Monday, November 19, 2012

And for every first-home buyer, a pony [updated]

Undaunted by the fact that with land and building regulations as they are it is now impossible to produce house and land packages for less than $300,000, this month’s Labour leader announced over the weekend his intention for the government to “invest” $1.5 billion producing 100,000 house and land packages under $300,000—two-thirds of those in Auckland.

This programme will eventually be self-financed by selling something called Home Ownership Bonds, says the nice Mr Shearer, with interest paid out of the returns made by on-selling these house and and land packages.

But if they are selling bonds they are clearly going to be of the perpetual variety, since it’s clear the principal will never be repaid out of the scheme itself. Indeed, it’s hard enough to see where the returns will come from to pay the interest on those bonds? Because if it were possible to produce house and land packages for less than $300,000, which is what is necessary to make the returns they’re dreaming about, then everyone would already be doing it.  And they’re not.

They can’t.

That’s why affordable housing is not being produced.

Which means these Home Ownership Bonds are just a fancy subterfuge to conceal that in the end the taxpayer will be picking up the tab for this “investment.”

And where will those 100,000 cheap sections come from to put those houses on?  If that many sections were at that price, they’d already have been snapped up and hosting affordable houses already. They haven’t been because they don’t exist. They don’t exist because the planners have shut down the market.

The fact that house and land packages for less than $300,000 are not being produced by the market is not because of some “market failure”; it’s because between the Department of Building and Housing’s gold-plated building regulations and the Resource Management Act’s planning restrictions on land have put the costs of producing house and land packages beyond the reach of the lower end of the market—neither of which Labour’s leaders intend to touch. 

And because the Reserve Bank continues to authorise the expansion of the money supply in the form of bank credit into the accounts of house buyers—which Labour’s leaders propose to encourage via even more inflationary bubble-making—we can only expect the demand-side of this explosive equation to keep rising.

So this amounts to a $1.5 billion promise to give potential Labour voters a pony.  Paid for by you and I.

And, when combined with their companion proposal to impose a Capital Gains Tax on New Zealanders—an envy tax on “the rich,” they insist, that in reality will be felt by everyone—a tax that in every country in which it had been imposed has failed to do anything to limit housing bubbles—it amounts to a plan to get existing home-owners and taxpayers to pay for the slums of tomorrow. Like the modern-day equivalents of those vast swathes of slum housing thrown up in Mangere, Otara and elsewhere in the seventies by similarly expansive borrowing—except that this time the slums will be designed by committee to be “sustainable.”

Yeah, right.

The nice Mr Shearer isn’t stupid, however. He reckons he has an answer to some of these obvious problems.  He has spoken to Auckland Mayor Len Brown already, he says, to take up his offer of a partnership with Auckland council to make land available.

But if Len Brown’s planners can magically make 66,666 cheap sections available to help Labour’s election chances, then why couldn’t it make cheap sections available for you and I to build our own affordable homes?

And if Mr Shearer thinks it’s appropriate to allow his 100,000 houses to be “fast-tracked” through the regulatory process, then why can’t houses and projects built by you and I?

In short and in summary, if cheap sections and “fast-tracking” were already available to everyone, then the problem of affordable housing would not be with us.  So let’s start with that now, and forget about buying everyone a pony.

UPDATE: Hugh Pavletich from Demographia and Performance Urban Planning comments:

SHEARERS “MULDOONIST” APPROACH WONT WORK

It is remarkable that, after 8 years of public conversation on these issues, since the time of the release of the first Annual Demographia International Housing Affordability Survey back in early 2005, that this is the best the Labour Party can come up with.

Particularly, when one considers that it was the last Labour Government’s irresponsible management that allowed the housing bubble to erupt between 2002 through 2007.

This Quick Facts graph of the Christchurch City Council on the Our Purposes page of Cantabrians Unite is representative for the whole country over this period ...

image

After the bubble topped in 2007, Labour deservedly lost the 2008 election (for this reason and others) and the residential construction industry has been in decline ever since,

And since then, while new affordable housing is being provided on the fringes of the affordable United States housing markets for about $US600 per square metre all up – here in New Zealand it is now about $NZ2,500 per square metre all up....and often well beyond that.

I explained this very clearly early 2010, with respect to Christchurch ( 6 months prior to the first earthquakes September 2010 ) in my article HOUSTON: WE HAVE A HOUSING AFFORDABILITY PROBLEM ...

David Shearers speech today is telling us that sadly, the Labour Party has not learnt a thing.

It is an embarrassment.

David Shearer is talking rubbish about housing.

PROBLEMS AND SOLUTIONS WELL KNOWN

Because David Shearer has been a failure as a leader, he reverted in his speech to the tiresome ideological approach, in talking of “market failure”—when the only failure here is regulation stifling market activity.

It is simply a process of “following the numbers” to ascertain where the problems and solutions are.

Raw rural land costs in New Zealand are generally in the order of $10,000 through $40,000 per hectare. Horticultural land considerably more.  This is the sort of land on the outskirts of our major cities.

Mr Shearer deliberately avoided explaining why Councils are strangling land supply with planning “ring fences,” so that raw land costs, for example, are artificially ramped up to near $500,000 per hectare on the fringes of Rolleston, to $1 million on the fringes of Christchurch, to $1.25 through $1.50 million for raw land on the fringes of Auckland.

Mr Shearer deliberately avoided explaining why Local Government costs have got so badly out of control these past 10 years or so. And why councils are inappropriately financing infrastructure by imposing Development Levies of $20,000 through $70,000 per section – which are nothing more than “revenue milking” exercises whose value in the end comes out of home-buyers’ pockets.

This explains why fringe sections are $200,000 and much more, when they should be $50,000 and less, as Dale Smith, Affordable Land Convenor of Cantabrians Unite explained with ACHIEVING $50,000 SECTIONS ...

Cantabrians Unite set out the solutions with respect to Christchurch with CHRISTCHURCH: THE WAY FORWARD (note Section 4 – Affordable Land)...

These cost explosions are hardly “market failures”—they are instead serious systemic problems at the local level, where councils have lost control of their costs and allowed planners control over property owners, as I explained last November within HOW HOUSING BUBBLES ARE TRIGGERED ...

(Much like the problems they are experiencing in Britain (a degenerate influence on our public service culture) as the UK Daily Mail reporters found when investigating a London Council with THE GREAT INERTIA SECTOR ...)

Shearer hasn’t got what it takes to be a leader [mind you, neither does the other David] and [after the weekend’s constitutional changes allowing unions more say in elections] Labour is even more under the control of the public sector unions that prop it up financially. The Golden Rule of Politics “Those with the gold make the rules.”

Shearer is “parroting” what his Party’s paymasters, the public sector Unions, are telling him to say.

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4 Comments:

Anonymous Barry said...

Even MORE govt and council interference with the free interaction between the buyers and sellers!

11/19/2012 02:03:00 pm  
Anonymous Anonymous said...

Obviously you don't understand. When you control everything you can do these things.

Meanwhile in the real world...

Paranormal

11/19/2012 05:07:00 pm  
Anonymous Anonymous said...

Your analysis of ramped-up land costs is correct. Despite endless comment on this the message seems to have no traction where it matters. What is missing is an analysis of actual building costs. Ask any builder and he will tell you how much Kiwis are being forced to pay for building materials. There is a comfortable duopoly that is happily scalping us. If he's been around a while the builder will tell you how the cost of building used to be about 50 % materials, 50% labour. Now that ratio is closer to 75/25. And in Australia....?
Aren't there regulations/laws to deal with this?

11/20/2012 09:42:00 am  
Blogger Peter Cresswell said...

@Anonymous, 9:42: Yes, you're absolutely right. CHH and Fletchers would do enormously well out of this, at the expense of virtually everybody else.

11/20/2012 10:06:00 am  

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