KEY POINTS:
In her keynote speech to the Labour Party conference, Prime Minister Helen Clark advised her delegates and supporters that her Government had led on helping families buy their first home.
Her speech highlighted the Government's plan to introduce legislation to give local authorities the power to require either affordable housing as part of developments or a contribution towards it.
That is an approach that will further raise the cost of housing for many, for the benefit of a very few.
The two factors that hugely influence the cost of purchasing commercial and residential property are the cost of land and the cost of developing that land. They determine affordability.
There are several factors in the current housing market and the legacy of local government policy-making that contradict the Government's view of its performance on affordable housing.
The Commerce Select Committee's Inquiry into Housing Affordability was told that private home ownership is the lowest it has been in more than 20 years, while at the same time there has been a dramatic increase in the proportion of households spending more than 30 per cent of their income on housing.
A Ministry of Social Development report this year showed this figure rose from 11 per cent to 25 per cent of households between 1988 and 1997, while wage and salary levels continue to fail to keep pace with evolving house prices.
Former Housing Minister Chris Carter acknowledged home ownership in Auckland had declined from 74 per cent in 1986 to 64 per cent last year and is forecast to fall further. Between 2001 and last year the number of working households unable to afford a home in the lower-quartile house price range has grown by 239 per cent.
Clearly those figures are justification for a radical rethink of public policy. But it is unclear to the Property Council whether the Government has an appetite for tackling the real issues.
Land-price inflation is not a recent phenomenon. But in the Auckland region, where stringent planning controls serve to contain development, land-price inflation grows like a noxious weed.
At the end of 2002, the average section price in the Auckland region was $130,000. Between January 2002 and December 2006, that increased 96 per cent to $255,000.
Commercial property prices are eye-watering. The average price a hectare for industrial land in the Auckland region was $143,000 in 2004. By the end of last year that same hectare of industrial land probably sold for around $266,000 - a 43 per cent annual rate of increase.
Inevitably, containing land for development means the supply of all categories of zoned land in urban property markets decreases. But central government has given territorial and regional authorities the power to do just that.
As land has become scarcer, it has become more expensive. That in turn inhibits the ability of young New Zealanders and keen investors to buy property or create productivity-driven economic growth. The question is: when does the price of containing an urban economy become too high?
The other major issue is development contributions approved by the Government in 2002. Council after council has charged higher development contributions as an alternative to increasing rates for existing residents to meet the costs of council-deferred capital works.
Development contributions are justifiably applied by city and district councils to ensure developers contribute to the cost of building new assets or expanding existing assets to meet the needs of new communities.
But to use the charges as an alternative to gathering rates is demonstrably unlawful. This year a group of developers, who won a precedent-setting ruling in the High Court against North Shore City Council, proved this point. The council's 2004 development contributions policy was in error of law as it did not allocate the cost of capital works associated with the North Shore busway to the community of residents who would actually benefit from that busway, but passed them to future residents who didn't yet live in the city.
The High Court ruling blew a gaping hole in the North Shore council's 10-year plan and budget.
But the fact remains that the level of development contributions levied against new home owners, who pick up the tab for the council's compliance costs, inflates the final market price for new housing and adds years to the life of the average household mortgage.
Another example is Auckland City Council's policy change that in effect has driven up the development and reserve contributions payable on new apartments in Auckland City's central business district by around 500 per cent.
Such an increase makes a mockery of the call for inner-city living as an alternative to urban sprawl. This brings me back to the Prime Minister's call for affordable housing contributions. Having allowed the market to be distorted through the application of containment planning policies and runaway compliance costs, the Government is now proposing a law change to further distort the market by requiring a further contribution in the form of cheap housing.
If the Government wants 10 per cent of new housing to be designated as affordable housing, the cost of that output will have to be picked up by the other 90 per cent of new homeowners, who will experience further price increases.
And a 10 per cent target is just fiddling around the edges of the problem. In the Auckland region, the number of people who can no longer afford their own home is already 36 per cent and growing.
The Government can rightly be proud of the solid increase in average household incomes, but that's not enough. As the gap between house prices and household income continues to grow, it has become much harder for the typical Kiwi family to afford to buy their own home.
Further regulatory distortions won't fix the problem. Unless the Government moves to eliminate the current market distortions that inflate the cost of buying a first home, little will change.
No government can expect to address inflationary market distortions by imposing further regulatory distortions. Unless this point is recognised, commercial and residential property in New Zealand will continue to become more expensive.
* Connal Townsend is chief executive of the Property Council of New Zealand, which represents commercial, industrial, retail, property funds and multi unit residential property owners. Its members represent some of the largest commercial property portfolios in Auckland, Wellington, Christchurch and Tauranga, the value of which exceeds $20 billion.
