New Zealand’s affordable housing crisis — why is it near impossible to produce low-cost homes?

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Mike Fox

Building Today columnist and EasyBuild director Mike Fox says there is a massive disconnect between supply and demand for affordable housing. So why, he asks, are we continuing to build larger homes on expensive land that are out of reach for the average home buyer? 

It is one of the biggest problems our country faces — we cannot produce the affordable housing that’s so desperately needed.

But we can produce an overabundance of expensive homes. So why the massive disconnect between demand and supply?

Without political ownership and a major overhaul of the current regulatory processes, affordable housing will never be delivered. New Zealand’s journey to housing unaffordability has been 30-plus years in the making.

Over the past four decades, I’ve built hundreds of homes, and have watched the market progressively tilt towards larger homes on smaller, very expensive lots, with building time frames stretching out and productivity plummeting.

Unfortunately, this is what our current system and market dictates, but it is woefully under-delivering on what we need to house everyone, especially in the dawning era where affordability will be paramount.

The current Government’s worthy political aspirations to ramp up affordable housing by 10,000 units per annum under the guise of Kiwibuild crashed and burned in spectacular fashion.

They soon realised what those of us in the industry have long known — the delivery system is broken.

At huge political embarrassment, they learned that our underlying system is plagued with hurdles, delays, costs at every turn, and is inadvertently skewed to only create high-cost land and, subsequently, high-cost homes.

It’s a pipe dream to think that the current system or market will produce affordable housing without intervention, especially in urban areas.

The sad thing is that the Government’s response to fixing the broken system is to change the law so that government projects can sidestep the Resource Management Act (RMA) and leave the rest of the country stuck in the regulatory mire.

Why not be brave and fix the problem for everyone, once and for all? Instead, it’s an opportunity lost, and the problem kicked down the road because it’s politically difficult. 

There are currently many hundreds of unsold new homes sitting in Auckland and other locations around the country because those that need the housing can’t afford them.

We have been building a disproportionate oversupply of expensive larger homes, with the greatest area of demand being affordable homes hardly catered for.

This needs to change, and quickly. However, if we continue to follow the same regulatory processes, how can we expect a different outcome? It just won’t happen.

If we want affordable housing, we need to produce affordable land free of inflationary minimum size and design-restrictive covenants.

In reality, these covenants are put in place by developers to raise the price of subsequent section releases. They cut out a large portion of buyers who might be wanting a smaller, more efficient home.

Any meaningful changes will only come about under current systems by sidestepping the market and some of the feel-good niceties of planning, and simply getting on with pragmatically producing the housing, and centrally funding the infrastructure needed.

If the politicians have not got the wisdom or courage to change the rules that have created this mess, perhaps they will need to develop their own land that can be used for affordable housing. Previous governments have successfully done it before.

To solve this crisis, we need a different approach

The solution is relatively clear — we need fewer rules and political fortitude, as local authorities will need to be curbed and, in some cases, overruled — and not just for Government projects.

I know of one private enterprise example where a smaller local authority has been sitting on its hands for more than 12 months like possums frozen in the headlights.

It’s a $40 million project that will deliver 150 affordable homes to market for less than $400,000 each, including the land.

Clients are crying out for the product, but what I refer to as two star-gazing planners just seem overwhelmed, and the project continues to sit in limbo. The planners’ strategy seems to be to go slow with the hope the project will eventually disappear.

How unjust is that on society? Affordable new homes being kept out of the market on the whim of a planner. All the while, holding costs are pushing up prices by the day, and the clients remain unhoused in motels and cars.

Another example is a transitional housing project, with a perfect site and location and the need overwhelming.

This time, the neighbours got a bit jittery, politicians circled, didn’t like the heat, and the project was canned, resulting in more motel rooms booked.

God only knows what all this is costing the taxpayer. This is the crazy disconnected world the RMA creates.

If they asked me, I would remove all smaller residential projects from the RMA as it is no longer fit for purpose, and the planning process too subjective. The process often gets highjacked by neighbours, anti-commercial practices, personal agendas and nimbism.

More standardisation of design and modular building needs to be increased, and the consumer conditioned to not expect a bespoke home if they want affordability and value.

Building companies create the expectation that you can have your home any way you want. However, if the consumer realised that building bespoke added at least 25% to the cost of their home, they may view things very differently.

This is even more important now where people will be cutting their cloth accordingly, and looking for homes within their means that deliver efficiency on all fronts.

The social and health costs from not getting more affordable housing into the market far outweigh the cost of providing good housing. All these people forced to live in motels, cars and caravans need a stable, warm place to call home.

Is the RMA helping?

Although well intentioned, the RMA has morphed into a major stumbling block. Currently it is project-specific, and has no cognisance as to what the community actually needs to house its people, or what its impacts are on the financial viability of a project.

It is heavily weighted against the party wanting to commence a new project. The applicant is made to feel guilty until they can prove themselves innocent.

The surrounding homes seem to have an inordinate amount of say, and councils often pander to spurious objections.

It’s a cost-plus model, with the first person purchasing paying the bill for infrastructure, GST and all manner of other local authority fees.

The RMA, along with the 70-disjointed individual council district schemes, is an unsustainable model.

What about the Building Act?

In addition to issues caused by the RMA, since the introduction of The Building Act 2004, construction costs have soared, and productivity has plummeted.

Why? Considerable administrative process has cumulatively been forced into place, but it is adding very little material value.

Risk-averse behaviour has turned once helpful local authorities into gun-shy, chicken-little organisations slowing construction down, and demanding consumer money be spent to absolve themselves of liability.

The construction industry currently works at the speed that the controlling local authority can issue and administer consent — and that impacts significantly on productivity and costs.

Some local authorities are brilliant while others are woeful. I have heard in some locations you can wait as long as 21 days for an inspection. How can anyone be expected to be productive or work within constraints like that?

In the past 15 years the cost of building has increased 110%, while the general cost of living has increased only 44%. Much of this extra cost is the result of compounding regulatory change, council fees and unfairly imposed infrastructure cost.

Many good operators have been worn down by the incessant regulatory creep and the growing army of Clipboard Charlies. They are exiting and taking much needed skills away from the industry.

We need strong leadership, meaningful change and a complete overhaul of the RMA, The Building Act and The Local Government Act so that the drivers and outcomes result in efficient, affordable and sustainable housing. 

Change will only happen through collaboration between industry and policy makers, but there must be a catalyst for change. I believe we have reached that tipping point.

One would also hope housing can be depoliticised, and an across-party accord could be reached.

It is too important an issue to be used as a political football. Recent events have opened the gates of pragmatism, and we should take this opportunity to improve things for the industry.

A full review of the governing acts should be undertaken, and if regulation doesn’t help the delivery of affordable healthy housing or make the industry more productive, then the time has come to ditch it.

• 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.