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Zoning rules see NZ among least affordable places to buy a home

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  • Zoning rules see NZ among least affordable places to buy a home

    Zoning rules see NZ among least affordable places to buy a home

    Chris Hutching | Monday January 25 2010 - 01:25pm
    New Zealand cities remain among the least affordable in the world – and the culprit is mainly due to “green belt” policies by local authorities.
    New Zealand ranks just behind Australia as one of the two most unaffordable countries among those measured by the sixth Annual Demographia International Housing Affordability Survey covering 272 urban markets in Australia, Canada, Ireland, New Zealand, the UK and the US.
    The study uses annual household income as a measure.
    The authors, Christchurch-based Hugh Pavletich and US-based Wendell Cox, classify homes as affordable where households spend about three times their annual income to purchase a house with a mortgage not exceeding approximately 2.5 times their annual household income.
    Moderately unaffordable homes are classed as four times and under; seriously unaffordable five times and under; and severely unaffordable 5.1 times and above.
    On this measure, New Zealand has no affordable cities. On an overall national basis, New Zealand’s median multiple is 5.7 times (compared with about 3 in the early 1990s), while Australia is tops at 6.8 times and the UK 5.1 while the US is 2.9 overall.
    At a city level, Tauranga is the most severely unaffordable market in New Zealand at 6.8 times (the highest international score is taken by Vancouver at 9.3 times followed by Sydney at 9.1 times).
    Second in New Zealand is Auckland at 6.7 followed by Christchurch at 6.1, Wellington 5.8 and Dunedin 5.6.
    The preface to this year’s Demographia Survey has been contributed by Dr Tony Recsei, president of the New South Wales, Australia, community organisation, Save Our Suburbs.
    He is an environmental consultant, who debunks many of the “environmental myths” associated with urban housing markets – that higher density housing reduces pollution, is more efficient, and saves energy.
    Dr Recsei says that national and local government policies are consigning a new generation of citizens to renting homes for their lifetimes.
    • The issue will be further explored in this week’s print edition of The National Business Review, which will look at which councils are developing green belt policies that exacerbate the problem.
    "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx

  • #2
    What a surprise, yet another article about affordability. Will they ever drop it. Houses are expensive and getting more expensive. Welcome to your future.
    Wait till our dollar eventually falls back further :-)


    • #3
      Pavletich and Cox have done some very interesting research on how Zoning rules create artificially high pricing of land and how this has compounded indeed created a blowout of land prices leading to increased inaffordability.
      They are especially scathing of those Cities which practice "Smart Growth" urban planning policies.
      Auckland suffers bigtime from this issue.
      They have also pointed out that whilst ALL of the USA had the sub prime problem, there were only 7 or 8 States which suffered massive falls in value. The common denominator for those States was "Smart Growth"


      • #4
        Originally posted by [email protected] View Post
        What a surprise, yet another article about affordability. Will they ever drop it. Houses are expensive and getting more expensive. Welcome to your future.
        Wait till our dollar eventually falls back further :-)
        Any reasoning why you suspect NZ housing affordability to deteriorate further?

        Logic dictates that there comes a point where you cant stretch the rubber-band ( the publics ability to pay rents and loans) any further. This is why the other property cycle factors also take hold and equilibrium occurs.


        • #5
          From my blog

          Consider the following:-
          • The median section cost in 1992 was $71,000 and reached a high median of $480,000 range (there were months where distortions took the median price as high as $750,000 but I choose to ignore those months).
          • Section prices went up a staggering 676% at their peak.
          • Today with median section value at $322,000 that represents an increase of 453% since 1992.
          • Houses by comparison rose some 330% ($160,000 to $528,000).
          • What that means is that somewhere between $250,000 and $400,000 of the increased cost of homes is due to land increases (only $118,000 or thereabouts, is due to increased cost of materials and labour).
          • Even if the use of medians distorts the exact position, the picture represents what is happening is accurate.
          • In 1992 the introduction of GST caused median household incomes to drop to $32,800
          • Household income (before tax) has doubled, houses (after tax) more than trebled.

          How does this situation come about? The new biggies in the mix are taxes and levies.
          • The median sale price of a home (new) is $528,000 of which $58,700 is GST.
          • To develop a section you will pay the council somewhere between $20-90,000 in levy fees ,contributions and environmental compliance costs.
          • Holding costs accrued from delays due to the inefficient resource management act add significantly to the increase.
          • The monthly cost on a $100,000 mortgage to pay all these taxes is $640 and will use the first $10, 900 of the average household income of $67,800.
          • It is an outrage committed by stealth upon the public generally.

          The major cause for the rise is the subtle change in the way councils have sought to fund infrastructure. In the past infrastructure costs associated with growth had typically been funded by the government through public service debt. The debt servicing was through community wide taxes (rates).
          The current approach has been to abuse the user pays philosophy and tax the new homes via levies to fund the infrastructure.
          In Sydney Australia a new home will incur infrastructure charges of $68,000 compared to an actual cost estimate of $1750 – the difference of some $66,000 is used to cover a range of infrastructure that benefits the broader community including libraries, new roading, public pools and transport. These levies may or may not be spent in the neighbourhood that was taxed. I.e.: new home buyers are subsidising the replacement and upkeep costs of infrastructure that they may not even benefit from. This is effectively happening here today in NZ.
          The councils also continue to levy the community at large (rates) and seem to be able to avoid being held to account. I see no likelihood that this situation will reverse.
          A further contributor to the cost increase of land is relative scarcity. In one of the worlds least densely populated lands we have a scarcity of sections – not a shortage of suitable land. Increasingly development of land has been restricted by various forms of government, essentially to reduce their contingent infrastructure costs.
          Major components in the increased costs are as a result of land rationing, excessive amenity requirements, excessively expensive infrastructure fees and approval processes and a general increase in inflation – Are these factors reversible? I doubt it!
          2. We have heard calls for the removal of negative gearing taxation benefits for rental properties as an aid to increasing affordability. The same calls were heard in Australia and in 2006 Earnest & Young prepared a comprehensive report submitted to the Henry-Warburton enquiry in 2006. The report identified the following…
          • The majority of Australians taking advantage of negative gearing was in the $40-80,000 pa. tax bracket.
          • Negative gearing encouraged private investment in rental housing, without which rental yields would be prohibitively low and cause investors to quit the market.
          • Negative gearing helped place a lid on rental pressure by increasing the stock of rental housing and taking pressure off rents.
          • Removal of negative gearing as occurred under the Hawke-Keating government in the 1990’s would immediately lead to an exodus of investment in rental housing causing rental shortage and rapid rise in rents (the Hawke-Keating government rapidly reversed their decision).
          • Removal of negative gearing in today’s climate, especially given greater land shortages and higher development costs would have a dramatic impact on the rental housing market.
          • I am confident the above would be broadly similar and apply in New Zealand.

          I conclude from the above that the taxation benefits of rental property ownership will remain and that we will not again see home ownership levels in the 80-90% range. Currently hovering around 63-64% in Auckland.
          Home ownership will become the province of those with above average wealth, or those with parents who can help. Dependency on rental housing will increase and future generations of Kiwi’s will not be able to aspire to own a home of their own and will suffer from rising rental costs.
          I have yet to see Tax/Levy reductions and have no belief that they will come about. Conversely, there is no lack of example of increases – often indirectly. The local and national governments will not relax land supply and neither will the cost of raw land or development cost of that land fall.
          There will never be a better time to buy property than today and it was always so. It makes no difference whether you are buying investments for your future needs or homes for the kids or even just to move, this is a great time to do it and you can move with confidence. If you think it is difficult today, I am sure it will be more so tomorrow.


          • #6
            I agree Dean, unless marshall law is imposed in the US- then we have a totally new ball game, including confiscations, ultra high interest rates, mortgagee sales etc
            What has happened to property owners in Zimbabwe ?


            • #7
              I fail to see how this casues housing prices to continue to spiral out of proportion.

              My interpretation from a portion of Kieran's book.

              What is Affordability? It is the measure of how affordable it is to own a property.

              What factors influence Affordability? Several factors do, such as interest rates, income levels, house prices, finance availability and rental levels. These in turn all directly limit a buyers ability to borrow.

              I note within his book he also shows a graph from infometrics on affordability from about 1990. The graph does show affordability to have peaks and troughs which coincide with a property cycle.

              So looks like we have 2 theories.
              -Dean: who says affordability will get worse and "If you think it is difficult today, I am sure it will be more so tomorrow."

              -Property cycle: which looking at history has shown affordability to get better during a slump.


              • #8
                Not at all Whitt. Of course affordability improves during a slump but my point is simply that generally housing is outstripping wage growth and that is unlikely to stop ever IMHO


                • #9
                  Income levels are only one factor in the affordability indexes though.

                  The following report supports this point.

                  Even though Income levels as suggested may be moving out of proportion to housing growth levels. The affordability index appears to have been getting better over the last year or so.

                  Going by the report it is currently ( last year or so) getting more affordable/ easier to buy rather than difficult.


                  • #10
                    Originally posted by [email protected] View Post
                    Not at all Whitt. Of course affordability improves during a slump but my point is simply that generally housing is outstripping wage growth and that is unlikely to stop ever IMHO
                    So you see a steady return to a situation where a (relatively) few landlords own the real estate with the serfs renting from them - what level of home ownership do you think this will settle at if left to it's own devices, and at what level do you think that the government will feel obliged to intervene?


                    • #11
                      Well I see Olly quoted as saying home ownership will drop to 40% which I don't think is unreasonable. Renting has gone from 32% to 43% since 1992 and it is a fairly consistent trend increase so no reason why it wouldn't continue.....


                      • #12
                        Sadly Cube I do think the gap between rich and poor will expand. Sounds a bit conspiracy theory but in reality it is already just about impossible for single income earners to own anywhere except in a slum and because of our exposure to the global economy and our dollar I think we'll increasingly become generational renters, just like we increasingly are generational winz handout devotees.


                        • #13
                          Dean said
                          Renting has gone from 32% to 43% since 1992
                          Therefore this means that 57% of NZers own their homes.
                          I thought the figure was closer to 63-66%?
                          Last edited by muppet; 26-01-2010, 02:05 PM.
                          "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx


                          • #14
                            I downloaded the stats from Stats NZ. IT gives numbers every quarter from 1991.