HOUSING AFFORDABILITY - “STOP PLAYING GAMES – FOCUS ON REAL ISSUES”

Open Letter to Hon Maryan Street – New Zealand Housing Minister –

Following introduction of an Inclusionary Zoning Bill to the NZ Parliament.

The letter sets out the three key areas –including seven performance indicators – that need to be focused on in starting to address the housing affordability issue. These policy suggestions are applicable to most jurisdictions.

Hugh Pavletich

--

Pavletich Properties Limited
PO Box 13 439
Christchurch
New Zealand

OPEN LETTER

“HOUSING: STOP PLAYING GAMES – FOCUS ON REAL ISSUES

9 December 2007

Hon Maryan Street
Minister of Housing
Parliament Buildings
WELLINGTON

Dear Ms Street,

HOUSING: STOP PLAYING GAMES – FOCUS ON REAL ISSUES

INTRODUCTION

As co author of the Annual Demographia International Housing Affordability Surveys, regrettably I have no option other than to express my deep concerns regarding your announcement of the introduction to the Parliament Tuesday 4 December 2007 of the Affordable Housing: Enabling Territorial Authorities Bill . This was followed when you were interviewed by Radio New Zealand. My initial concerns were expressed within a media release soon after your announcement.

The tragedy of this is that there has been so much progress made with diverse groups over the past three years, as I outline within my letter to the Resource Management Law Association people mid November.

The New Zealand Herald Editorial: Artificial controls won't work - 07 Dec 2007 spelt out clearly the Bill is a failure and (with many others) the Property Council acted in a socially responsible way by commenting publicly with Affordable-housing bill 'perverse' and Connal Townsend: Cheaper housing - but only for the few - 05 Dec 2007 - Government spending news - NZ Herald .

Your response Developers’ response predictable but out of touch to the Property Council was unfortunate and ill advised. It would appear your officials do not understand the difference between an “investor” and a “developer” and that by far the majority of the full membership (professionals are admitted as associates) of this organisation is made up of commercial property investors (the residential investors organisation is the Property Investors Federation). We do not have a representative body as such in New Zealand for developers (because of New Zealand’s small size) as is the case in Australia with the Urban Development Institute (of which I am a fellow).

Within the release you said “I am not surprised by its response because it (the Property Council) has a vested interest in maintaining the status quo, which is profit focused and fails to account adequately for the needs of the aspiring first home – buyer”.

Then the body of your release is padded out with “the sun rises in the west” development economics (which I will deal with later within this letter) and concludes with “If the Property Council thought this Bill was designed to lower land costs (you had changed your mind on this in a subsequent National Radio interview incidentally – hyperlink above) or free up land supply, it is confused. This is just one of a number of initiatives being undertaken and considered (most consider before they undertake – although in the case of this Bill you are quite correct - regrettably) by the government to address a complex issue”.

The reality is of course (contrary to your assertions) that the Property Council has a “vested interest” in acting as cheerleaders to the ill informed within local government strangling land supply and creating artificial property inflation. Opening up land supply to create greater competition with the existing (currently protected) stock they own – is hardly in their own ‘self interest”. It was for this very reason that the Property Council and I parted company 12 years ago (I was at the time South Island President) – but since that time and with a membership that has “matured” and better understands its social responsibilities with its Chief Executive Officer Connal Townsend – it felt compelled to express its very real concerns about this Bill.

You need to bear in mind Ms Street - that it was way back in September last year (15 months ago) when you predecessor Hon Chris Carter ( now Education Minister) gave a speech “Public and private opportunities in affordable housing” to the Real Estate Institute, where he spelt out clearly the problems and indicated that there had to be greater cooperation between the private sector and government in solving this issue.

What happened instead – is that the issue became a “closed shop” insofar as the government was concerned – and this “pathetic” Bill is all that’s eventuated after fifteen long months. The reality is that your Government has simply being playing games with this serious social issue.

You will be aware that Demographia takes a “facts and figures” and structural approach to this issue and its only interest is to explore politically feasible ways of restoring housing to the internationally recognised standards - where housing does not exceed three times annual household income. Internationally, there is no longer any serious debate within reputable political and academic circles of the causes of artificial housing inflation – and I would strongly urge you to access much of the international research on the Demographia website and elsewhere.

It is clear to me that the “closed shop” (just central government agencies with an element of “like minds” from local government) involved in the preparation of this Bill had their “ideological blinkers” on when drafting it and sadly also appear to have little understanding of elementary development economics. In fact they failed to consult those with practical experience in providing housing – as the supporting documentation illustrates. It is appreciated too – that as a former academic and new to this position that you are struggling with an understanding of development economics (your interview on National Radio clearly illustrated this).

The ideological approach you have accepted from your officials must stop. Those days are well and truly over. Internationally over the past twenty years or so there has been a growing convergence in politics – where the focus today is on “what works”. The New Zealand public will of course judge you and your Governments performance based on this in less than twelve months time.

LESSONS FROM AUSTRALIA?

Research is only now just coming to light as outlined within this Sydney Morning Herald article of Saturday December 8, 2007 by Stuart Washington Fear of losing homes drove Labour win – where the former Howard Liberal Government “paid the price” in the voting booths, for its failure to effectively play its part I addressing these housing affordability issues.

The new Australian Labour Government Prime Minister Hon Kevin Rudd expressed it very well in his recent Victory Speech (Video here ) when he said –

“I will be Prime Minister for all Australians. I will make this solemn pledge to the nation: I will always govern in the national interest. And my door will always be open to men and women of goodwill who want to participate in making our country even greater in the future.

Friends, tomorrow the work begins. Australia’s long term challenges demand a new consensus across our country. I’m determined to use the Office of Prime Minister to forge that consensus. It is necessary for us to embrace the future as a nation united, forged with a common vision.

I want to put aside the old battles of the past, the old battles between business and unions, the old battles between growth and the environment, the old and tired battles between federal and state, the old battles between public and private.

It is time for a new page to be written in our nations’ history. The future is too important for us not to work together to embrace the challenges of the future and to carve out our nation’s destiny.

Knowing people who have worked closely with Kevin Rudd in Queensland (when he was Chief of Staff to Premier Wayne Goss), his recent Cabinet announcements and “laying down the law” at his first Cabinet meeting regarding “financial conflicts of interest” – it is my view, that he means what he says.

With Hon Jenny Macklin inside Cabinet responsible for Housing and Hon Anthony Albanese chosen to head up Infrastructure, it is likely we will see the Rudd Government deal effectively with the States and Local Government on the serious housing issue in Australia.

It is therefore of critical importance the New Zealand Government stop playing ideological games (and incidentally – insult our intelligence) with this serious housing issue, withdraw this destructive Bill and start focusing on exploring real solutions. For obvious reasons (well at least I hope they are) the New Zealand Government has no option other than to treat this issue with urgency and sound judgement, so that in a measured and realistic way, we expand our “affordability advantage” over Australia. No doubt you will be acutely aware of our migration trends over recent years, where increasingly, Australia is seen to be more desirable.

I see no reason why New Zealand cannot get sound policies in place to reverse these migration statistics – with a housing affordability advantage being one of the key drivers.

DEVELOPMENT REALITIES

In the interests of keeping this discussion constructive and positive I will refrain from embarking on a “line by line” review of your announcement, the Bill and your radio interview. Instead I will focus on outlining some important elementary aspects of development economics (yes – I have been a development practitioner for thirty years, an industry leader for over three years and an international housing researcher the past three years) – and most importantly – sketch out a suggested way forward in dealing with this issue over a reasonable and realistic time frame.

Within your Government there appears to be an element with a poor understanding through to a hostile attitude to business. In my view – it is just as destructive on the other side of the political spectrum with those who “suffer” from hostility to government. The biggest problem for those taking these extremist positions – is that it seriously impairs their political judgement.

The reality is that developers and builders are simply “manufacturers” of property – endeavouring as best they can within the regulatory restraints and commercial realities, to provide their customers with the highest standard “products” possible (if they don’t – their competitors will). The developers’ role is to take overall responsibility for the commercial and regulatory risks involved, absorb the unforseen contingencies and manage the extensive organisational requirements of the project, with the builder employed for the physical construction works. In this work – the developer works with the regulatory authorities, architects, engineers, builders, surveyors, valuers, quantity surveyors, financiers, real estate agents, land owners, tenants, end purchasers, adjoining property owners and many others. It is the developer’s responsibility to ensure that the project is “financially viable” and if he fails in this regard, his / her reputation is seriously impaired. Contrary to popular mythology (prevalent I might add within the academic circles you came from) the major asset a developer has is “reputation”. This asset is not acquired in five minutes – but takes years of consistently sound performance to establish. At its core - “reputation” is “trust”.

We have a saying in the development business - “rooster today – feather duster tomorrow”. Developers know well that if they fail to act in a responsible way, lose money and inflict damage on others – their major asset “reputation” can vanish overnight. There is nothing more serious than losing the “trust” of those one deals with.

Politicians suffer the same fate too – when people lose “trust” in them. There is no sadder sight in my view than a politician thrown out of office and stripped of the (so called) power, perks and influence they once enjoyed – when their “customers” - the voters lose trust in them. The first things to go are the “friends”.

Developers have very strict financial guidelines they must work to - imposed by their lenders, prior to being in a position to give projects the “green light” (the lenders are particularly interested in past performance – reputation). We are currently in a global credit contraction phase, where the guidelines as such are becoming even stricter. Lenders insist on a projected profit cushion to reflect the commercial and regulatory risks, unforseen contingencies (these always happen). complexity and scale of the proposed projects – to protect themselves of course.

On this issue of “unforseen contingencies” - you might like to discuss this further with your colleague, the former Minister of Corrections, Hon Damien O’Connor with respect to the new prison facility at Milton in Otago – where the costs blew out to the extent – it is referred to as the “Milton Hilton”. The National Party’s Justice and Corrections Spokesman Simon Power responded vigorously at the time ( Scoop: Milton Hilton a monument to bad management and Scoop: Why are Otago Prison beds $404,000 dearer? ).

This lack of elementary development knowledge is illustrated clearly within the explanatory notes of your Tuesday announcement, where the public servants involved obviously have no knowledge whatsoever in the subject. You need to ask them why they failed to consult with those with a proven track record of development performance – prior to embarking on the preparation of the Bill. Ultimately – it is you who will be judged – and with respect, I would suggest that you need to decide rather quickly whether you are going to provide the necessary leadership with this issue – or by default - allow the officials with their selected friends from the local government sector to “run the cutter” to suit their ideological fancies.

It’s your call.

STOP PLAYING GAMES – FOCUS ON REAL ISSUES

Let’s now turn to discussing this issue in more positive terms.

It is extremely clear to me in having researched this over the past three years – how this issue needs to be progressed in New Zealand (and Australia for that matter). And the issue is not at all “complex”.

The reason why we have a housing affordability crisis – is (again) simply because we are not building affordable housing.

The international standard for “affordable” is that housing should not exceed three times gross annual household incomes and that normal urban markets should move between a “floor multiple” of 2.5 times gross annual household income through to a “ceiling multiple” of 3.0 times household income – and the “swing multiple” between these two is around 2.7 times household income. In this regard the Annual Demographia Surveys are “staring us in the face”. Other than for those – who prefer to devy reality.

To ensure that these affordability levels are maintained – the ONLY WAY is by allowing sufficient new housing construction on the fringes, where the land is cheapest (something it would appear your officials are unaware of at this stage), so that new starter housing is put in place at “development ratios” of 20 to 25% going towards the lot / section and the balance 75 to 80% going to the actual house construction. I would urge you to read the Demographia Dallas Fort Worth / Sydney Fringe Starter Housing Comparative Study where links are provided through to Dallas Fort Worth Builder Websites (13 in total) – and where they are putting in place new starter housing all up for $US700 per square metre - $US550 to the building and US150 for the lot / section. A fringe new starter home of 200 square metres on a lot of 500 square metres therefore costs $US30,000 for the lot and $US110,000 for the actual construction – all up $US140,000.

You will note in reading the 2007 3rd Edition Demographia Survey (refer Page 33), that the annual gross median household income is $US56, 200 in Dallas Fort Worth – so for fringe starter homes of 200 square metres on 500 square metre lots – this clearly illustrates that they are putting in place this type of housing on the fringes at 2.49 times the median annual gross household income of that urban market. By allowing fringe development as they do within the 42 affordable North American markets – it acts as a “supply vent” or “inflation vent” so that these urban markets do not inflate, which regrettably is not able to happen in New Zealand and Australia (and the UK, Ireland and coastal North American urban markets for that matter).

So for us to restore housing affordability in New Zealand and Australia we need to be thinking in terms of starting in to the process, so that over a reasonable and realistic time frame, we are putting in place new fringe starter housing of 200 square metres on 500 square metre lots at 2.5 times the annual gross household income of each particular urban market.

Dense type concrete apartment construction generally costs around twice as much to build on a square metre basis as “bricks and sticks” stand alone housing – so this would suggest that on a capital cost basis, it consumes around double the energy on a square metre basis. Further to this, the Sydney Morning Herald within an April article High Density a Failure deals with a Report “Power Politics and Community” published by the Griffith University Urban Research Program and written by Glen Searle, Director of the Planning Program at the University of Technology, Sydney. This Report spells out the massive failings of these unpopular urban consolidation policies in graphic detail.

A publication released by the New South Wales Government “Multi Unit Residential Buildings Energy and Peak Demand Study” prepared by Rachel O’Leary and Rob Helstroom of the NSW Department of Infrastructure, Planning and Natural Resources, October 2005, illustrates how on a per occupant basis, dense type developments, on an operating cost basis (capital costs are omitted), are considerably less energy efficient than stand alone housing.

This of course would not be helped with the “urban heat effect” and the lack of green space and trees urban compaction creates.

We do know too from a social perspective, that there is a strong correlation between lower density and people’s greater community involvement as illustrated by the important research paper of 2006 Social Interaction and Urban Sprawl by Jan D Brueckner, Department of Economics, University of California Irvine and Ann G Largey, Dublin City University Business School.

On the economic front - the highly respected commentator on social and urban issues Joel Kotkin, Presidential Fellow in Urban Futures at Chapman University, California, in his recent paper for the New America Foundation Back to Basics: A Pro Growth Public Investment Strategy sets out clearly why it is important for governments at all levels to ensure that that focus must be on sound infrastructure provision and on going management.

If the lot / section costs for starter housing are driven up from the sound 20 – 25% of total costs so that they “consume” a greater percentage of the total package to say 50% (where New Zealand urban markets sit roughly at the moment), 60%, 70% (where Sydney is and Auckland is heading), 80% (where London is) – the only things that can “give” are the quality and sizes of the housing. I expand on this issue further within my recent letter to the Resource Management people.

Within the 2007 3rd Edition Demographia International Housing Affordability Survey Page 32 (data September Quarter) – the Median Multiple / Median House Price / Median Gross Annual Household Income were as follows – Auckland 6.9 / $395,000 / $57,500 – Christchurch 6.0 / $291,000 / $48,400 – Wellington 5.4 / $331,000 / $67,400 . The Median Multiple for our three major centres is 6.0 (the next 2008 Survey will likely show it at north of 6.5 Median Multiple with Auckland affordability stress not too far behind Sydney and London).

In using the Dallas Fort Worth example outlined earlier as a guide – we need to be aiming over the long haul to get new fringe starter housing of 200 square metres on 500 square metre lots (using the above income figures and the 2.5 times gross annual household income guide) – that new starter fringe housing for Auckland should be $NZ143,750 – for Christchurch $121,000 and for Wellington $NZ168,500. In the range of $NZ120,000 to $NZ170,000 around the fringes of our urban markets, using the September Quarter 2006 data as a base, We are a million miles from these figures currently and it will take many years to repair the damage to our construction industry and on a phased basis release land and put in place sound infrastructure debt financing arrangements – to restore these levels of affordability enjoyed by earlier generations.

THE UNITED NATIONS PROVIDES US WITH GUIDANCE

We do know that most New Zealanders aspire to a stand alone house with a reasonable amount of land around it. One only has to glance at the Statistics New Zealand Monthly Building Consents to see how many stand alone housing units are built in comparison with dense apartment type housing. The latter is of course miniscule. It would appear again that your officials have failed to alert you to the United Nations 2007 World Population Report where it states within the Introduction –

“Once policymakers and civil society understand and accept the demographic and social composition of urban growth (my view – stop being elitist) some basic approaches and initiatives suggest themselves. These could have a huge impact on the fate of poor people and the viability of cities themselves, Throughout the Report the message is clear. Urban and national Governments, together with civil society and supported by international organisations, can take steps that will make a huge difference for the social, economic and environmental living conditions of a majority of the worlds population.

Three policy initiatives stand out in this connection. First – preparing for an urban future requires at a minimum, respecting the rights of the poor to the city. As Chapter 3 shows, many policymakers continue to try to prevent migration and urban growth by discouraging rural – urban migration……

..These attempts to prevent migration are futile, counterproductive and above all wrong – a violation of peoples rights.

For poor families, having an adequate piece of land – with access to water, sewage, power and transport – on which they can construct their homes and improve their lives, is essential.”

Rather surprisingly – it would appear (again) that your officials have failed to advise you of the United Nations Department of Economic and Social Affairs – Division for Sustainable Development – Urban Indicator Programs ( here and here ) with the World Bank ( here ), where both these organisations work closely in promoting the programs. As I see it – we should be making full use of these excellent guidelines – and I would be interested in learning from you if New Zealand is a signatory to these Urban Programs – and if we are – why we are not currently employing them? In the event we are not – I would be most interested in learning why this is the case.

THREE MAJOR AREAS – WITH SEVEN INDICATORS FOR LOCAL GOVERNMENT

In thinking through this issue – I am strongly of the opinion that we need to be focusing on three major areas – being –

(1) Incorporating Housing Performance Standards in to the Local Government Act. It is critically important local government has a reasonable number of easily understood measures / indicators to work to – to start on the path to restoring housing affordability within its area of responsibility, over a reasonable and realistic time frame. Without these – we are simply talking “hot air” with this whole issue.

To assist in this regard, a socially responsible private organisation will be generating a New Zealand National Median Multiple Survey of our regions and significant urban markets for release at the time of the 4th Edition International Demographia Survey 21 January 2008 – with one for the British market at the same time. An Australian National Survey will be generated a few months later.

(2) Require Local Authorities to phase out fringe urban land scarcities as soon as possible. Local Authorities need to clearly identify areas outside their fringes that are “off limits” to development for rigorously researched heritage and environmental reasons – and allow both residential and commercial development to respond to peoples needs and requirements on the urban fringes. To suggest that New Zealand and Australia are running out of land can only be described as “delusional ideological drivel”. With respect to New Zealand - I set out our land use realities within a brief article Scoop: New Zealand Lifestyle Block Mythology – where of course (at the overall Christchurch urban density of 1,900 people per square kilometre) just 0.67% of our total land area is urbanised – and we would require a further 0.20% (one fifth of one percent) of our land area to urbanise a further one million people.

(3) Require Local Authorities and other Infrastructure Providers on a phased basis to appropriately debt finance infrastructure. This is an issue Local Government is having the most difficulty with - and in my considered opinion – over these past years has been the major driver (more so than ideology – which is in reality “sanctimonious ignorance”) of forced urban consolidation “sold” with the Orwellian term of Smart Growth, which should be correctly termed Dumb Density.

There is obviously an urgent need to lift governance and management standards on an ongoing basis, within the local government sector. It could best be described at the moment as “Parkinson’s Law on Prozac” – with rates and revenue requirements well outside the inflation rate – where the focus is to generate revenue from all sources to feed these insatiable bureaucratic beasts. This is why I stress the importance of “performance standards” with respect to housing – but these are also required across the whole spectrum of local government activities.

The reality is that those who own the infrastructure should be responsible for the appropriate financing of it – for obvious reasons if economic efficiency and intergenerational equity. The current practice of “developer levies” (which they are not – because the developer is only an intermediary – and passes these costs, with a margin, to the new home purchaser) are unsound – and appropriately should be debt financed by the infrastructure provider, to refect the expected operational life of the particular asset.

It would appear too that Local Authorities are experiencing some considerable difficulties in applying appropriate depreciation rates to particular assets – as they are required to do under the provisions of the Local Government 1996 no 3 Amendment Act. I have not followed this issue in recent years – and it has been suggested to me that some Authorities are “over depreciating” to assist in generating more revenues.

In any event – there is an urgent need for research of this issue – in how Local Authorities are managing their assets and debt financing them. My understanding is that a private organisation will likely be getting research underway on this issue in early 2008.

With respect to (1) above, it is important Local Authorities are provided with guidance on appropriate measures and indicators, so that they can have a clear “snapshot” of the state of the housing and trends within their areas of responsibility . There is no need whatsoever for these measures and indicators to be “complex” (after all this whole issue is not “complex”) and I would suggest with respect to housing, that there are only seven – one key indicator with six supplementary ones.

(a) Key Indicator – Median Multiple and Trends – as recommended and employed by the United Nations World Bank, Demographia and others. There is no “perfect” measure as such, but the Median Multiple (median house price divided by median gross annual household income) could be described as the “most adequate”.

(b) Supplementary Indicator One - Population, Population Growth Rate and trends.

(c) Supplementary Indicator Two – Total Housing Stock / Usually Occupied Housing Stock / Per 1000 Population. This could be expressed as for example 380 / 360 per 1,000 population as the case may be. This measure is in common usage in Western Europe and employed by the leading international professional property organisation, the Royal Institution of Chartered Surveyors (RICS). With this measure one can gauge fairly quickly (coupled with the other measures) the demand pressures within individual urban markets and local authority areas.

(d) Supplementary Indicator Three - Annual Build Rates per 1000 population and trends. Expressed as 6 / 1000 or whatever as the case may be. New Zealand is currently generating new residential units at the rate of slightly under 6 / 1000 (24,000 residential units currently being put in place annually for a population of around 4.2 million). Back in the mid 1970’s we were putting in place in excess of 12 / 1000. During 2006 the Republic of Ireland put in place 20 / 1000, likely around 16 / 1000 this year and 12 / 1000 during 2008. Western Europe is currently building around 5 / 1000, the United States this year 4 / 1000 (it had been up to 7 / 1000 a couple of years ago) with Texas hitting 9 / 1000 last year and currently the “basket cases” of California and Britain 3 / 1000 or slightly below. A build rate of between 2 to 3 / 1000 is required for replacement alone – depending mainly on the age of the residential stock.

(e) Supplementary Indicator Four -Age of Housing Stock in Decadal Bands. It is critically important to have this information to gauge the likely replacement housing stock going forward. You will be aware that in international terms, the quality of our housing stock is considered poor, as again outlined within a recent The Press article Government urged to lead way on housing reporting on the findings of Beacon Pathways – comprising industry, local government and research organisations. Regrettably, this group failed with its suggested solutions, because it did not recognise the key reasons (as I am doing within this letter) why our housing stock is of such a poor standard. Further reading Maori, Pacific children at health risk - Stuff.co.nz .

(f) Supplementary Indicator Five - Fringe Urban Values including fees / True Rural Values per hectare. With respect to fringe urban values it is important infrastructure fees are added so that the true distortions are not masked. In assessing the True Rural Values it is important that ones sufficiently distant from our urban markets are used, so that the current “urban echo values” are ignored. These are of course “artificial values” created by the excessively priced fringe raw urban land encouraging speculative activity by those in adjoining rural areas hoping for an urban rezoning. This measure could be simply expressed in dollar amounts – say $NZ30,000 / $1,200,000 – as the case may be. This measure would assist Local Authorities in dealing with these artificial fringe urban prices as quickly as possible. We need to avoid at all costs, the deliberately misleading “years of supply” measure currently employed by the Australians – which is used simply to mask the Rolls Royce pricing of lots / sections.

(g) Supplementary Indicator Six - Residential Rental Vacancy Rate. Rather surprisingly, we do not have regular information on the ever changing demand and supply status of the important housing segment in New Zealand. At a glance, we should know the monthly vacancy rates for all local authority areas. We do know for example that in Australia, the residential vacancy rates within the major urban markets (and other markets too – particularly those near mining activities) are at critically low levels of near 1% and it would appear that there is a rental crisis looming in Auckland, according to a recent New Zealand Herald article by Anne Gibson Expect rent rise, tenants warned . The situation is currently “tight” in Wellington as well.

The reality is that in normal properly functioning urban markets, residential rental vacancy rates should not fall below 6%, to act as a “supply cushion” and allow the construction sector to respond with increased supply so that rental increases are moderated.

In Dallas Fort Worth and Houston it only took a 2 to 4% lift in rentals and for vacancy rates to fall below the 6% mark to trigger a rapid response in apartment building – as these recent articles from the Dallas Morning News by Steve Brown DFW apartment market profiting from housing crunch and the Houston Chronicle by Nancy Sarnoff with the misleading header Housing slump hits renters in wallets . A graph (again misleading with its high base) within the article illustrates how rentals on average within Houston have moved from $US657 per month in October 2006 to $US681 per month in October 2007 – a “massive” 3.6% a year in an urban market with a population of 5.6 million people and a population growth rate of in excess of 2% annually. At $US681 per month, that represents $US157.15 per week, which of course includes local authority rates / property taxes. No wonder some are in no hurry to purchase homes, when they are getting good rental deals like this!

The 3rd Edition 2007 Demographia Survey (refer Page 34) shows that Houston had a Median Multiple of 2.9, based on a median house price of $US152,800 and a median annual gross household income of $US53,000. The Houston and Texas economy is currently performing very well as illustrated by this excellent commentary recently released by Wachovia Bank. In roughly adjusting household incomes 5% since that time (note table in the report illustrating lift in household incomes – adjust for population increase) and the median annual household income is now in the order of $US55,650 and with the average apartment rent in Houston now $$US681 per month ($US157 per week) or $US8,172 per annum – this would suggest that the average annual gross rental is 14.48% of median annual gross household incomes. This is however comparing “apples with oranges” – medians with averages.

Lets for the point of discussion make a 20% downwards adjustment to the average rental figures to get a rough estimate of median rentals (more research is required on this issue) so that the “average” annual rental of $US8,172 is bought back to a (guessed at) “median” figure of $US6,537 (note adjusted median household income now likely to be about $US53,650). This would suggest that Houston median apartment rentals may well be about 12.18% of annual gross median household incomes.

No wonder people and their family’s have more disposable income left over, in these affordable urban markets.

Again – further research is urgently required on this issue in comparing the “rental stress” of our inflated New Zealand and Australian urban markets, with the affordable North American ones.

LOCAL GOVERNMENT DESERVES CARING LEADERSHIP

It is my strong view that many of the good people working for their communities in local government would welcome central government leadership in providing greater clarity and guidance and the incorporation of performance standards within the appropriate legislation. With respect to environmental issues - the Resource Management Act and social and economic issues (including housing of course) - the Local Government Act. You need to understand I have been dealing with these people for around thirty years – so I do have a good grasp of the “trials and tribulations” these people experience in the important work they do for their communities.

In fact I have a strong affection for local government and want to see it strengthened, where the individuals involved with it, can take pride in improved performance and the knowledge that they have the opportunities to better serve their communities, It saddens me greatly to encounter good people within the local government sector who are demoralised and just “going through the motions” - because they are not getting the quality central and local governance and senior management support they deserve.

There has been no research done on the performance and difficulties experienced by local government regulatory staff in New Zealand that I am aware of. However the Australian Planning Institute embarked on a National Inquiry in to Planning Education and Employment during 2004 and found significant demoralization and high attrition rates with planning staff. I suspect we would find the same in New Zealand. I am sure much of this is due to a lack of governance and senior management discipline, where Parkinson’s Law has been allowed to take hold.

It is obvious to me Ms Street - that there is a need to stop playing games – and start to focus on the real issues. I wish you every success in providing the necessary leadership, to assist us all in starting on the path of restoring housing affordability in New Zealand.

Yours sincerely,

Hugh Pavletich
Fellow – Urban Development Institute of Australia (FDIA)
Co – Author – Annual Demographia International Housing Affordability Survey
www.demographia.com
Christchurch
New Zealand

ENDS

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