Greens' Warrant of Fitness for homes will evict poor, students

“An army of inspectors will find fault with homes making them unprofitable to maintain so the total pool of rental properties must decrease. That is economics 101.” said Dr Whyte.

“94% of rental houses failed a 2014 warrant of fitness (WOF) pilot by councils, ACC, the New Zealand Green Building Council and the University of Otago using a 31 item checklist. Two-thirds of the fails required more than "just a few minor and inexpensive fixes". Be they minor or major, the majority of rental properties will go rent free while landlords scramble for tradesmen to fix faults. What investor would buy a rental property under the threat of the same severe penalty, no matter how minor the fault?” said Dr Whyte.

“The New Zealanders who will suffer the most from these laws are low income workers, beneficiaries and students who seek low-cost housing”, said Dr Whyte.

“The continued failure of the Greens to recognise there is no free lunch for any costs imposed by regulation also fails to acknowledge that tenants will bear the burden of unneeded regulations so homelessness will increase. Some people will not be able to find rental accommodation,” said Dr Whyte.

“There is no doubt that over time the wish-list of requirements to receive the WOF will expand, exacerbating the difficulties in finding affordable rental accommodation. Next will be double glazing, solar heating, low energy light bulbs, approved shower heads, allergy-free carpet, lead-free paint and asbestos removal”, said Dr Whyte.

“The Green’s proposals that any tenant will have the right of renewal will make every landlord wary of investing in rental properties. Rent controls and sitting tenants laws are the stock in trade of Seinfeld and other New York-based comedy programmes, not economic policy in New Zealand”, said Dr Whyte.

“It is incomprehensible that Dr. Norman claims to be more pro-free market than the National Party and the next day champions policies that will destroy the New Zealand rental market" said Dr Whyte.

ACT's plan to reduce the cost of new housing by $100,000 and it does not cost the taxpayer a cent

ACT has a plan that will reduce the cost of a new house by up to one hundred thousand dollars. 
Both Labour and National have now announced housing affordability schemes that will cost the taxpayer hundreds of millions and both parties say the other parties’ scheme will increase the cost of new houses. They are both right.

ACT’s plan will not cost the taxpayer a cent. ACT’s plan will work. ACT’s plan is based on sound economics and is endorsed by some of the country’s leading economists as the only plan that will make housing affordable again.

ACT’s plan will not only make housing affordable for the average family, it will stop the diversion of capital into increasing the cost of homes. Lower mortgages will reduce interest rate pressure and the risks taken by banks to fund housing.

*  *  *  *  *

New Zealand has some of the most expensive housing in the world. Among the 34 OECD countries, only in Greece do householders have to spend more of their income on housing than we do in New Zealand.  Despite the fact that our average incomes are well below those in the United States, our median house prices are substantially above those in the US.

This has devastating social consequences. It means that a great many people can’t afford to buy a home at all. It means that far too often both parents are obliged to seek paid employment outside the home. It means that the children of families forced to rent are too often obliged to move from school to school as their parents move from one rented house to another. It puts huge pressure on the budgets of all low and middle-income families.

It also has serious economic consequences. Because house prices have been rising strongly with scarcely a pause for more than two decades, it means that a large share of available saving is diverted into housing instead of into more directly productive activity. It means that saving itself is reduced as those fortunate enough to own a house see their wealth increasing effortlessly. Why save when wealth can be acquired by simply buying property and waiting? It means that banks are forced to borrow very large sums overseas, with our modest savings no match for our almost insatiable desire to borrow against the security of housing.

It means interest rates have to be higher than they need to be to deal with other inflationary pressures, and the exchange rate is higher than otherwise as a result – with consequential adverse effects on the ability of exporters and those competing with imports to grow and create jobs.

It even affects the risks to the banking sector, as the Reserve Bank made clear last year by imposing their restriction on the volume of loans which can exceed 80% of a recent valuation.

So the hugely high cost of housing in New Zealand is one of our most serious social and economic problems.

*  *  *  *  *

Housing affordability has become one of the main election issues.

National’s solution is to encourage people to raid their KiwiSaver schemes for a deposit on a home. If you do, National promises you another $20,000 of taxpayers’ money.

One of the problems with government retirement saving schemes is that politicians find it too tempting to use them to fund their elections.

By increasing the amount of money chasing the same supply of housing, this policy will only increase the price of housing. And it will make yet more New Zealanders, who could be self-reliant, clients of the state. National deserves some credit for other housing initiatives but this is a bad policy. 

The parties of the Left have put up even more foolish “solutions”.

The Labour Party wants to introduce a capital gains tax, exempting the family home, even though Australia has a capital gains tax, again exempting the family home, and house prices there are by some measures even more expensive, relative to income, than in New Zealand. That is not a solution at all.

Having the State building one hundred thousand new houses will just transfer house building from the private sector to the state. When Labour’s housing spokesman was asked where the one hundred house lots would come from, he answered from Crown and local government land. The only way to get sixty thousand house lots in Auckland would be to build on Council and Crown reserves in Auckland – something Aucklanders are going to be very angry about.

Winston Peters wants to ban the purchase of New Zealand houses by “foreigners”, which is code for Chinese. This appeal to xenophobia violates the right of property owners to sell to whomever offers the best price. And it ignores the fact that increased demand for houses has no enduring effect on house prices absent a constraint on the supply of housing (of which more in a moment).

The Conservative Party – which on this issue has more in common with the Left than with the Right – wants to confiscate privately-owned land if the land-owner is slow to subdivide and develop it. Mr Craig at times seems more communist than conservative.

One of ACT’s contributions to New Zealand was persuading the National-led Government formed after the 2008 election to set up the Productivity Commission. The very first report of that Commission was on housing affordability. After exhaustive study, the Commission attributed the high cost of housing in New Zealand to four factors.

First, it is caused by the relatively high cost of building materials in New Zealand.

Second, it is caused by the cost and delay in getting through the consenting processes required by local government rules and regulations. (And I’ve heard plenty of horror stories of consents taking many years and millions of dollars to achieve.)

Third, it is caused by relatively low productivity in the building industry, occasioned at least in part by the very small scale of most home builders.

But, overwhelmingly, the main factor contributing to the very high cost of “housing” in New Zealand is not the price of houses, but the extraordinarily high price of the land the houses sit on. Once upon a time, the price of the section cost perhaps 25% of the combined cost of land and house. In our major cities it is now common for the land to be valued at 50% or even more of the combined package. Often 60% in Auckland.

Last year, there was a story in the New Zealand media  of a land-owner offering 29 hectares of land in Flat Bush – a suburb a long way from the centre of Auckland – for $112 million, though the land agent said the owner “might accept” $80 million. At $112 million, the price of the undeveloped land was nearly $4 million per hectare; at $80 million still nearly $3 million per hectare. But what attracted attention was not just the very high price of the land compared with, say, the very best dairy land at $50,000 per hectare, but the fact that the landowner had bought the land for just $890,000 less than 20 years previously. In other words, he had made a very large fortune by just sitting on land and waiting for the population pressure built up within what was once called the Metropolitan Urban Limit, and is now called the Rural Urban Boundary, to make him wealthy.

It is this artificial restriction on the supply of land which is the root cause of New Zealand’s very expensive housing. It not only directly affects the price of the land houses are built on but also undermines the productivity of the building industry by making it very difficult or impossible for builders to acquire blocks of land on which economies of scale might be realised.

The Productivity Commission found that the price of land two kilometres inside the Auckland Metropolitan Urban Limit was, in 2010, nearly nine times the price of land two kilometres outside that limit. 

American experience also makes it abundantly clear that zoning rules are the primary problem. US cities with a relaxed approach to zoning, such as Atlanta, Dallas and Houston, have median house prices around three times median household income, despite strongly growing populations. Los Angeles and San Francisco, two cities with a very restrictive approach to zoning, have median house prices some seven times median household income, despite strong net outwards migration over the last decade.

  
New Zealand’s unaffordable housing is a direct and inevitable result of local government zoning rules.

Just lifting the urban limit on Auckland would see the price of a new house fall dramatically.

Lifting the Auckland urban limit is not going to see huge parts of our country covered with asphalt and houses.  

New Zealand is larger than the United Kingdom but has about 7% of Britain’s population. While some 9% of the UK is urbanised, in New Zealand the figure is less than 1%. There’s not the slightest risk of running out of open spaces, farms and forests in our lifetime, or in the lifetimes of our great-great-great-grand-children.

The National-led Government has been moving in the right direction on affordable housing. Recent law changes have restricted what local governments can charge for giving consent to sub-divide, and set up 26 so-called Development Commissioners to whom developers can appeal if they believe what they are being charged is unreasonable.

In the past, developers sometimes got the impression that local councils thought of a number and doubled it in deciding what to charge for a development consent. Now, the charge must be directly related to the cost of any additional infrastructure required by a new development, with the appeal process intended to give the new rules real force. 
In addition, the Government has put pressure on some major councils, including the Auckland Council, to establish Special Housing Areas, within which the consenting process can be significantly accelerated.
The Government has also waived the tariffs previously charged on some imported building materials to reduce the cost of building materials within New Zealand.

ACT supports these moves as far as they go.

We were among the first to highlight the serious effect which restrictive zoning rules were having on the price of housing. We agree with recent ministerial statements criticising the restrictiveness of the rules envisaged in Auckland’s proposed Unitary Plan. We find it deeply ironic that the Auckland Council wants to compel Aucklanders to live on smaller and smaller pieces of land when most of the Councillors themselves live on spacious grounds.

ACT wants affordable housing to again become a reality for all New Zealanders. That would do more to allay concern about the growing pressure on low-income families than any other single measure – more than additional subsidies for doctors’ visits, more than increasing paid parental leave, more than higher minimum wages. 

We want to ensure that cities grow according to the wants of their citizens rather than to the dreams of planners. We would reverse the notion that people can use their property only in accordance with local government plans. Instead, we believe that central and local governments should respect the wishes of property owners. 

ACT wants the law to permit any residential development, provided basic environmental conditions are met. And these basic conditions would relate solely to rational requirements, such as geo-technical reports in cases of possible ground instability.
My proposition to voters is that a party vote for ACT this election is a vote for stronger property rights. It’s a vote for a party in Parliament that will put property rights high on the agenda.

It’s a vote for a party that says “this land is your land.” It’s a vote for a party that will shift the pendulum from the property-right-denying paradigm we currently have to one where we begin with the presumption that people can do what they like on their own land, provided only that it does not harm the property of others.

I have already announced that we favour scrapping the Resource Management Act and allowing property issues to be constrained by clearly targeted environmental legislation where the common law is found to be lacking. 

The RMA contains the word “restriction” 61 times and the words “property right” only once, and then only in reference to another piece of legislation. It is surely no accident that the major acceleration in the cost of housing in New Zealand began in the early nineties at almost exactly the time the RMA was passed into law, in 1991.

Ultimately we would like to amend the Bill of Rights Act. Extraordinarily, that Act currently lacks any reference to property rights. It guarantees New Zealanders freedom of thought, religion, peaceful assembly, and movement, as well as the right to justice and the right to vote – but not the right to own and use property.

ACT would push to amend the Bill of Rights Act to protect the right to own and use property as the owner sees fit provided that that use does not substantially reduce others’ enjoyment of their property.

Governments would still be able to interfere with property rights, but they would have to show a good public interest reason to do so, and the question of compensation would have to be acknowledged and addressed.

The immediate result would be that much of the current planning apparatus that tightly restricts land supply would become void. Rather than forcing intensification upon existing built up areas, we would see a growth and expansion of desirable housing across the country.
The cost of housing would fall.  We know that before the RMA the cost of land was 25% of the total value of homes. Now it is 50%. ACT’s proposals will mean that over time the cost of land will return to 25% of the total cost. Housing will again be affordable for the average New Zealand family.

The shift to a property rights paradigm would be a very significant one for our current legislative framework. But it would arguably be one of the most important things that New Zealand could do to reverse its economic decline.
It would free our farmers from stifling regulatory burden, and the tendency for local governments to declare any areas of private property which take their fancy as Significant Natural Areas.

It would free our businesses from much of the regulatory burden they now face.

And crucially, it would open up the supply of housing, making it affordable for all New Zealanders once again.

It would be another illustration of how you would have a better life through less government.

Ladies and gentlemen, thank you, and please remember: a party vote for ACT is a vote for property rights and affordable housing.

The Kiwisaver Homestart Grant will drive housing prices even higher

"National's plan is slightly better than Labour's but both parties plans do not tackle the real problem, a shortage of land," said Dr Whyte.

"Subsidising demand for houses in short supply because of the RMA and the Auckland urban limit will drive housing prices even higher. That is Economics 101," said Dr Jamie Whyte today.

"More money will be chasing a largely fixed supply of land, so prices must go up," said Dr Whyte.

"This paper over the cracks policy on housing affordability from John Key today is something we would expect from Labour or the Greens," said Dr Whyte.

"The solution to high house prices is freeing up the supply of land. Land just inside the Auckland urban limit is nine times the price of that just outside it.

"Only ACT is proposing reforms that will make housing affordable again. This starts with repealing the RMA and restoring the freedom to build," said Dr Whyte.

Every Party but ACT is behaving like overwrought socialists on the sale of land

They are all at it, Mr Key, Mr Peters, Mr Craig and Mr Cunliffe. National New Zealand First the Conservatives and the Labour Party telling New Zealand Farmers who they can sell, their land to.

This xenophobic populism simply to get votes risks permanent damage to the property rights of New Zealanders.

ACT values the rights citizens have in their most important asset, their property. Government bossing property owners as to whom they can sell land is trampling on the rights of property owners.

Who anyone sells his or her land to should be of no more concern to the Government than the sale of a beach house.

“The Overseas Investment Office approval process should only apply to significant assets.

ACT calls for the sale of privately owned farmland to be removed from the criteria considered by the Overseas Investment Office process.

Only the ACT Party stands in the farmers and property owner’s corner saying property rights count.

 

Don Nicholson Ph 027 226 6331

Allowing Kiwis to sell their homes to foreigners benefits Kiwis

Winston Peters has apparently convinced David Cunliffe that when foreigners buy New Zealand property they make New Zealanders worse off. Mr Cunliffe has announced his intention to adopt Winston Peters’ policy of banning foreigners from buying homes. Even John Key is now saying he will look into the matter.

There is no need to. Mr Peters and Mr Cunliffe are wrong: allowing New Zealanders to sell their homes to foreigners benefits New Zealanders.

To see why, start with the benefit to New Zealanders that occurs when one Kiwi buys a house from another Kiwi. To make the matter simple, suppose Kiwi John buys a house from Kiwi Jane for $500,000.

John must value the house more than the $500,000 he paid for it, otherwise he would have been unwilling to swap this amount for the house. Suppose the maximum he would have paid is $510,000. Then he benefits $10,000 from the purchase, this being the difference between the $500,000 he lost and the value (to him) of the house he gained.

Similarly, Jane must have valued her house at less than $500,000, otherwise she would not have been willing to swap it for this amount. Suppose she would have sold it for no less than $490,000. Then she benefits $10,000 from the sale, this being the difference between the $500,000 she gained and the value (to her) of the house she sold.

So the total benefit of the transaction to Kiwis is $20,000, split evenly between the buyer and the seller.

Now suppose instead that a Foreigner Fred had out-bid Kiwi John. To do this, he must have paid at least $510,001 since, by hypothesis, John was willing to spend up to $510,000. What is the benefit to New Zealanders in this case?

Well, John is where he started, still with his $500,000 and no house. He gets 0 benefit from the sale of Jane’s house to Fred. But Jane’s benefit has risen from $10,000 to $20,001. In other words, the total benefit to New Zealanders has increased by at least $1. (In reality, the net gain will usually be in the thousands.)

Some will be tempted to say that when Foreigner Fred buys the house Kiwi John is $10,000 worse off because he has lost the $10,000 benefit he would have got if Fred had not bid. Fine. But then you must say that, in the initial case, where Fred does not bid, Jane is $10,001 worse off because she has lost the extra $10,001 she would have got if Fred had bid. So the net result ends up the same, with New Zealanders being better off when Fred bids.

And let’s not forget the benefit to Fred, who must have valued the house at something more than $510,001 to have paid this for it. Fred is not a New Zealander, of course, but he is still a human being and his welfare should still be a matter of concern to civilized people.

As this example should make clear, Mr Peters’ policy simply creates a transfer of wealth from Kiwi house sellers and foreigners to Kiwi house buyers, and one that makes New Zealanders worse off as a group. The cost of this transfer is not worth incurring, if only because, over the long run, house sellers and house buyers are the same people.

Indeed, the policy is so economically ludicrous that I suspect its real motivations lie elsewhere. To mangle Samuel Johnson’s famous saying, xenophobia is the last refuge of the political scoundrel.

Twyford jumps the shark

This morning at a conference hosted by Prefab New Zealand, Phil Twyford said that Labour is considering using the Public Works Act to expropriate private property to build homes.
 
“This is an extraordinary announcement," said ACT Epsom candidate David Seymour.

“It shows how little regard Labour have for private property and how unsettling a Labour-led government could be for the economic recovery. They clearly don’t have any no-go zones.
 
“Housing affordability has been damaged by artificial restrictions on land supply at the city fringe. In fact, Auckland’s Rural Urban Boundary has made land eight times more expensive. An obvious solution would be to relax such restrictions and open up the supply of land. 
 
“Instead Labour are now proposing another layer of government intervention to solve the problems created by the last one.
 
“If there was any remaining doubt that Labour would lead the most radical left-wing government in a generation, Twyford has removed it."

Auckland's Unitary Plan won't make a jot of difference to housing affordability

It doesn't matter whether the Unitary Plan allows for relatively intensified development inside the Rural Urban Boundary, or greenfield developments outside of it, aka subdivisions. 

That is because the problem Auckland has at its core is anti-development legislation - the Resource Management ACT (RMA).

It isn't right when developments in Long Bay, for example, take 18 years to get off the ground and can be held up by people living in the Coromandel.

The RMA came into effect in 1991. 

At that time the ratio of median house price to median income was around 3 to 1. 

That means before the RMA, a median house price was $300,000 and the median household income was $100,000.  That's easily affordable. 

Today it is almost 6 to 1. 

Even if median incomes moved to $150,000 (which they haven't), median house prices have increased to $750,000.  That's quite unaffordable.

It takes too long to build a house in Auckland, and it costs too much.

The RMA has created the situation in Auckland where perfectly responsible developments are opposed and delayed to the extent that, if they ever get off the ground, the extra costs have pushed up the price of the final product.  It has made housing unaffordable, and created a crisis.

It is therefore irrelevant what the Unitary Plan says about where properties can be built, and what land can be developed. 

Unless the RMA is dramatically reformed to create a presumption of development and a restriction on the opposition to developments, the Unitary Plan will mean nothing. 

And that is because people in Coromandel will still be permitted to oppose, and thereby delay, developments in Auckland.

Author of this blog post, Nick Kearney, is the Local Board Member for the Kaipatiki Ward. 

The inner Waitemata Harbour suburbs of Beach Haven, Birkenhead, Chatswood, Birkdale, Northcote Peninsula, Glenfield, Hillcrest and Marlborough make up the Kaipātiki local board area. It is bounded by the Northern Motorway to the east.