56% of Akld house costs due to land regulation

Finance Minister Steven Joyce

Long identified as one of the drivers of New Zealand’s price inflation, particularly in Auckland, the report’s findings are damning.

The report examined the impact of land use regulations on house prices in Auckland, Hamilton, Tauranga, Palmerston North, Wellington, Christchurch and Queenstown, as well as apartment prices in Auckland and Wellington.

It found that land use regulation is hampering the flexibility of housing supply to respond to demand pressures from population growth.

“Land use regulation could be responsible for 15 to 56% of the cost of an average dwelling across a range of New Zealand cities,” it said.

“In Auckland, land use regulation could be responsible for up to 56% or $530,000 of the cost of an average home.”

The report also found that while local geography plays a role, even in the cities with plenty of flat land, prices are higher than might be expected in a well-functioning market.

Additionally, it found that while construction costs matter, house prices in Auckland and elsewhere are far in excess of construction costs.

This means that policymakers should focus on reducing the cost of the land component of house prices, the report suggested.

Finance Minister Steven Joyce said the report underlines the importance of the changes central and local government have been making to land use regulations to boost housing supply.

“Urban planning, council regulations, and our local infrastructure funding system, have all been driving up the cost of housing in our major cities.”

The reports shows that it is essential to keep a strong focus on land supply so that section prices become much more reasonable, Joyce said.

“The Government will continue to work hard to ensure councils in rapidly growing urban areas are able to provide enough land for new housing and business development.”

The findings of the report, which was produced by the Social Policy Evaluation and Research Unit, are in line with the conclusions of earlier reports by the Productivity Commission and ASB’s economists.

Earlier this year, the OECD also said New Zealand is suffering from restrictive land use regulations which frustrate both urban growth and environmental protection objectives.

ACT leader David Seymour said that the report showed it is necessary to reform restrictive land use laws and restore affordability to a housing market gone mad.

“It identifies that red tape around land use is the single biggest component of housing costs.

“In other words, if we scrapped rules telling people where and what they’re allowed to build, Auckland homes would be half their current prices.

“It’s madness to ban people from building homes during a chronic housing shortage.”

Read more:

Revamp planning system, end crisis 

Unlock land supply – Productivity Commission 

Auckland’s pain is shared - ASB

Improve urban development in NZ – OECD