ASB chief economist Nick Tuffley
ASB has just released its latest Home Economics report and it shows Auckland is not the only city to be struggling with unaffordable homes as its population grows and outstrips supply.
Other cities in the same boat as Auckland include Sydney, Vancouver, London and San Francisco.
All of these cities have also experienced rapid population growth over a sustained period of time and a slow housing supply response, which has contributed to high house price-to-income ratios.
ASB chief economist Nick Tuffley said another common factor between these cities (including Auckland) is the likely influence of land use regulation on their sluggish housing stock expansion.
“They all have some form of urban containment policy which is limiting the supply of land available for housing.”
There are numerous references to the impacts these policies have had on land and house prices in these cities, according to the report.
Further, it notes that the cost pressures associated with land-use regulations become more apparent when looking at cities with light land use regulations.
For example, Houston, Texas, which is the fourth most populous city in the US, has light land use regulation and some of the most affordable homes in the US.
Tuffley said their findings around land use regulation might not be surprising, but they had data to back them up – which is rare – and thus provided greater understanding of Auckland’s situation.
“The report suggests Auckland can learn from the solutions and challenges in other cities to find effective policy solutions to slow the rate of house price appreciation in the city.”
For example, Houston’s utilities infrastructure is funded differently which is another reason the city has not experienced Auckland’s housing affordability problem.
In Texas, Municipal Utility Districts provide infrastructure like water, sewer and drainage services by selling tax-exempt municipal bonds.
This means the cost of utilities infrastructure is not loaded directly onto the cost of building a new home, as it is in New Zealand.
Both land use restriction and reformation of infrastructure funding are live topics in the debate over Auckland’s housing market at the moment.
This is because when Labour’s housing spokesperson Phil Twyford called for the removal of Auckland’s urban growth boundary yesterday, he also called for a new approach to infrastructure funding.
There have been responses across the spectrum on Twyford’s proposals.
While the urban growth boundary abolition proposal is attracting most attention, particularly in light of the looming D-day for Auckland’s unitary plan, infrastructure funding is a slow-burning issue.
Twyford first proposed funding infrastructure by using bond financing paid back by targeted rates, on the property owners of new developments, over the life of the asset last year.
At the time, prominent Auckland investor David Whitburn told landlords.co.nz the proposal was a great way to address the issue.
Now, Finance Minister Bill English has told media infrastructure bonds are interesting and constructive ideas, which could be looked at in the context of a plan where they are possible.
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