Bernard Hickey: Locked out of land

Have the young and the poor been shut out of buying homes in Auckland? Photo / Herald on Sunday

Auckland's land price explosion in the past decade is a scandal and a disaster for New Zealand's economy and for a group of people who have effectively been locked out of the dream of home ownership in New Zealand's biggest city.

There is no one villain and no single policy that created this scandal, but it is a scandal.

Auckland section prices tripled to around $302,000 between mid-2000 and mid-2007, Real Estate Institute figures show. This boom created the biggest shift in wealth in the history of New Zealand and is largely an untold story.

Most people believe there were genuinely good and unfixable reasons for this explosion, but this boom was entirely avoidable and can be reversed.

The first myth is there is only a limited supply of land in Auckland and the surge in immigration after September 2001 meant it was inevitable land prices would rise.

Auckland actually has plenty of land available within its urban limits and on its fringes. The problem is the enforcement of the Metropolitan Urban Limit (MUL). The inability of regional and city councils to free up land for housing has allowed an explosion in values.

The further the boom went on, the more entrenched the restrictions became. Now Auckland's local political system and the main players in power are locked into an unholy alliance between the left and the right.

The left is determined to preserve heritage and to avoid "sprawl". The right is allied with the interests of property developers, many of whom are sitting on profitable land banks, and residents in the leafy suburbs who depend on limited supply for their land wealth.

These forces of conservatism have essentially locked in that transfer of wealth between the landed and the landless.

That means the young and poor are locked out of owning their own home in the suburbs with a bit of a backyard for their kids.

Research by economist Arthur Grimes from Motu shows land just inside the MUL is often 10 times more expensive than the land just across the border.

Restrictions on the types of development and the drive to avoid "sprawl" has, in effect, artificially restricted supply. This became entrenched after a review of Auckland's urban development in 1999.

Once the property boom kicked in, a whole bunch of new incentives reinforced the trend to restrict supply. Developers with land banks started managing for capital gain rather than making cash gains from developing properties.

The advent of complicated, costly and lengthy processes for building consents worsened the problem.

Property owners then realised any attempts to free up supply around them would reduce the value of their own land, or at least stop it from growing, which was the main aim. This created the perverse incentive to stop development of land for residential use.

The end result is a system frozen by the forces of conservatism. This is a cozy alignment of those with land who govern Auckland for other landowners, particularly in areas where they live.

This has meant the few areas of land development within the MUL have been closest to areas of poverty and furthest from the city centre. Much of the development has not happened around transport corridors and hubs, making a mockery of the idea of "smart development".

Moves are afoot to push Auckland to open up its land, but they will have to be moves from central government. Until then, Auckland's landless poor and young will remain locked out of home ownership and the cost to the nation will remain high.

It may also help block the immigration necessary over the next 20 years to help us solve the demographic and fiscal problems of retiring baby boomers.

bernard.hickey@interest.co.nz