REINZ January figures showing the national median house price rose almost 20 percent in the last year are yet another sign of spiralling house prices. Working with businesses including the public sector and construction to improve performance, Michael Worth, partner at Grant Thornton says making housing affordable for everyday Kiwis will take a mindset change.
OPINION: New Zealand needs more houses. Yet despite the simplicity of that goal, it's been impossible to keep up with demand.
Governments have tried to affect demand by tinkering with loan-to-value restrictions and the Official Cash Rate. But the real issues are supply - and the Kiwi mindset.
Auckland Unitary Plan changes are freeing up land to support building more houses. Supply is slowly increasing. That will take some pressure off the housing shortage. But it's not enough.
Yes, we need to build more houses faster. But we also need to change our thinking.
We need a bold vision and aligned incentives with different industries working together to build more houses. That can't happen if we're held back by antiquated, short-term thinking. Our mindsets are hampering us, creating unnecessary problems in what should be the best country in the world to live.
In her first post-Cabinet press conference this year, Prime Minister Jacinda Ardern wanted to know if there were any silver bullets to fix this crisis. Here are four big ideas.
The 'not in my backyard' mindset
A hefty chunk of the New Zealand population owns houses and likes the way the values keep going up. Not everyone who owns a house feels this way, but many do. These homeowners represent an enormous voting bloc, plus they have the knowledge and resources to put up a real fight when they feel aggrieved. This creates considerable political inertia.
This inertia puts the handbrake on efforts to build faster, cheaper homes across the country. Strong objections emerge to any new developments in 'our' area. There's bias towards construction of one-off homes that 'fit in' with the 'character' of 'our' suburb. This comes from a motivation to protect current wealth and lifestyle.
New subdivision of prefab homes? Urgh! Not in my backyard.
This mindset is a considerable problem, because the way we build now is too large, too slow and too bespoke. We need faster and more cost-effective building techniques. That means using the full range of prefabrication types to their fullest capacity. This would allow us to build houses in factories, in any weather, then assemble them on site.
There are solutions for metro areas and solutions for the regions. Older Kiwis know all about prefabs: their mindset is coloured by visions of old post-war prefabs or boxy school classrooms. Modern prefabs are brilliant and would outperform our existing homes in terms of warmth, comfort and ease of construction. They can look fantastic too.
Logically, it's insane that a single draughty villa on a full section is somehow noble and desirable, while a warm, dry, affordable modern home with a low-maintenance garden is an abomination because it looks too much like the house next door.
There's no reason we can't do this in New Zealand. We have the basic materials, with a flourishing timber industry and world-leading lightweight steel technology. With a little training and investment, we could have the people power too - especially as we now have considerable capacity in our tertiary institutions with the flow of foreign students down to a trickle.
I believe we could produce tens of thousands of houses a year. We know the demand is there for these to be snapped up by individual buyers, community housing providers, cooperatives, iwi organisations, Kāinga Ora and private developers.
The 'Government debt is crippling our future' mindset
Public mindset on national debt makes it difficult for the Government to do what's needed. Every time the Government 'borrows', there's indignant assertions that we're mortgaging our future and leaving behind a pile of debt that will cripple future generations.
We think about New Zealand's finances in the same way we think about our personal finances: debt is bad, it must be eliminated as quickly as possible and it's better to cut back on spending than to keep borrowing. When it comes to household spending, all that is perfectly true - fewer takeaways, cancel Netflix.
But cutting back on Government spending means putting less money into essential public services and less investment in New Zealand's future. Those in charge have to think about how it looks to the public if they want to fund more money to fix a problem like the housing crisis.
The Government's 'deficit' is the private sector's surplus. If the Government were to fund construction of hundreds of thousands of houses, what's the benefit?
First, the investment we make in the housing market will increase the health and wellbeing of huge numbers of Kiwis - a massive payoff.
Second, when we invest in having a better standard of affordable living, Kiwis don't need to spend their time worrying about where they're going to live. Instead, they can think about getting promoted at work, starting a business and having a family. All these factors improve New Zealand's productivity - the main driver of increasing wealth in a society.
The 'rates must not rise' and 'the infrastructure is broken' mindset
'Rates are too high'! It's hard to find homeowners who disagree with this statement. Councillors campaign by promising not to raise rates. Homeowners are unanimous in believing that rates are extortionate, yet criticise the council when there's sewage in the streets and E coli on the beaches.
Put simply, rates should be higher and we need to change our thinking on this.
A typical Auckland homeowner might have paid $3000 in rates during 2020 on a home that increased in value by $150,000 during the same period. There's people with homes that cost them $12,500 back in the dark ages that are now worth $10 million who are particularly unhappy with the idea of higher rates. They're also unhappy with the idea of a capital gains tax, a wealth tax or an estate tax. Yet this increase in value is proportionate to proximity to services, amenities and neighbours.
Those who don't believe in carrying their share are a big part of the wealth distribution problem in New Zealand. They like the end of the see-saw they're sitting on, believing firmly that their success is due to good choices and hard work. They don't want to tilt it even a tiny bit in the other direction.
Rates are an excellent way to specifically target housing wealth and start to redistribute it. They are also a great way to fix the local/central government disconnect that the Germans and Swiss have solved. The more houses you own, the more your properties are worth, the more you pay. If house values drop when we build thousands of new houses, your rates drop. If you don't own a house, you don't pay rates.
Rate calculations could be adjusted to put more weight on the land portion rather than the 'improvements' (the house) of the council's rateable valuation (CV or RV). That could be a way to capture the highest rates from properties in the most expensive areas.
Higher rates can fund major infrastructure projects in your region, taking that burden off the Government. There's no reason that councils should be grappling with overflowing wastewater systems and contaminated drinking water. All the infrastructure needed for local developments is also the responsibility of councils - and they need more money to carry out that work. Tying rates to land values should help with that.
There's also no reason that the consent process should be so slow - why not retrain tourism workers to process consents? They can work remotely from anywhere in New Zealand. We can also train and employ more Kiwis to speed up the consent process. We know our tertiary institutes have capacity at the moment and I know they would like some more enrolments.
Collect more rates, deal with local problems locally, issue more consents faster and leave the central Government with more money and time to spend building houses at a national level.
The 'short-term' mindset
Most of us are focused on our immediate goals: deadlines, bills, to-do lists.
Thinking about national productivity, future living standards or infrastructure is not only boring, but not your job. Your job is to focus on you and your family, and maybe your business. That attitude is perfectly natural, but it extends even into construction industry business owners and the other types of industries that support it. Without working together, we're not going to get anywhere.
New Zealand's response to the COVID-19 pandemic demonstrates that we can pull together to protect and support each other. This is extremely encouraging.
Our lack of houses is a national problem that's stifling our productivity and leaving younger generations feeling helpless. Solving the housing crisis depends on us working together on some form of wealth redistribution and a widespread shift in our mindset.
We need businesses large and small, central and local governments all working together. And they need us to support them in funding more, building faster and cheaper and making New Zealand a better place to live for everybody, not just those who've already made it onto the housing ladder.
Michael Worth is a partner within the operational advisory practice at Grant Thornton. He and his team work with businesses including the construction and public sectors, to become more efficient and improve performance.
