Chief Economist delves into Auckland housing

Last Updated : 21 Oct 2015
Chief Economist delves into Auckland housing
Chris Parker, Auckland Council Chief Economist

Between August 2014 and August 2015 median house prices in Auckland metro jumped by about 20 per cent – from $635,000 to $765,000 (REINZ). Auckland’s house prices have risen to very high levels relative to incomes and relative to rents. The median house price in metropolitan Auckland is now about nine to ten times greater than Auckland’s median household income of about $80,000 per annum.

Higher house prices have benefited a large number of owner-occupier households and landlords in Auckland. However, it raises major barriers to home ownership and worsens inequality that will provide long-term challenges to our social fabric. Such high prices also provide risks to the wider economy from a major price downturn. The good news is that with strong resolve and careful management, these issues can be managed in the long run.

Driving prices – high demand

Demand to own housing in Auckland is currently strong. This is primarily a consequence of Auckland’s growth outlook. People are attracted to Auckland’s vision to be a successful, world-class city.

Auckland is a small city on a world scale, but it is growing fast. Auckland needs to accommodate up to nearly 1 million more people in the next 30 years. To do this, Auckland needs to change how it looks and feels, transforming itself from a suburban city to an urban city.

For the market to change our collective mind-sets and to make this transformation happen, it must set high prices for land in particular. Research we commissioned found that without intensification, Auckland’s house prices are about a third overvalued. On the other hand, current prices make sense if Auckland can intensify in the inner suburbs and the cost of building homes can be brought down over the next 10-15 years.

Driving prices – limited supply

The other fundamental issue is supply, where a number of factors make the creation of new homes relatively slow and expensive. These factors include planning rules and notification requirements, design requirements, and productivity and capacity issues for the building sector.  

The role of urban policy is to ensure that people have choices about where they live and work, without compromising other urban priorities. The factors that the planning system needs to balance include public space, amenities, heritage, infrastructure capacity (like stormwater systems and road space), and the environment. The tough challenge is to balance all of these factors whilst not worsening housing affordability.

Planning rules can mean cost-effective redevelopment with smaller attached housing like townhouses and low-rise apartments in central suburbs is made more difficult, more costly, or impossible. Limits placed on the supply of undeveloped land (because of the cost of infrastructure) can mean that spreading the city out in some areas isn’t an option.

Productivity issues

Productivity issues are facing the city as homes do not seem to be getting cheaper to build. Developers need to use more difficult sites, and in some areas developers are holding onto land and leaving it vacant as the value of the land increases.

In June 2015, 25 per cent to 40 per cent of all buildings under construction were failing building inspections. To maintain a high quality of housing and protect Auckland from issues such as another ‘leaky homes’ crisis, the council needs to keep tight control of building standards. The building industry needs to improve its project management and quality assurance skills if it is to keep pace of development needed without compromising on cost or quality.

Tackling the problem head on

The council has been at the forefront of ways to address housing issues with our work on the Housing Action Plan, future urban land supply, special housing areas, the Proposed Auckland Unitary Plan, the Auckland Plan, and promoting quality urban design.

I have just released an economic report on our website entitled “Housing supply, choice and affordability — Trends, economic drivers, and possible policy interventions”. The report outlines why Auckland has a housing affordability problem, and how to fix it. I have called for the council and the government to work together to achieve a home buyer’s price-to-income ratio of five to one by 2030. The report is not council policy, but it will inform the council’s ongoing strategy for action and advocacy.

Panuku Development Auckland

In other areas where the council can make an impact it is taking action. The Long-term Plan, which was adopted in July, included the amalgamation of two council agencies to form Panuku Development Auckland.

Panuku works with private developers, iwi, non-profit organisations and central government to create development opportunities in Auckland’s urban areas. Panuku allows us to make better use of around $1 billion worth of council property, to encourage development in select locations that hasn’t been possible before.

The Auckland Unitary Plan

The Unitary Plan is another way the council is setting up Auckland for success. The Plan will help ensure that Auckland can meet its economic and housing needs and help its centres meet their real potential, while protecting and enhancing what Aucklanders treasure most. It will help determine what can be built and where, how to create a higher-quality and more compact Auckland, how to provide for rural activities, and how to maintain the marine environment. The Plan is working through a strong quality assurance process with the Independent Hearings Panel to make sure it gets that difficult balance right of supporting growth whilst ensuring quality growth. 

The Unitary Plan replaces the existing Regional Policy Statement and 13 district and regional plans, and is the next step in bringing Auckland together and delivering the vision of the Auckland Plan

We need to economise on the massive amount of urban land we already have, and use it to its best effect. Auckland needs to treat its land like gold dust, and a little needs to go a long way. As well as making the size of the city bigger, there needs to be more townhouses, low-level apartments, and high-rise apartments where demand is highest (especially in the inner suburbs). This will provide more choice for people who want to buy lower-priced homes, and will benefit current owners by realising higher land prices now. Increasing the volume of well-designed lower-priced homes can reduce the median house price without necessarily reducing house prices for current owners.

Becoming an urban city

We know that Auckland will continue to see strong growth, but with the right planning and innovative solutions we have a confident outlook for the future. Auckland can indeed be the world’s most liveable city and deliver Aucklanders great value for money. But to do this as well as ensuring that housing is affordable, the community needs to oversee the transition of Auckland from a suburban city to a high quality urban city.

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