How much should an affordable home cost in NZ? Video / OneRoof
COMMENT
Auckland's housing affordability has improved 26 per cent since its worst point in mid-2015 but, with home ownership still out of reach for many, we need to look at what drives affordability in other cities around the world to help Aucklanders fulfil their dream of owning their own home.
Land supply and deregulation are often touted as the solution to housing affordability. While this is part of the puzzle, fixation on one factor fails to provide a full understanding of why Auckland's housing market has remained unaffordable for many.
At a headline level, what causes house prices to rise is simple: not enough houses being built to meet demand for resident and in some cases non-resident demand. But investigate the detail and understanding why not enough houses are being built is more complex but much more pertinent.
We have analysed a broad list of factors that influence housing affordability across nine cities, with the aim of better understanding why different housing markets have such different house price outcomes.
The reasons for housing shortages stem from demand factors such as incomes and unemployment rates, tax and ownership regimes; and supply factors such as industry structure, labour laws and construction wages, materials costs, regulation, and geography.
Auckland's housing market has benefited from a number of regulatory and structural changes that have helped moderate growth. These include: Auckland's Unitary Plan and its zoning rule changes, a foreign buyer ban, tighter loan-to-value ratios (LVRs), tougher exchange controls in China, a surge in industry capacity in New Zealand, and ongoing economic strength in Auckland with income growth and low unemployment.
Latest growth and housing data shows Auckland's housing supply is catching up with its shortfall.
Auckland Council estimates about 14,000 dwelling consents are needed each year to keep up with mcurrent growth. A record 14,634 dwellings were consented in the year to September 2019; on this estimate, the city has been chipping away at its total housing shortfall for the past four months.
Some factors influencing our housing affordability cannot be changed, such as geography. Similar to San Francisco and Vancouver, Auckland is restricted by its coastal geography. Its flood plains and volcanic rock also limit its development and drive up infrastructure costs.
Other factors associated with affordability are undesirable: these include declining populations, higher unemployment and lower incomes.
In Pittsburgh and Detroit, both considered very affordable cities, populations have declined dramatically over recent decades, lowering housing demand. Furthermore, when incomes rise and unemployment falls, demand for housing increases.
Most cities in our study have seen their unemployment rate fall over the last decade, but Auckland has one of the lowest unemployment rates (currently just over 4 per cent), compared with Brisbane (6 per cent) and other more affordable cities.
Policy and regulation can also affect affordability. One example highlighted is Brisbane's policy to reimburse some or all costs for infrastructure and fees for affordable housing, stimulating that part of the market.
Tax policies, such as a capital gains tax on investment properties, also moderate affordability and are used in Australia, the United Kingdom, and the United States.
Against the backdrop of continued growth, Auckland has managed to achieve greater affordability in the past few years through a mix of policies and structural changes, and after comparing other cities, we know there are several differences that give us serious food for thought.
David Norman. Photo / supplied
And while Auckland Council is not in the business of building houses, we are currently researching what role our regulatory framework plays in house price outcomes, the findings of which will be published in the New Year.
Housing remains unaffordable for many Aucklanders, and although we can't change our geography, we are making progress on things we can influence. As we continue to tackle this challenge, it's going to take more of the holistic, open-minded approach to get the job done.
