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Government moves to curb property price increases

27 Jun 2016

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By Mike Toepfer, Director, Aspiring Law

The Government is ramping up efforts to address soaring property prices, and, having focused on the “demand” side of the equation, is now moving to focus on “supply”.

Previously, most attempts to limit house price increases have focused on demand – for example, the Reserve Bank’s loan-to-value restrictions, which required buyers to have a larger deposit before buying a property. The powers that be now have their sights set on trying to increase the supply of land for housing, given the main factor in rising prices has been the land component rather than building costs.

The Government has blamed councils around the country for limiting the supply of land available for housing, and is moving toward taking more control. It has just released its national policy statement on urban development capacity, which is designed to put the onus on councils to ensure that the available land for housing and business keeps pace with growth.

Backing his case, Housing Minister Nick Smith says the median section price in Auckland rose from $100,000 in 1990 to today’s $450,000 – an increase of 350 percent. During the same period, building costs rose 78 percent, and the Consumer Price Index 71 percent.

In the past four years alone, he says, the average Auckland house price has increased from $450,000 to $800,000. While, in Central Otago, the average house price has risen from $400,000 to $675,000 in the same time.

The policy at a glance

The new policy requires councils to:

  • Provide sufficient land for new housing and business to match projected growth in their regional, city or district plans
  • Monitor and respond to housing affordability data, building resource consent statistics, and the value of land on the urban boundaries
  • Take into account the difference between planned and commercially-feasible development capacity, and provide for over supply to ensure competition (20 percent short-to-medium term, 15 percent long term)
  • Co-ordinate the infrastructure and ensure that consenting processes are customer focused

As well as ensuring a 20 percent over-supply of land in the short-to-medium term, reducing to a 15 percent surplus in the long term, councils must also consider the national significance of providing that supply – that is, thinking about what their decision will mean for the whole of New Zealand, rather than just the particular locality of the proposed development.

Councils will be expected to use specific measures, including average house price and home affordability data, in deciding when they need to step in and release more land. Councils will also need to look at predicted population growth to make sure there is enough space for new arrivals.

The Government intends to finalise the policy so that it becomes effective in October, in conjunction with changes to the Resource Management Act, which is being changed to add new, specific functions for councils to provide development capacity.

Problems with new policy?

While the national policy statement is one of a number of measures the Government is taking to solve the housing affordability issue, it lacks detail, and is forcing councils to make available more land without imposing any good urban development principles.

On the one hand, the policy requires councils to “take into account the difference between planned and commercially-feasible development capacity", and on the other hand local authorities are expected to “provide an over-supply of land to ensure competition”. Those two policies are contradictory.

Another potential problem is that, if large new tracts of land are developed for housing, someone will have to pay for the infrastructure to service the new subdivisions. The national policy statement doesn’t provide any financial support for councils to do that. Councils can’t pass on all of the costs of the infrastructure to developers, so they’ll have to find money from elsewhere to pay for their share of the costs.

Enforcement

If councils don’t comply with the policy, under the RMA the Environment Minister can force a council to change its plans so they fit with the national policy statement. Also, anyone (e.g. a developer) who feels a council is not following governmental policy can take the council to the Environment Court, where the national statement will override any other policies or rules.

The new policy is not done and dusted yet, however – if you’d like to have your say, submissions are open until Friday, July 15.

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