Housing a key economic issue for NZ - OECD

The OECD’s 2015 Economic Survey of New Zealand lists bottlenecks in housing – along with urban infrastructure and skills, inequalities in living standards, and rising environmental pressures – as a risk to sustained growth.

While the biennial survey, which was released today, was generally positive about New Zealand’s economy, one of its key messages was that housing issues need to be addressed.

Rapid population growth and a low responsiveness of supply have led to housing constraints, the survey states.

This has led to a sharp rise in house prices, particularly in Auckland, and prices are now high relative to income and rents by OECD standards.

The house price appreciation has also boosted household debt to high levels, relative to incomes.

As a result, housing affordability has been eroded and there are some financial stability risks.

The OECD believes the failure of housing supply to keep pace with demand is problematic, especially given strong population growth.

In Auckland, the constrained supply could impact on the economy by restricting labour mobility and reducing incentives for firms to base themselves in the city.

Restrictive, complex and costly land-use and planning regulations are a key factor behind lagging supply and the resulting high house prices, according to the survey.

It states that current regulations, including land-use and planning rules, could add costs of between $32,500 and $60,000 to a subdivision dwelling and between $65,000 and $110,000 to an apartment.

This has increased construction times and reduced the likelihood of development, particularly of affordable housing.

Further, rising land prices are making the building of affordable housing uneconomic. This has contributed in a shift in housing supply from affordable to high end.

The OECD notes that efforts to address house price inflation and to speed up the housing supply response are being made.

However, more needs to be done, particularly in the area of affordable and social housing, the survey continues.

Its suggestions to deal with the issues identified include that:

• Local councils need to be better equipped to deal with and implement the planning process, including environmental regulations.
• The economic costs of implementing planning regulations need to be reduced.
• Community support for densification needs to be increased.
• Scope for vested interests to limit competition or thwart rezoning and development needs to be reduced.
• Government should play a bigger role in dealing with local objections.
• Public land should be freed up for development, particularly for affordable housing.
• The supply of social housing for low-income households should be raised.
• Targeted housing subsidies for low-income households, which are not in social housing, need to be increased.

The survey also states that community resistance to rezoning and densification could limit development as might skill shortages in the construction sector.

However, the OECD said that, overall, New Zealand is enjoying a strong, broad-based economic expansion – thanks to strong fiscal and monetary policy frameworks, a healthy financial sector, high employment, robust business investment and one of the highest standards of living in the OECD.

The full OECD survey can be read here.