The government is aiming to cool housing inflation, seen as a threat to New Zealand’s financial stability, while speeding up consents as part of a plan to encourage construction of 39,000 new homes in Auckland.
Housing Minister Nick Smith’s special housing area proposal, where central government would buddy up with local authorities to unlock land supply, will remove certainty for landowners “that there will be capital gains from holding land” rather than selling to developers, according to the Ministry of Business, Innovation and Employment’s regulatory impact statement.
“This uncertainty will change the balance of commercial incentives on land owners in favour of more short-term sale of land and less long-term holding of land,” the impact statement said. “This will ease pressure on land supply over the short term that should slow the rate of land price appreciation and contribute to improved housing affordability.”
Finance Minister Bill English told TVNZ’s Q&A programme yesterday developers sitting on land are “assisted by planning rules that almost guarantee they’re going to get large appreciation in the value of that land if they just sit and wait.”
As part of the budget announcement, Smith said the government has signed an accord with Auckland Council, which is expected to consent 9,000 new homes in its first year, rising to 13,000 consents in year two and 17,000 consents the following year.
The legislation, announced in last week’s budget, came with more aggressive Treasury forecasts for house price inflation than in the December update. While the new forecasts weren’t included in the Budget update, Treasury officials said house price inflation is seen peaking in the 2013 and 2014 years at 7.1 percent, before slowing to a pace of 2.6 percent in 2015, 2.4 percent in 2016 and 2.1 percent in 2017.
The Treasury had previously seen house price inflation peaking in the 2013 year at 6.5 percent, slowing to 0.6 percent pace in 2014, negative 1.6 percent in 2015, and 0.4 percent and 1.6 percent in the following two years.
Real Estate Institute figures last week showed the stratified median housing price index, which smoothes out peaks and troughs, rose an annual 9.8 percent in the year ended April. Auckland’s stratified housing price was up an annual 14 percent and Christchurch’s climbed 13 percent.
New Zealand’s bubbling property market is seen as a threat to the country’s financial stability, with the International Monetary Fund yesterday saying local housing is about 25 percent over-valued. The Reserve Bank is threatening to introduce restrictions on low equity loans if they pose a “significant risk” to the system.
English signed a memorandum of understanding with governor Graeme Wheeler last week giving the central bank new tools to combat potential asset bubbles.
One of those tools is the introduction of limits on high loan-to-value mortgage lending, something Wheeler fingered as getting uncomfortably common, and the central bank is already demanding the major lenders increase the amount of capital they hold against low equity loans.
Parliament passed Smith’s Housing Accords and Special Housing Areas Bill at the first reading last week, and submissions on the bill are open until June 26, with the Social Services Committee scheduled to report back to the House on Oct. 1.
The Labour party supported the bill to select committee, though deputy leader Grant Robertson told Parliament a capital gains tax was needed as part of a wider approach to providing affordable housing.
MoBIE preferred the proposal to create special housing areas as the most likely to increase land supply in the short term by cutting costs for developers without central government running roughshod over local authorities.
Some $17 million has been earmarked for the plan over the next four years to cover policy advice, negotiating accords with local councils and resource consenting, according to the Vote Housing estimate.
The special housing areas will be evaluated and reviewed with three years to see whether it has been successful in improving supply in “areas of severe housing affordability and constrained land supply,” MoBIE said.
“The proposal is to provide for special housing areas is short term and would continue in force until the identified housing supply and affordability issues have been adequately addressed or other mechanisms are in place to address them,” the report said.