Solutions for the housing crisis

TOO BIG?: Are we building our houses too big, particularly in our main centres where land is at a premium?
TOO BIG?: Are we building our houses too big, particularly in our main centres where land is at a premium?

When National launched its election campaign to the country last weekend, the main feature was a housing promise to first-home buyers. And Labour has since followed up with its take on a solution for the housing crisis.

Opening up a new wave of debate over the ongoing challenge facing the country, particularly in our major centres, over how first-home buyers can get into the property market, most feedback has been that what's on offer is just not going to be enough.

So we asked four individuals what they think the next government needs to do.     


For Alistair Helm, a property commentator who runs his own website Properazzi, the problem is that developers are building homes that are too big. He sees a clear disconnect between the type of affordable housing stock needed by buyers and the current supply of homes being built - Helm is sure that this is the root of many of our problems. 

''The fact is that the vast majority of new homes being offered and built around the country by developers are four-bedroom homes. These properties are then priced to match the local market of existing four bedroom homes - which are naturally at a premium to a two or three bedroom home.''

So why don't developers build smaller homes? Helm says it comes down to practicality in that the land usage for a four bedroom home is no larger than a two bedroom home when you are building individual free-standing detached homes. And the build cost of the base property for a two bedroom home is not significantly cheaper than for a four bedroom home.

''Put it another way - a developer gains a significantly higher sale price for adding two extra bedrooms for not a significantly higher cost,'' he says.

Helm says the fundamental question should be, ''why do we need four bedroom homes''? With the average household size around 2.5, too often bedroom Noth4 becomes a store room - a ''waste of space''.

One solution he suggests is higher density living, where instead of free-standing detached homes is semi-detached or terrace housing, or townhouses. Helm argues that this form of structure starts to offer a far more efficient use of land and cost of construction. But to achieve this, there is greater need for the government to get involved.

''The government has to undertake home building in the form of social housing, which delivers the type of property that would meet the needs of these first time buyers, and those for whom the Welcome Home Loans were designed,'' he argues.

''These social housing projects could supply the future state houses of the 1950s, but could also, through a state-owned enterprise, develop housing which could be commercially focused.

''By being sold with a freehold title to target buyers at market rates, it will drive the market with product that meets the requirements of smaller sized homes.''


Intergenerational inequity is where our main challenge lies, says Shamubeel Eaqub, principal economist for NZIER. Many young people cannot buy a home and it is ''rubbing against'' New Zealand's culture and social norms, Eaqub says. He feels the answer may not be so straightforward. 

''Policy makers face a dilemma. They do not want to create significant wealth loss for current home owners, but they want affordable housing for new entrants. You can't achieve both.''

While there might be a way for these conflicting issues to meet in the middle, there won't be one magic bullet. Complex and requiring multiple solutions, the housing problem will challenge the next government to set a few things in motion.

''The long term solutions to improve affordability have three main points: easing land supply, allowing more density and height of our cities - where people want to live. And this is not necessarily about planners,'' he says.

''The Auckland Unitary Plan process shows that planners wanted to allow greater choice on greenfields, brownfields, height and density - but these were significantly scaled back by nimbys (''not in my back yard'' opponents).

''The government will need to address banking system settings that favour lending to houses over other types of investment, and thirdly, clarification is required on rules around taxes on property bought as an investment,'' he says. 

Eaqub points out that these policies will take time to work, so for many New Zealanders, renting will be reality. Home ownership rates have been falling since 1991 and are now at the lowest level since 1951, and while work is going on to resolve those long term issues, the Government could make renting a much more palatable option by improving rental rules.

''New Zealand has some of the most restrictive rental policies; short tenure, limited ability to personalise, etc. But there are great examples of rental arrangements in our own commercial property sector, and in countries like Germany and Switzerland, where rental arrangements are better for both landlords and renters.

''The crucial point is that renting can be long term and still have many of the other benefits of ownership, like connection to the community and a stable environment for families.''


When it comes to the ''housing crisis'', Andrew King, from the New Zealand Property Investors Federation, argues that there is actually no evidence of there being one.

King says the Massey University home affordability index is much lower now than it was in 2007, and adds that when mortgage costs are included in the equation, it costs about the same per centage of income to buy a house now as it has done over the last 30 years. He notes that while prices in Auckland and Christchurch have risen, other regions have had flat property prices for many years, but obviously Christchurch has extreme reasons for price rises and Auckland is reacting  to a situation of low supply, high immigration, a good local economy and low interest rates.

However this does not mean that New Zealand house prices couldn't be more affordable than they are and King thinks there are four fundamental factors that need to change in order to get structurally lower house prices.

''My first thought is that the reserve contributions charged by many councils throughout the country needs to be lowered. These can easily add $50,000 to the cost of a new build before any construction begins and in Auckland it is going to cost $12,000 just to connect a home to the water supply at the gate.

 ''Secondly, the high cost of building materials needs to be reduced.

''Then there is finding the right balance of increasing existing density and expanding urban limits - this should be based on what people actually want.

''And lastly, managing people's expectations. The size of our homes has grown from around 120 square metres in the 70's to nearly 200 today. If we want big houses we need to be prepared to pay more for them.'' 

For King, tackling councils would be the first step to a solution for the next government. This has already started in Auckland, with a consensus on how much to go up and how much to go out, but he says there needs to be a compromise on council fees and there has to be a better balance between who pays for infrastructure. But this won't be easy, as the money needs to come from somewhere.

''However there should be a balance between new and existing home owners paying for it. Currently new home owners pay for it all, and this is having a significant effect on the cost of housing.''


For Kevin Johnston of Papamoa, the biggest struggle when it came to buying a home was finding an affordable house that met all of his needs, and in an area that he was happy to settle down in with his partner.

This ended up having to be somewhere outside of Auckland and they are both OK about making that compromise, but he says there is more the government could do to make buying a home easier.

''I think the biggest challenge that the next government faces is around protecting New Zealander's interests when it comes to the property market and this needs to involve making housing affordable.''

And how can that be done? Johnston feels that it is basic economics - demand and supply - which is driving prices up, and it is foreign ownership that is the main cause of that, making owning a house difficult for kiwis.

So restricting access from international buyers is something that those in power need to prioritise, and soon is his answer.