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Land supply key to housing issues

Government may need to make a credible commitment to release more land and limit land price growth to get housing market inflation under control, the Productivity Commission says.

Wednesday, October 21st 2015, 9:55PM

by Miriam Bell

Rapidly increasing residential land prices are a reflection of an inability to zone and service enough land to meet demand, according to the Commission’s final Using Land for Housing report.

This is particularly pertinent in Auckland where land is now five times more expensive than it was twenty years ago.

Commission Chair Murray Sherwin said there are many obstacles to the supply of land within, and outside of, New Zealand’s cities.

To this end, the operation of planning systems – which are sluggish and hampered by costly rules and regulations – need to be reviewed and reformed.

Many councils are trying to house their growing populations by encouraging greater density within existing city boundaries, Sherwin said.

“However, some planning rules have the effect of inhibiting that increased density.

“Where a city has barriers to both growing up and growing out, the inevitable response to the demand for housing is higher prices.”

Urban planning systems are not set up to respond to the information provided by market prices, he said.

“The sharp increase in house prices that has occurred in recent years is a clear indication that rising demand for housing is not being met with rising supply. This needs to change.”

The report, which was released today and can be read here, offers up 70 recommendations.

These include:

• Increasing the responsiveness of planning to demand.
• Making better use of existing assets.
• More and better cost-recovery to fund new infrastructure – including targeted rates.
• Proper cost-benefit analysis before planning rules are introduced.
• A deeper review of the planning system.
• More support from central government to help councils develop higher-intensity housing on inner-city sites.

However, Sherwin said, most importantly, councils and the government need to make a credible commitment to release and service more land and to bring land price inflation under control.

It is necessary to break the pattern where there is more money to be made from simply holding land than in using it, he said.

“If councils are unable to make this commitment, then central government will need to step in and make it happen.

“Government should set a limit for land price inflation which would clearly signal to councils, landowners and developers the conditions under which government would intervene to make more land available.”

Ensuring there is a sufficient supply of land for housing, including an adequate supply of affordable housing, is a topic of national importance, Sherwin said.

“Central government has a legitimate interest in resolving those issues, where local councils cannot.”

Building and Housing Minister Dr Nick Smith said the report’s key message is that land supply is the critical issue undermining housing affordability.

The report also shows that restrictive planning rules come with significant costs for prospective homeowners, he said.

“Every rule that limits lot sizes, designates special character areas, requires minimum balcony apartment sizes or minimum heights and which require extra design features beyond the Building Act comes at a cost.

“We need to subject these rules to far greater scrutiny if we are to achieve improve housing affordability.”

Local Government New Zealand president Lawrence Yule said that if land for housing is to be prioritised, it will need to be reflected in the Resource Management Act.

If not, councils will not be able to make the decisions the Commission is calling for.

“It’s clear current systems aren’t working well in places with growth challenges,” he said.

“We need a planning system that’s responsive and enables plans to be made in a timely way and better information on factors likely to influence the pace and nature of growth.”

The Government is now considering the report and will make a substantive response in the coming months.

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