tape, we need cheaper construction costs, we need different rules for where houses are built, we need smaller houses, we need better roading, we need better public transport, we need better infrastructure, we need higher wages, we need less onerous health & safety, we need HNZ to stump up or pass the banner to the local Council, and we need lower rates.

Finally, we need to smash the myths around affordable housing that are espoused by the “not in my backyard” crowd. There are only three ways to do this. Create social embarrassment about that attitude, force it through, or educate. You can do all three.

Beware the weasel words of politicians this year who focus on single levers to grab populist votes. It’s already started. They will pick popular levers while avoiding unpopular ones. Elections are largely an exercise in parties blaming everyone else for the sad state of affairs and making undeliverable promises to try and secure your vote. What do you think? What other ways are there to make housing more affordable?

RNZ: Wellington houses selling for “stupid amounts.”

7 comments:

  1. Jenny Salesa, 29. January 2017, 16:47

    At a time when we have over 41,000 homeless people in NZ, this National Government is selling off our State Houses. [via twitter]

     
  2. Alexandra, 29. January 2017, 17:23

    Yip, the NZ govt emptied out the people from state homes. That is but one of the many ways they created the state of the housing market. Did you know they also advertised to overseas investors? In nations where we cannot reciprocate, we are not allowed to buy their homes or rental properties.

     
  3. Marion Leader, 29. January 2017, 17:27

    I keep reading about the Wellington City Council spending huge sums so that developers can put commercial buildings onto residential land. How do they justify this policy when we need more houses? What is happening with planning policy in Wellington?

     
  4. Ian Apperley, 30. January 2017, 10:46

    Hi Marion, from my perspective a lot of well-intentioned rhetoric. Right now, the WCC aren’t pushing the right levers to help alleviate the problem and worse, the community are trying to push the levers in the other direction because of the poor relationship between the two.

    You are right about developers, and I would argue that those developers are not going to deliver affordable housing. Why would they want to? The profit margins in a high-spec build in Shelley Bay far outweigh the same effort at the back of Tawa or on the edge of the city. Linking affordable housing to those developments is a bit naughty.

     
  5. Mikey, 30. January 2017, 13:13

    Another thing that is being ignored is the fact the govt removed poor people out of state homes, for no valid reason. Then HNZ demolished these up-to code homes or left them empty while people are homeless. The costs for what is now “routine” HNZ actions to public housing (the only “affordable” housing for the poor) are both obscene and idiotic.

     
  6. Wellington Commuter, 30. January 2017, 16:21

    Good points made in this series of articles. I would add a couple more points.

    There is an overall driver in every city for where people need to live and that is employment. Wellington is unusual in that it has most jobs in the CBD. People need to live near where they work (say 20-40 minutes) and such a high concentration of CBD jobs means there is natural pressure to live near it.

    The problem is this pressure is increased by WCC urban planning that does many things. The WCC continues to focus on job growth in the CBD. This even includes restrictions on businesses outside the CBD (such as the District Plan rule that requires suburban retail project to prove they do not compete with the Golden Mile retailers). At the same time, WCC zoning rules prohibit higher density MDRA-type housing close to the CBD, to protect heritage housing zones. Instead the WCC drive for higher density housing has been focussed on more distant suburbs such as Johnsonville, Kilbirnie, Newlands and Tawa. This puts more pressure on transport in general and roads in particular. Our daily peak congestion is an inevitable consequence of long term city planning.

    WCC planning also controls where people live and is based on what they call a “compact city” approach. It was explained to me that the city plan for new housing is based on quarters, a quarter growth into the CBD, a quarter growth into high density suburban MDRA areas, a quarter growth into suburban in-fill and a quarter growth into greenfields areas. Most growing cities have a higher percentage of suburban growth on greenfields areas. It is WCC restrictions on the amount of greenfield land zoned for residential housing that is at least partially driving up costs; even the WCC admits almost all this land is land-banked mostly by two (obviously very rich) private parties.

    The other element of new housing is the building costs and these are also much higher for in-fill and high density housing. In addition to the points already made, most new houses are more expensive because:
    * they must now be two and three storeys high
    * they must meet higher environment and safety rules and
    * they are often built on a section with a house already on it (the developer must pay for the house & section to get the section).

    Many residential developments must breach district plan rules to be economic which means increased compliance costs and the heavy involvement of WCC planners (meaning delay and still more costs). IMO, Wellington is following the same path being led by Auckland to ever more unaffordable housing. Like Auckland, in Wellington a large part of unaffordable housing is due to the zoning and planning rules.

     
  7. Marion Leader, 31. January 2017, 7:36

    I should really like a full comment by a qualified WCC planner on the very interesting and seemingly insightful comments of Wellington Commuter especially about land-banking and other devices.
    It would not seem to be right, for instance, if the preservation of, say, a lovely chapel was used as a bargaining-chip to build bigger houses.

     

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