The Government will tax investors and borrow $6 billion to buy land and build infrastructure. But despite the best-laid housing plans, the failure to address planning and consenting delays ensures the young of today will remain locked out
It was meant to be the circuit-breaker that ensured ground was broken in innovative new housing projects. In November last year Environment Minister David Parker referred three big housing projects to the Environmental Protection Authority, so they could be fast-tracked through the consenting process.
There was a mixed-use commercial and residential development in Auckland's Dominion Rd, the Vines subdivision in Richmond, and a big Sleepyhead mattress factory abutted by a community of 1100 medium density houses in Ohinewai, north Waikato.
Parker announced: “The projects will provide housing in a provincial area that is experiencing high demand, diversify economies and support well-functioning urban environments across the country.”
That was then.
Four months on, the Vines is the only one that's got any further through the process; it's been approved to go before an expert panel. The Dominion Rd project seems stalled.
And the project managers for Sleepyhead Estate are awaiting a delayed zoning decision from Waikato District Plan commissioners; they haven't even lodged their fast-track application. Craig and Graeme Turner, the brothers who own Sleepyhead, have gone to ground after being forced to deny community rumours they'd given up on the affordable housing project.
In fact, of at least 30 projects referred or listed for fast-tracking since the law came into force in July last year, there in only one housing project (a papakāinga development in Rāpaki, Christchurch) that has been approved.
"Our district plan has been six years in the making and when the last decisions are made in September, it then runs into an appeal period and I would say it's probably another three or four years after that before everything is tidied up ... This is the crux of the problem: it's the time."
– Allan Sanson, Waikato District mayor
In fast-growing Waikato District, mayor Allan Sanson is "incredibly frustrated". He does offer his congratulations to Jacinda Ardern and her ministers for their bold set of demand-side and supply-side initiatives – but he says there's nothing that's actually going to speed up projects like the Sleepyhead Estate.
"The biggest headache here is, you can free land up but the land won't be zoned appropriately for housing," he says. "Our district plan has been six years in the making and when the last decisions are made in September, it then runs into an appeal period and I would say it's probably another three or four years after that before everything is tidied up.
"The time it takes to identify locations, go through an RMA process, and here we all are hanging out months later for a decision from the District Plan commissions, and another month after that we'll be waiting to see if anyone appeals it. This is the crux of the problem: it's the time."
There is much in the Government's housing affordability package this week that will incrementally rein in rising prices, but there's only one thing that will sustainably address the problem. Building more houses. And despite tipping $4 billion of infrastructure funding into a new Housing Accelerator Fund, and promising to help Kainga Ora borrow another $2b to buy land, the Government hasn't yet addressed the delays to planning, financing, zoning, consenting and building new homes.
Earlier this year, Minister Parker announced plans to reform the Resource Management Act. Sanson is aghast at the amount of time and consultation that will go into a law reform that is itself intended to cut time and consultation. He says it will take several years for the law changes to make any difference.
This week's changes will make it easier for owner-occupiers – but not for this generation of first home buyers.
The shortage of houses is not caused by a lack of builders, or a lack of buyers, says Sanson. Rather, it is perpetuated by endless red tape and consultation and delays that are pricing a whole new generation out of housing.
B-Day: How will Govt pay for it?
With this morning's announcement of the date in May that he will present his Budget, Finance Minister Grant Robertson opens himself up to some robust questions about how he'll pay for his promises.
Yesterday, he announced a $3.8b Housing Acceleration Fund to pay for infrastructure – but he won't yet say where he's going to find that money. The expectation is increased borrowing. There's also $350m for the residential construction sector that remains unspent from last year's Covid infrastructure fund, and is being repurposed to support affordable residential developments including build-to-rent options.
Robertson appears before the Finance and Expenditure select committee at 8.30am today, to answer questions about the Government's Budget Policy Statement. And that statement is explicit about the impact of housing on our communities.
"Improved physical and mental health outcomes require sustained investment across a range of government services and other areas, including housing," it says. "Affordability of housing, the state of our housing stock, and security of tenure and cost can all influence a person’s physical and mental health."
The Government admits there have been long delays with little progress. Its first three-term term was almost entirely wasted, with the fiasco that was KiwiBuild. And worries peaked this month, when new sales data showed the median house value had risen $50,000 in just one month – as much as most people earn in a year.
"Another of my concerns is council 10 year plans are not moving fast enough or aggressively enough to address the challenge,"
– Professor Frank Scrimgeour, University of Waikato
So, when house prices are racing out of the reach of anyone who doesn't already have a toehold in the market, and the Government has announced it is pulling about a dozen different levers, why is it not also pushing down the accelerator?
Down the Waikato Expressway from Ohinewai, Professor Frank Scrimgeour says fast-tracked consents should be the norm for housing subdivisions, not the exception. And councils should work together to develop infrastructure plans that central government would help fund; Ministers picking winners of $3.8b in contestable funding just isn't the answer.
The University of Waikato economist warns more time and money will be wasted bidding for the grants; it would be better that Government agree foundational commitments to councils and developers, and offer incentive payments for prompt delivery of the infrastructure. The Government needs to make five-year funding commitments, and similar training commitments for apprentice builders and other tradies, he says.
"Another of my concerns is council 10 year plans are not moving fast enough or aggressively enough to address the challenge," Scrimgeour adds. "If you divide $3.8b by 10 there is potentially a modest amount for the Waikato – will we even get that? Most regions will be holding out their hands. It seems some will be contestable and some not."
He's right: Mayor Sanson is quick off the mark in declaring Waikato District Council will bid for the $20 or $30 million estimated cost to run drinking water, waste water and storm water pipes between Huntly, the proposed new Sleepyhead 8km up the road at Ohinewai, and the new water plant they're building further north at Te Kauwhata.
That will ultimately be part of the Government's Three Waters reforms, in which Local Government Minister Nanaia Mahuta proposes to take drinking water, waste water and storm water off councils' books and put them in the control of about four big regional water authorities. The work required to upgrade and maintain the country's water infrastructure is costed at up to $50 billion over the next 30 years; that puts the Government's $3.8 billion Housing Accelerator Fund in perspective.
"I admire Nanaia for having a go at it," Sanson says. "I am her mayor. She lives next door to my office so we do talk quite regularly, and I've encouraged her to keep going with the water reforms."
He draws a comparison with NZ Transport Agency cost-sharing for the upkeep of roads, in which the Agency contributes 50-52 percent financial assistance for road maintenance. "I've said to Nanaia, we need a similar sort of vehicle for key infrastructure projects, to actually help us build them. We're not getting a big enough cut of the pie to fund the infrastructure we need."
'It will take decades'
Allan Sanson's enthusiasm for the $3.8b infrastructure investment is mirrored by developers around the country – but so too the concern that all the money in the world isn't addressing the protracted planning and consenting processes.
In Auckland, one developer who has worked closely with Kainga Ora's large-scale projects is Shane Brealey, from NZ Living. Their current medium density projects include three apartment complexes in Northcote (129, 30 and 27 units respectively, all sold off the plans), and 75 apartments in Point England (sold out). They have completed more apartment complexes in Northcote, Onehunga and Otahuhu – more than 400 apartments in total.
Later this year they will start another project in Point England with 129 apartments, and one in Oranga with 74 new homes.
"It all takes time though with design, consents and construction planning. Locations are usually in existing residential neighbourhoods and along main arterial routes so jumping straight in and ripping everything up is not an option. It will take decades."
– Shane Brealey, NZ Living
"We are actively looking for new sites all of the time," Brealey says. "The main constraints to us delivering more new homes is sourcing suitable land and the time it takes to get resource and building consents. Both of these issues are usually dictated by infrastructure constraints.
"The Housing Accelerator Funding will help move infrastructure along at a faster pace than otherwise, which is a good thing.
"It all takes time though with design, consents and construction planning. Locations are usually in existing residential neighbourhoods and along main arterial routes so jumping straight in and ripping everything up is not an option. It will take decades."
Brealey applauds the changes to the bright line test and deducting interest payments from tax liability. Both will hit investors hard and potentially mean prospective owner-occupiers will finally have a chance to set the price in New Zealand's urban residential markets.
"I think the levelling of the pitch between home owners and investors is a good thing. We need to increase home ownership levels for a more balanced society."
And unlike some outspoken critics this week, he does believe the funding is significant. "The infrastructure and land acquisition budget allocations involve big numbers that are likely to make an impact – in about 10 to 15 years. The organisations responsible for implementing these policies will take decades to get plans, consents and contracts in place. Better now than never, however, this is a very long term project."
Further south, officials are believed to have their eye on infrastructure deficits in North Island districts like Hawke's Bay, Gisborne and Rotorua.
Already in these areas, there are good examples of government, council and developers teaming up to make sure the right infrastructure is funded and build, at the right time, to enable families to move into new-build homes. One example was the upgrade of State Highway 30 in Rotorua and funding for stormwater investment to unlock development of up to 1100 homes by Ngāti Whakaue Tribal Lands, over the next five to 10 years.
Further south again in Selwyn, where the population has nearly tripled since the local government reforms of the 1990s, all eyes were on the Prime Minister’s announcement of the “comprehensive” housing package.
Selwyn District Council has 18 district plan changes queued up for approval. (Previously they had a couple every year). “In the past four months we have had applications from private developers to build 11,000 new homes across the district, some in places already identified for growth and some in new areas,” says mayor Sam Broughton.
"The $3.8b infrastructure fund is a start but probably not enough on a national scale to have any real impact on getting land into development quicker. Navigating the consenting process is what takes the time and energy."
– Jake Hughes, Hughes Developments
Just last week, Environment Minister David Parker referred one of those housing developments to be considered for fast-tracking. That project, near Rolleston, is part of 140 hectares that Christchurch-based Hughes Developments is seeking to rezone from rural, in order to build 2000 new homes. The slow progress shows the multiplicity of hurdles to builders breaking ground. If it’s not a hostile tax regime or investors pricing out owner-occupiers, then it’s the cost of accompanying infrastructure or interminable delays to the consenting process.
Jake Hughes, a director of the business, said they too were beset by planning and consenting delays. “We’re in a situation where we’ve got more demand than we can deal with, and a lot of land,” he says, “but we don’t expect the RMA reforms to have any impact before 2023.”
He welcomes the Government’s decision to exclude new-builds from the extension to the bright line test on capital gains. "It's sensible," he says. "This will ultimately turn investors’ attention towards purchasing new housing stock in lieu of existing. Increasing the supply of housing, regardless of whether it's sold to investors or owner occupiers, will go a long way to alleviating the price growth we are seeing at the moment."
The $3.8b infrastructure funding is is a start, he says, but probably not enough on a national scale to have any real impact on getting land into development quicker. "Navigating the consenting process is what takes the time and energy," he says. "If you’re developing in a high-growth district and have a progressive Local Authority, they really should be ahead of the game, using development contributions to fund the roll out of new infrastructure ahead of uptake. This has been our experience in the Selwyn District."
What can be done better?
Most developers and infrastructure experts seem to agree that $3.8b spread over four years won't go far. Kiwibank chief economist Jarrod Kerr has long argued for greater attention to increasing supply of housing rather than being too focused on reining in demand, and he believes the fund is "minuscule."
"We know it will grow; it must," he says. "But we should have seen a more respectable figure the fund could grow into, rather than a $3.8b figure the fund will grow out of in five minutes."
And he's right, it is part of a much bigger pile of cash and credit that the Government is pulling together to address an infrastructure deficit estimated by economist Shamubeel Eaqub at more than $75b. That's a deficit figure that's been acknowledged and accepted by government.
One infrastructure expert expresses confidence that the new money would be used to unlock new projects.
The first projects being earmarked are those identified through regional growth partnerships, and in areas where the Crown is working with local authorities to get housing delivered like Gisborne, Rotorua and Hawke’s Bay.
"I'm reasonably confident this is not simply re-announcing projects or just topping up pet projects which have gone over," the infrastructure specialist told Newsroom. "My sense is that it will be lots and lots of smaller projects (tens of millions) rather than a few billion dollar projects. And that also, many of them might not make it to market for a decade."
In order to get their hands on the money, councils will have to commit too – whether that be through financing, of work, or plan changes. "They have to support the investment and not use it as an excuse to go off and do something else."
Housing Minister Megan Woods agrees. "A portion of the Fund will be dedicated to contributing to infrastructure required to support government led large-scale projects," a spokesperson explains.
"The remainder of the Fund will focus on funding infrastructure in priority locations where high housing need has been identified, and where government funding will have a significant impact in bringing forward new housing supply. This will include consideration of contributions from the councils and others, both financial or non-financial (such as plan changes) to ensure that government investment will have maximum impact."
The Government will make final decisions around the design by the middle of the year, including criteria for decision which projects are priorities for funding.
But the point is, it's not just about the dollars in this kitty. It's about leveraging money from developers and local government and of course the ultimate owners of the houses. It's about speeding up land acquisitions, and using a new infrastructure financing law change to front-loading the funding so that councils can begin building roads and laying pipes and cables, without having to wait for the eventual residents to pay for it through their rates. It's about councils and government agencies collaborating to package up contracts for the building companies, to make it more enticing for them to up sticks and move to provincial New Zealand, rather than competing for builders.
Te Waihanga infrastructure commission chief executive Ross Copland, who must present a nationwide strategy to the Government this year, is optimistic: "There’s also potential for a range of other important solutions to help free up land for housing supply and make better use of our existing infrastructure," he says. "These include up-zoning land to allow greater housing density around public transport and better managing demand on our roads using tools like congestion prices so it’s easier for people to move around no matter where they live."
ANZ chief economist Sharon Zollner says it's important to not just rein in demand, but to address that fundamental problem of a lack of supply. "Tax tweaks and macroprudential policies can be effective at addressing the former, but they do nothing towards lifting supply," she says.
"There’s no quick fix there, but the Housing Acceleration Fund of $3.8bn is at least a step towards rectifying the fact that local government is not able nor incentivised to provide the investment that enables large-scale greenfields or densification development in a timely manner.
"As long as the projects are carefully chosen to provide maximum bang for buck, it should make a meaningful difference in pockets over the next few years, and provide a case study for a desperately needed new approach to providing housing infrastructure. And unlike home-builders, there is actually some spare capacity in the infrastructure sector at present, so stuff may actually get done.
"Importantly, the Government is not done; let’s hope the focus pivots further towards supply from here. It’s not just people’s inability to put together a deposit that’s the problem. In many cities, rents are way out of line with incomes as well, and New Zealand faces a rapidly increasing homelessness problem as a result. More houses is the only answer in the end."
