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New Zealand’s land supply and affordability crisis. Where to from here?

New Zealand’s land supply and affordability crisis. Where to from here?

One of the resounding common themes at September’s Constructive NZ construction forum in Christchurch was the shortage of land.

Nearly every participant I spoke to said our production is now hobbled by two things — first, finding suitable staff, but second and most commonly, the lack of affordable and buildable land.

My own experience backs this up, as does that of our salespeople, who report that the majority of sales enquiries they receive are from people desperately seeking a suitable section to build upon.

This is compounded by first home buyers and others eligible for low deposit loans available only to those that build new.

It is a sorry situation, with high immigration swelling population numbers, a shortage of modern and efficient affordable homes, and a confused regulatory system that is driving and promoting practices that drip feed land to market, only aimed at the higher end.

So, it begs the question — why is suitable land in a sparsely populated nation like ours so expensive, in short supply and so hard to create?

It’s hard to know where to start. It is a complex web, where the many parts of the whole unwittingly amalgamate to do the very opposite of what those in desperate need of affordable accommodation actually need.

The torturous land-to-market journey starts with the Resource Management Act (RMA) which, while originally well intentioned, has proven to be completely devoid of any cognisance of what financial implications or costs might be incurred with a development, or any empathy as to what the nation requires to house its population.

Next, local authorities and often ideologically-driven planners interpret the RMA alongside their own local guidelines and district plans, complete with the individual’s subjective views which can put unrealistic conditions and significant infrastructure costs on raw land, ultimately driving costs up.

It is often more politically expedient for local authorities to lump costs onto the few who are building, rather than risk the ire of the voting public by alternatively spreading costs across all ratepayers.

Local politicians who wish to be re-elected are unfortunately set up to make populist planning choices rather than choosing what is best for a city in the long term.

The fear of NIMBY and voter backlash too often gets in the way of the greater good.

This planning function should be removed from local politicians’ mandates and put in the hands of experienced commissioners. Only then would we start to get well thought out, pragmatic and apolitical planning decisions.

Local authorities are also guilty of over use of the RMA provisions, often demanding resource consents for the most minor of issues that realistically have no impact on anyone, aside from delaying a project and lightening the wallet of the applicant.

Unbelievably, it can take three to 10 years to get approval through the RMA and council, and can cost developers many hundreds of thousands of dollars in the process, with very little certainty of the final outcome.

All this time and money turns into extra cost that gets added to the price of providing buildable land.

Many of the world’s most successful and prosperous cities have a very light regulatory touch on the supply of residential land and, not surprisingly, they bring affordable land to the market very quickly.

If we are serious about solving land supply, then we need to stop being so precious, pick the best out of overseas practice and make some urgent changes.

Hidden amongst all of this are monopolistic utility providers that are free of any overriding regulation or competition. They charge what they feel like for supply of services, often many more times than the actual cost.

It is indeed cruel and unjust that the initial developer/home owner pays an over-inflated price to set up the infrastructure, yet the ownership of it remains with the utility provider, who then commands a rental fee to allow the same developer/home owner to use the infrastructure they paid for themselves. Go figure!

This racket has flown under the radar for far too long, and needs addressing as soon as possible.

Central Government also needs to step up and accept that many local authorities just don’t have the immediate financial resources to provide the infrastructure for rapidly increasing city limits and population growth.

Turning a blind eye or expecting new home owners to foot the total fees, GST and infrastructure bill up front on a section purchase is neither a sustainable nor affordable model, as is being witnessed now.

Central Government could help local authorities by providing low interest loans and by looking at rule changes to spread the recovery of the infrastructure costs and fees over many decades, which would help keep the cost of land down and present a far more equitable solution.

Central Government also needs to provide strong leadership and bring uniformity to our mish-mash of local planning regulations.

Everyone knows the current system no longer delivers what is required — and expecting the market to sort it out, or that 70-odd disjointed local authorities will collectively come up a with a solution, is nothing short of mindless incompetence.

The other elephant in the room is the funding of developments and the fact that traditional banks prefer to shy away from funding land or multi-unit developments because of the inherent risks associated with long time frames and uncertainty with planning.

Traditionally, second-tier lenders such as finance companies filled this void in the market, but with the demise of many of them, projects are now unable to get off the ground through lack of suitable funding.

This is a big issue that, once again, if we want supply to market, may require a solution from Central Government.

We have superannuation funds, KiwiSaver funds and ACC funds that, with the right checks and balances, might be able to provide much-needed development finance to a sector that traditional banks don’t wish to fund.

It’s not all the fault of the regulatory system, as much of the available tracts of land are currently in the hands of a few developers who, without incentive to bring suitable land to market quickly, just drip feed supply to keep prices high and availability low.

They also invariably put restrictive covenants on the land which drive up construction costs, shut out lower-cost housing and push up prices on subsequent releases of land because of the improved standard of housing they have decreed necessary in the first releases.

Who can blame them? It is shrewd business practice, and they are working within the rules that are currently set.

However, if the rules were changed to incentivise developers to bring land to market more quickly by setting shorter sunset dates on planning approval and limiting the use of restrictive covenants, we would see a change in behaviour and more supply to the market.

As you can see, land supply issues present a contorted web of misguided planning, lack of funding, absence of incentives to force land to market quickly, difficulty in providing infrastructure, and a void of strong leadership that have created the conditions for a lack of affordable land.

We are the architects of our own problems, and the land that does come to market is inadvertently skewed to the higher end. 

The Auckland Unitary Plan is a bold step in the right direction to creating intensification from the city centre out.

Looking at places such as Sydney, Melbourne and London, you will see cities that have densely populated areas with many multi-storey and medium-height apartment buildings around their CBDs, with good transport to the outer suburbs for those that wish to retain traditional bungalow living.

However, just changing the planning rules will not be enough to make it all happen in Auckland as envisaged.

The amalgamation of existing land into large enough parcels will be beyond the resources of individual developers and, like it or not, there may need to be some compulsory land acquisitions to make cohesive and better planned neighbourhoods.

This is not going to happen without co-operation between developers, local government and Central Government. Left to market forces, we will end up with ad hoc, small scale developments and, without a committed implementation plan, the Unitary Plan will never be able to deliver on its full potential.

So, what is the solution to this inadvertent mess we have managed to create around land supply and housing affordability?

The reasons for it have become abundantly clear, and what we need now more than anything is strong co-operative leadership to cut through the layers of road blocks. Fence sitting or waiting around for the mysterious market to fix it just won’t deliver.

There might be a few noses bloodied while this is sorted. However, if we want a country where good affordable housing is also a choice, then we need to get on with it.

To date, all we appear to have had is tinkering around the edges and denial of the problem.

If the current Minister is unable or unwilling to take the holistic leadership steps needed to lead us through this, then I would respectfully suggest that he has had long enough and should now give someone a go who can.

 

• This article contains the author’s opinion only, and is not necessarily the opinion of the Registered Master Builders Association, its chief executive or staff.

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