Lisa Owen: This week the Reserve Bank Governor said he's increasingly concerned about Auckland's property market and raised the prospect of debt-to-income ratios, meaning the less you earn, the less you can borrow. But would that make the idea of affording a house in Auckland even more of a pipe dream for many New Zealanders? Well, Housing Minister Nick Smith joins me now from Wanaka. Minister, we appreciate that you're the Housing Minister, not the Minister for Social Housing or Social Development, but people living in garages and cars – can you answer the question in that piece? You know, as a country surely we can do better. Why aren't we?
Nick Smith: No, of course we can, yeah, and ever having the situation of children living out of cars is unacceptable. When I saw that piece from Mike, it reminded me of the situation we had four or five years ago in Christchurch. A different scenario there in that we lost 12,000 houses from the earthquake but not dissimilar in the sense of the level of need, and that is why I've got confidence in the Government's plan, both medium and long term, in that in Christchurch, growing supply has resolved those issues. For instance, rents in Christchurch over the last year have dropped by 5 percent. That is because we've got supply ahead of demand. Auckland is a bigger market. It's a bigger challenge, but we need to do things short term, like the emergency houses, like the requirement for home insulation that's in the bill, that we'll have in the law by 1st of July, as well as those really important long-term supply questions.
Is it fair to draw the link between people paying 800,000 for the median house in Auckland and people sleeping in their cars or having to pay 400 bucks a week for a garage?
Well, they're all part of the same symptom, and let's go down into the core of what's gone wrong in Auckland. Half the council is opposed to intensification and Auckland going up, the other half is opposed or historically has been to growing out and for urban sprawl, so for a decade Auckland has not built the number of houses that is required to meet the demand, and as a consequence of that, you get increasing rents, you get house prices getting up over $800,000. And that is why as a government we've got to pull out all stops to grow the number of houses that are being built and also trying to get the market to produce more houses that are in that affordable range, and we've got some programmes going in that regard that are making progress, but we have a way to go.
Well, you talk there about the council, so are you going to force them to address this, then, in some way?
Right now, I'm working on a National Policy Statement on Urban Design that will direct councils to resolve this question, and that is that they have to make provision for cities like Auckland to either grow up or out, and they can't have this sort of dilemma where they put it in the too-hard basket; we block housing developments at the very time that we need more coming on stream. We've also got the crucial issue for Auckland, which is still functioning on 1993 planning documents, getting that new unitary plan in place, and that too is an incredibly important priority if we're going to make a difference in the lives of the sort of people that you featured with Mike's piece.
Well, we saw in that piece 25 percent rent rises in five years. What more can you do about that that you haven't already done?
Well, of course, on the 1st of April this year our government for the first time in 40 years increased the core benefits, and I suspect that many of those people featured would have been dependent on benefits. If we look, the Government is spending actually now $2 billion a year in both the accommodation supplement and the income-related rent, and my colleague Paula Bennett is seeking additional funding which we'll be able to talk about when the Budget is announced in a couple of weeks.
But when you talk about—
But we should not be distracted from the core issue, and that core issue is supply.
Minister, when you talk about those benefit increases, though, I think it's about an average of $17 a week more. That's not going to get them into a house, looking at those rents.
It is part of the solution. Remember, that's just the increase, a specific, one-off extra increase. Like I say, the first time in 40 years that benefits have been increased over and above the rate of inflation, and that's on top of the initiatives, the likes of the emergency housing, on top of the 300,000 homes that we have insulated, on top of the sorts of initiatives that we've taken in south Auckland. For instance, I'll draw your attention to that major development at Weymouth, Waimahia, which is making progress in that very community. And you equally could have taken your cameras there and seen that development moving in pace and getting those very sorts of families into affordable and secure housing.
All right, I want to talk about the loan-to-income ratio that the Reserve Bank has been floating, this idea. Isn't that just going to shut even more first-home buyers out of the market?
Well, the most important thing that's shutting first-home buyers out of the market is ongoing escalation in house prices. Now, those increases were up over 20 percent 18 months ago. The latest figures are that Auckland houses over the last 12 months are up by about 13 percent. We're not going to win the battle long term for those young families aspiring to own a home unless we can get that house price increase down into single digits. The Government's HomeStart programme is part of helping them pool together a deposit. The Welcome Home loans that we are providing is also helping. The Government is not in a position to make any call yet about the issue that the Reserve Bank has raised, but let's be focused. Stopping rampant house price increases is the most important thing, both for those families on your programme as well as those that are wanting to get into their first home.
All right, well, I want to talk about special housing areas. Now, these were set up to speed up building. Using your own formula, an affordable house in one of those special housing areas in Auckland is $610,000. Is that really affordable?
No. In fact, let's be clear. The Government's HomeStart programme sets a benchmark of $550,000.
But I'm talking about the special housing—
If you go to a development like Weymouth—
I'm talking about the special housing areas, Minister, where an affordable house is 75 percent—
Well, both Weymouth and Hobsonville are special housing areas.
But 75 percent of the median Auckland house price is what is regarded as affordable under that special housing scheme, so that is 610,000 in Auckland.
No, that's not—
Is that affordable?
No, that is— No, it's not, and that's not correct. It does vary from each special housing area, and like I say, if you look at the Weymouth development, if you look at the latest announcement I made at Hobsonville with the Prime Minister, we're looking at effectively 70 percent of those homes coming in under that $550,000 bracket, which is more in that range.
But that's your formula, Minister, and contained in the documentation – the official documentation. That is the formula for what is considered an affordable house. That's your formula.
No, that formula comes from the council. It varies from special housing area to special housing area. The main issue is growing the supply, including the supply of affordable houses. We were only building 10 houses per working day. We've got that rate up to 40 houses per working day being built in Auckland. We need to get it up more like 50 to 60 houses per working day if we are going to make that material difference to the market and get homes both in terms of supply and affordability into the right sort of bracket.
Well, that brings us to an interesting point, because land banking is a really big concern of yours. You've called it offensive in the past. But looking at the special housing areas, you've got space for approximately 48,000 houses in those special housing areas, and only 700 have been built in two and a half years – 700 complete. It looks like you've got people land banking in your special housing areas.
Well, let's be clear. We're over a thousand homes have been built and completed in those special housing areas, so your numbers are a bit out of date. But what we do need to be clear about—
That's the latest monitoring report, Minister.
…is from the time when you—
That's the latest monitoring report those figures are from.
Which is for the 31st. Yeah, that's right. That's for the 31st of December last year. That's quite old. But let me just explain. The special housing areas is a mechanism for overriding those very old Auckland plans. From the time you plan an area, ie zone it residential, to the time that you then are able to convert that into sections, put the infrastructure in and build the houses, the experience in both Christchurch and Auckland is that is a two- to three-year pipeline. Now, at the moment in Auckland, you have got the strongest building boom that's ever occurred in that city. In the last year we've had over $3 billion invested in residential housing.
I'm sorry to interrupt you, Minister, but after two and a half years, even if we take the thousand houses, you've still got space for 48,000 houses in those special housing areas. Doesn't it concern you that people seem to be sitting on this land with special rights that you've afforded them, not building houses and laughing all the way to the bank?
No, I don't accept that. No, I don't accept that at all, and I ask you to take your cameras out around those special housing areas. You will see builders going mad. You will see massive amounts of earthworks occurring, and as I say, let's go to the figures—
So a thousand is enough, Minister?
We were when we came into government—
A thousand houses in two and a half years – is that enough?
No, of course it's not, and they are coming on stream, but let's— Of course, it's not, but that's not the figures. We were building 4000 houses a year in Auckland. We're now building 9500 houses a year. The build rate has more than doubled since we took that special housing area initiative. It is part of the solution, and there's more to come.
Do you think, Minister, that there should be a clause in that special housing agreement that forces people to build houses within a certain time frame on that land? Do you need that?
Yeah, I have indeed written to some of those special housing areas, to some of those people that have that status on their land, and said, 'Get on and get your resource consents, your infrastructure, your subdivision progressed, or myself and the council withdraw that special housing area status.' But, actually, you cannot physically force a landowner to bring their land on supply. The best way of which we can get pace is actually creating competition in that market by removing those very crude metropolitan urban limits that have allowed the land bankers to be able to have monopoly rights and be able to exploit that market advantage and drive those section prices so high. It's actually by freeing up those measures that we are going to get the long-term solution for housing in Auckland.
Thanks for joining us this morning, Minister. Much appreciated.
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