“Waitakere City Council NZ Housing Plan Too Vague”

HUGH PAVLETICH
Co author
Demographia International Housing Affordability Survey
DEMOGRAPHIA

September 10, 2009

“The media release ‘Assessment of housing stocks a priority’ (see below) by the Waitakere City Council, New Zealand is too vague - lacking clear direction - in how this Local Authority intends to restore housing affordability to at or below three times annual household income, over a reasonable and realistic time frame” said Hugh Pavletich, co author of the Annual Demographia International Housing Affordability Survey.

Within the paper “Getting performance urban planning in place” the suggested indicators are provided (Page 24) and within Television New Zealand “Spotlight on NZ's housing crisis (4:57) | Video - to assist local authorities to meet their social responsibilities, in working towards restoring housing affordability within their local areas.

The key indicator should be the “Median Multiple” (median house price divided by gross annual median household income) - as recommended by the United Nations and World Bank – supported by six simple supplementary indicators for population / population growth; fringe raw urban / rural land pricing differences; housing stock per 1000 population; build rates per 1000 people; age of housing stock in decadal bands and residential rental vacancy rates.

If for example – the median household income for a particular local authority area is $50,000 – median house prices overall should not exceed $150,000 (3.0 Median Multiple) and starter new housing stock on the fringes should not exceed $125,000 (2.5 Median Multiple). At $60,000 median household income - median house prices should not exceed $180,000 with new acceptable quality starter housing stock going in on the fringes at $150,000.

The fringes are the only supply or inflation vent of an urban market.

Restricting the fringe land supply with inappropriate infrastructure financing – creates artificial scarcity and provides the foundation for destructive urban housing bubbles.

The consequences in social, economic and political terms of these destructive urban housing bubbles are now being increasingly recognized around the world.

The Waitakere City Council and other local authorities throughout Australia and New Zealand would be well advised to compare the comparative housing performances of Texas and California. In the State of Texas, Local Authorities are prohibited from strangling land supply on the urban fringes (unincorporated areas) and infrastructure is appropriately financed on the bond market (Municipal Utility Districts or MUDs).

New Zealand has abundant land supply (refer “Scoop: New Zealand Lifestyle Block Mythology”) and Australia’s land area is similar to that of the United States with just 7% of the latter’s population (USA population 305 million – Australia 21 million –less than Texas at 24 million)

Texas housing is stable at around 2.5 times annual household income ( example “Houston Association of Realtors July Report” – “Scoop: US Association Of Realtors July 2008 Report” – “Coldwell Banker North American Housing Affordability Report 2008” ) where 234 square metre starter houses with ducted air conditioning on 700 square metre lots for $US140,000 are being provided on the urban fringes. Manufactured houses on brick foundations of around 160 square metres on large lots are being provided for $US73,000.

In contrast – California housing exceeded 9 times household income, in creating a bubble that almost bought the global financial system to its knees (with the assistance of Florida, Nevada and Arizona in the main). House process in California have slumped from around $US580,000 to $US350,000 in the past 12 months – creating massive political, economic and social disruption (refer “Scoop: Housing: The Disaster Zone Of California”).

DataQuick reports that average new mortgage monthly payments in California were $US2,300 in July 2007 and $US1,500 in July 2008. These “structural shifts” are significantly more important to new home owners than downwards adjustments in interest rates by Reserve Banks – such as the 50 basis point downwards adjustment announced today (refer OCR reduced to 7.5 percent) by the New Zealand Reserve Bank Governor, Dr Alan Bollard.

Reserve Banks do not have the ability to structurally influence housing markets –specifically land supply and infrastructure financing. The “panic move” by the NZ Reserve Bank will have unintended consequences of weakening further the New Zealand dollar and impoting inflation.

Due to a long history of prescriptive planning – New Zealand’s housing construction performance has been seriously degraded as outlined within “Scoop: Urban Planning Degrades Housing Productivity” and “Scoop: Housing: Dealing With Real Structural Issues”. It will take many years of sound governance at local government level – for the New Zealand and Australian house building industries to restore performance to internationally acceptable levels.

The economics’profession needs to focus on the structural aspects of housing as outlined within “Scoop: Understanding Housing Bubbles” and “Scoop: Bank Economists At Sea On Housing”.

Mr Saul Easlake , Chief Economist of the ANZ Bank, Australia and member of the Rudd Government Housing Supply Council on the SBS Television programme “Bursting the Bubble” recently broadcast in Australia (with Ross Gittens, economics editor of the Sydney Morning Herald) regrettably failed to articulate clearly, the structural aspects of housing markets.

The Australian economics profession will be aware of its failure with the Productivity Commission Report on Housing Affordability in 2004.

The economics and property appraisal / valuation professions have a particular responsibility to focus on structural issues in assisting local governments to restore housing to affordable levels.

“The evidence is now crystal clear, overwhelming and irrefutable about the problems and solutions” said Hugh Pavletich, adding “It is now past time for Local Authorities to act responsibly, in working with their communities to restore housing to affordable levels over a reasonable and realistic time frame”.

ENDS

WAITAKERE CITY COUNCIL MEDIA RELEASE

9 September
Assessment of housing stocks a priority

An assessment of housing stocks in the region is a key priority as Waitakere City Council looks at ways to address growing concerns over future availability of affordable housing.

The Affordable Housing Initiatives and Actions Report presented to the council's Policy and Strategy Committee outlined initiatives and actions the city could take, which if implemented, could improve provision of and access to affordable housing.

These include identifying what housing stock is currently available in the region and its quality, and assessing land owned by council and in trust by Waitakere Properties Limited for possible affordable housing solutions.

Council will also look to lead and strengthen existing partnerships with not for profit housing providers in Waitakere.

The city has already shown its commitment to provide long term provision of affordable housing for the elderly with its 2005 decision to retain its pensioner housing portfolio and by jointly funding, with Housing New Zealand, upgrades of its older adult villages.

Committee deputy chairman Councillor Linda Cooper says council has a role as facilitators for a greater supply of better quality and affordable homes for Waitakere.

"We have a large number of people in Waitakere under 25 years of age who in 10 to 15 years time are going to be looking for a home of their own and there is going to be nowhere for them to live.

"It's crucial to have those people staying in and working in Waitakere to service the local economy and we have to be able to accommodate them."

Cr Cooper adds that people should not be frightened by the prospect of medium to high density housing, when it is done well in the right places.

"It is the only way, with the limited supply of land available and a rapidly growing population, that we can accommodate this forecasted growth."

Waitakere has become increasingly popular among high-income earners and private investors who see the area to have relatively affordable housing compared to other parts of the Auckland region.

Home ownership in Waitakere is around 67 percent, while the median house price in July was about $355,000 and average monthly mortgage payment $2800.

At $330 a week, median average rent levels are not far behind those in Auckland and Manukau so finding affordable rental properties is becoming more difficult.

Other challenges facing Waitakere and the Auckland region are the increasing number of single people continuing to rent in to their forties, overcrowding and the poor condition of some properties.

The Affordable Housing: Enabling Territorial Authorities Bill passed on Friday gives councils new powers to encourage more affordable homes for first home buyers and families on modest incomes are built in their communities.

The Bill aims to give councils tools to stimulate the provision of more affordable housing, where a shortage is identified in their city or district. The Bill is enabling, rather than mandatory.

An example of this could be councils being able to specify that developers set aside a percentage of their new development for affordable homes for first homebuyers, provide an alternative sight for affordable homes or provide financial contributions in lieu of affordable housing.

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