Housing affordability — it can be fixed!

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One of the recent, big public issues has centred around housing affordability, with nearly everyone jumping on the bandwagon and suggesting how it can be fixed.
For certain, Kiwis have aspired, and probably always will aspire, to own their own home — their own “quarter acre section of paradise”. And that’s entirely how it should be.

Unfortunately, the lift in house prices over the past five or so years has put the average home out of the reach of the average Kiwi family, which is not good.
For some time the Registered Master Builders Federation has communicated with the Government over housing affordability issues and, therefore, we welcomed the announcement from the Commerce Select Committee that it was going to hold a Housing Affordability Inquiry.

The construction industry, and New Zealand as a whole, benefits from having an affordable housing sector, and we believe there are a number of measures that can be taken to improve housing affordability.

The main points we made in our submission to the Inquiry are noted below. Our research, within New Zealand and offshore, validates that the key drivers of the housing affordability issue have been, in order of priority:

• rises in land cost,
• rises in local authority infrastructure levies and fees,

• increasing compliance costs, and
• increased labour and material costs.

This analysis is shown in the graphs at right.
And as the prices of new homes have risen, so have the prices of existing homes — because that’s how the market works!

If these are the cost drivers behind house price increases, then what are the things that need to be done to fix them and make houses more affordable again?
First, the biggest factor affecting land cost is supply, and central and local government need to consider what measures can and should be taken to free up land availability, particularly in the main centres.

Second, the biggest percentage increase in cost has been burgeoning increases in local authority infrastructure levies and fees. These should be better assessed and monitored to ensure they are fair and reasonable — rather than the laissez faire approach that applies currently.

The construction industry can and should pay for those extra infrastructure costs that it imposes, but it’s not fair that new home owners pay inflated infrastructure levies to subsidise existing home owners who otherwise have lower rates to pay.
And third, the next largest significant increase has been in the area of compliance costs. 

Some of these costs are reasonable as the industry lifts overall quality levels since the leaky building saga, but some are unreasonable, and steps should be taken to reduce them, particularly:
• consent process delays (consent, inspections and code compliance certificates),
• consenting uncertainty and variability, and
• producer statement uncertainty and variability.

There have been increases in labour and material costs but, in our view, both of these are subject to strong competitive pressures across the industry and across the economy as a whole. We are generally comfortable with where these costs sit in perspective against the other cost drivers noted above.

The final point we made in our submission to the Inquiry is that similar housing affordability issues apply in other countries, and New Zealand should take heed from the remedial measures being proposed in those countries to adopt what is applicable here.

In nearly all the cases we researched, the three factors we have highlighted — land prices, infrastructure levies and compliance costs — are at the top of the list of things to fix. And so it should be in New Zealand, too.

The problem won’t be fixed overnight, but it can be tackled, and we strongly encourage the Government to do so.

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