NZ's backyard roadblock

Suddenly it seems everyone in New Zealand economic and political life is an expert on Auckland town planning, blaming it for all matter of ills ranging from high interest rates to housing unaffordability to financial instability and even child poverty.

Where once the focus of debate might have been on the currency, free-trade agreements or a lack of business investment, now it's all about restrictions on compulsory car-parks and balconies, apartment height limits and unitary plans.

"Where once the focus of debate might have been on the currency, now it's all about restrictions on compulsory car-parks and balconies."
Bernard Hickey, Publisher at Hive News

Finance Minister Bill English regularly accuses Auckland's Council and its Not In My Back Yard (NIMBY) ratepayer activists of creating a road-block for the economy by refusing to allow new apartments near Auckland's CBD and new suburbs on the fringes. He even blames them for creating poverty.

"The growth in housing costs to the point where you're seeing families spending 50 per cent to 60 per cent of their income on housing - that's pretty devastating at the low end," English said last year.

"Our planning processes have probably done more to increase income inequality and poverty in New Zealand than most other policies."

English is acutely aware of the costs of failing to build enough affordable houses in Auckland. As the minister responsible for Housing NZ Corp, he has watched new developments scotched because of planning restrictions. He has also warned about the fiscal costs of rent inflation in Auckland, which is rising twice as fast as wages.

The Government's spending on rent subsidies for Housing NZ and on accommodation supplements for private landlords is forecast to rise from NZ$1.8 billion this year to NZ$2.1 billion by 2019.

Reserve Bank Governor Graeme Wheeler is also concerned about the lack of new apartment buildings close to the centre of Auckland, citing it as one reason for double-digit house price inflation there over the last two years.

"I think work needs to be done in inner Auckland in addressing the height restrictions and the Not-In-My-Backyard syndrome that's there," Wheeler said in February before a Parliamentary Select Committee.

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Photo credit: Arsineh Houspian.

The central bank has argued two rounds of restrictions on highly leveraged lending in Auckland was needed to buy time for Auckland to increase its housing supply and take pressure off house prices in a way that improves financial stability.

Wheeler even argued in 2013 a planned increase in interest rates was a factor in the Reserve Bank's thinking on reducing Auckland house price inflation, although he has been less keen to link the two together over the last year.

Record high net migration, strong employment growth and low interest rates are factors pushing up house prices, but officials point to under-building over the last decade as a major culprit leading to an under-supply of up to 30,000 houses by early this year.

The Productivity Commission forecast last month that Auckland's housing shortage could reach 60,000 houses by 2020, given the current building rates and the way current rules around denser apartment and townhouse developments restrict the development of more affordable homes.

The focus of attention is on the Auckland Council's Unitary Plan, which sets the rules for development and is being rewritten in the wake of a 2010 merger of seven local and district councils.

An initial 2013 draft of the Plan was attacked by residents in the leafy areas around the CBD of Auckland as allowing too many apartments that changed the character of the suburbs such as Ponsonby, Grey Lynn, Mt Eden, Remuera, Epsom and Parnell. They literally did not want these blocks in their back yards.

The revolt shortly before Council elections saw height restrictions re-imposed in some areas and an attempt to have no density limits was rejected.

Restrictions or 'overlays' remained on redeveloping houses built before 1944 and against building apartments in 'view shafts' next to Auckland's iconic volcanic cones. The Council also blocked applications from Housing NZ to build three or four storey apartment complexes in suburban areas.

Earlier restrictions forcing apartment buildings to have balconies and a minimum number of carparks also remained in place. Independent economics consultancy Motu has estimated these restrictions add up to NZ$110,000 to the cost of each apartment.

The latest version of the plan is now before an Independent Hearings Panel and is being watched very closely by the Government. It hopes the final version due in 2016 will allow more developments of smaller, more affordable homes.

Even Treasury Secretary Gabriel Makhlouf is watching the tortuous process of writing Auckland's plan.

"We see the Unitary Plan as an absolutely crucial moment where the Council can make a difference," Makhlouf said this month.

"The challenges of NIMBYism are pretty tough for the councilors and they have to be creative as to how they manage that," he said. "There are parts of Auckland where you can have more apartment blocks and more densification."

Meanwhile, house inflation in Auckland continues to gallop ever higher.

The Real Estate Institute of New Zealand reported the median house price in Auckland rose to a record high NZ$755,000 in June, up NZ$6,000 in a month and up 26% from a year ago.

Auckland house prices are on another planet. The national median price excluding Auckland was NZ$340,000, down NZ$9,000 from May and unchanged from June 2014.

The rampant house price inflation in Auckland is dominating both the economic and political debate, but most agree the long-term solution is in a dramatic increase in supply.

However, making that happen quickly is proving tricky, given a few hundred politically active ratepayers were able to block moves to allow the building of hundreds of thousands of homes in a just a few weeks of campaigning.

English even made a joke to an Auckland audience in February about the sensitivity of removing density restrictions, saying Wheeler's comments about NIMBYs has been "about as popular in parts of Auckland as Ebola."

The Productivity Commission also pointed to the "democracy deficit" evident in a planning system that can allow a small number of ratepayers in one city to impose massive costs on a country at large.

Even the Property Council of New Zealand pointed to the distortions highlighted by the Productivity Commission when applied to the politics and economics of inequality.

"Council land use rules effectively protect the interests and wealth of those who already own housing, to the detriment of those who do not," Property Council CEO Connal Townsend said.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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