Auckland house prices rising too fast – Nick Smith

Housing Minister Nick Smith told TV One’s Q+A programme that improving home ownership is a big part of his agenda along with increasing supply.

“We were at the top of the OECD in home ownership rates; we’re now about average. And that is why the government’s putting $435 million into this HomeStart package,” he said. HomeStart lets first-home buyers tap their Kiwisaver funds for a deposit.

A key exchange in his interview with Heather du Plessis-Allan came over a question on the state of the housing market in Auckland.

HEATHER DU PLESSIS ALLAN: “I’m interested to know whether you think that Auckland actually has a housing price bubble going on.”

NICK SMITH: “Oh, I think house price increase have been too large. You look at the last year – 16%.

HEATHER DU PLESSIS ALLAN: “Does that mean you think there’s a house price bubble?”

NICK SMITH: “I think house prices in Auckland are going up too fast. They went up at more than 20% a decade ago, so they have been going up at faster rates. They’re about 35% higher than when we became government.”

Earlier this month, economist Shamubeel Eaqub told NBR, "I'm scared witless. Auckland is in a massive bubble."

Asked if he would support income caps on the availability and the regulation of the banking sector by the Reserve Bank, Mr Smith replied, “No, they are independent decisions for the Reserve Bank. There have been no indications to government from the Reserve Bank that it is going to take a step. I would be cautious of it because my key agenda as building and housing minister is actually to reverse that very long-term decline in home ownership in New Zealand.”

RAW DATA: Q+A transcript: Housing & Building Minister NICK SMITH Interviewed by HEATHER DU PLESSIS ALLAN

HEATHER    Yesterday you re-announced the Hobsonville Point parcel of land, that you are fast-tracking it. If you are re-announcing announcements you’ve already made, is that a sign you are feeling the pressure to do something?

NICK            No. What we announced yesterday was that we have brought forward 1000 homes that were going to be built out beyond 2017, and said given the level of demand, we need to move at more pace. I challenged the Hobsonville development company to bring more supply on quicker. And so there are three major blocks there. The extra good news is about 30% of those new 1000 homes that now will be completed two years earlier are below that 550 home-starter price. It enables people to bring together the government’s new HomeStart scheme for getting a deposit and the supply. Cos the message I’ve been getting is, ‘We love your HomeStart scheme. It’s enabling us to get a deposit. But we’re really struggling in Auckland to find houses under 550. We need to build more of them.’

HEATHER    Yeah. You were talking about getting these houses on the market in four years. Now it’s 18 months to two years away. Is that fast enough?

NICK            Well, I think there’s always an underestimation around the lag from the time when developments are approved to when the houses are built. There’s this instant click – 10,000 houses can be created. No, they can’t. It requires a long term of planning, building infrastructure, getting the houses constructed. Over the last three years that I have been minister, the rate of house build in Auckland has moved from 4000 per year to 8000 per year. That’s billions more.

HEATHER    Yes, but even at 8000 per year, you are way short of the 13,000 a year that you need. Do you not concede that?

NICK            Oh, we need more, no doubt at all. The thing that’s really changed that’s made this challenge more difficult is actually good news. And that is that we were losing about 30,000 people a year to Australia. New Zealand’s more confident, it’s more successful, it’s growing, and as a consequence of that, the housing challenge has got more difficult.

HEATHER    Okay, let’s talk about the affordability in that Hobsonville Point announcement. 550,000. At that price, kids who want to buy first homes still have to have $110,000 deposit. Is that even affordable?

NICK            No, they don’t, and I’ll tell you why. With the new HomeStart scheme that came into effect on the 1^st of April, if you’re on the average income in Auckland and you’re a member of KiwiSaver for five years, you will have built up $35,000. The government’s HomeStart scheme gives you $20,000. That means you’ve got $55,000. The government’s Welcome Home Loan scheme, that the changes also came into effect on the 1^st of April, means that they only need a 10% deposit. And so those extra 300 homes I announced yesterday are wide open to families in that situation.

HEATHER    Again on affordability, a newspaper report today says that the Reserve Bank is considering limiting how much people can borrow depending on what they’re earning. If we look at the case of England, where it’s 4.5 times what you’re earning, in these 550 houses, people who buy them still need to earn $100,000, and more than half of the city does not earn that much.

NICK            Well, if we look in terms of the Reserve Bank, they’ll make their decisions independently.

HEATHER    Would you support that?

NICK            Well, a big part of my agenda is to improve New Zealand’s home ownership. It’s been in decline for about 40 years. We were at the top of the OECD in home ownership rates; we’re now about average. And that is why the government’s putting $435 million into this HomeStart package. I’ve been doing public meetings right through New Zealand with particularly people under 40 who are trying to get into home. My view, actually the interest rates coming back is going to make that door easier for those people that are on those lower incomes. But I have to respect the independence of the Reserve Bank. They’ve given no indications to government – and they gave us good warning around the LVR, they gave us good warning about the changes that they announced a bit over a month ago – they have not given us any indication that they are going to be producing income caps on the availability and the regulation of the banking sector.

HEATHER    Just a quick yes or no. Would you support it?

NICK            No, they are independent decisions for the Reserve Bank. There have been no indications to government from the Reserve Bank that they are going to take a step. I would be cautious of them because my key agenda as Building and Housing Minister is actually to reverse that very long-term decline in home ownership in New Zealand.

HEATHER    Okay, let’s talk about the OCR, which you were just talking about. The interest rates coming down this week has made your job a whole lot harder, hasn’t it?

NICK            No, actually, it hasn’t. Because if you look in terms of my objectives of home ownership. If you look at housing affordability, there are basically three factors that affect that – house price, incomes, interest rates. Certainly, it is true that we’ve got a challenging situation around house prices, particularly in Auckland, albeit we’ve got house price increases in Christchurch under control.  There are areas also like Queenstown where they’ve been lifting at the sort of rates—

HEATHER    Yes, but we’re talking about Auckland. In terms of Auckland, the OCR going down is going to push up the house prices because more people will climb in, and it will just push it right up.

NICK            I don’t think it’s as simple as that, because I think the supply part is equally important, and that’s why most of the government’s initiatives, the biggest part of our agenda, is driving supply as fast as we can.

HEATHER    Do you think the OCR should have come down?

NICK            Look, very clear legislative mandate. One is that that decision is made by the Reserve Bank, and secondly, I’m Building and Housing Minister. If you want to have a debate around the OCR and around those rates, that’s a discussion to be had with the Minister of Finance.

HEATHER    I’m interested to know whether you think that Auckland actually has a housing price bubble going on.

NICK            Oh, I think house price increase have been too large. You look at the last year – 16%.

HEATHER    Does that mean you think there’s a house price bubble?

NICK            I think house prices in Auckland are going up too fast. They went up at more than 20% a decade ago, so they have been going up at faster rates. They’re about 35% higher than when we became government. Interest rates have come back, so actually it is more affordable today, according to independent commentators, to buy a house than what it was become government. Because, of course, interest rates then were about 11, 11½. But overall, house price increases are going up too fast. It’s not sustainable. And that’s why the government’s pulling every possible lever to grow that supply. What we know in Christchurch is our programme has been successful. You had 16%, you had 15% -- two consecutive years of house price growth in Christchurch. We were able to increase the house build rate from 1000 a year up to nearly 5000 a year. In the last year, house prices in Christchurch have only moved by 2%. That shows increasing supply works.

HEATHER    Okay. This is not just about Auckland, though, is it? In normal circumstances where the economy is not flash, the OCR would come down. It can only drop slightly. It’s not coming down much more than this at the moment. Do you agree that this city is holding the country to ransom?

NICK            No, I don’t. And nor do I accept the preamble that says that New Zealand is not doing well.

HEATHER    Let’s look at dairy prices. In this situation, the dairy price has just fallen right down. Those guys, the dairy farmers will be struggling to break even this year, and many of them would like to have lower interest rates.

NICK            Of course they would. And that’s why they’ll welcome the Reserve Bank pulling them back a bit. But this idea that if you look in terms of New Zealand’s unemployment is less than Australia, if you look at our level of economic growth – if you look at all of the key vital economic statistics, New Zealand is doing well. The dairy coming back is a bit of a concern. The tourism industry is growing, had an incredibly successful year.

HEATHER    Let’s talk about inflation. Inflation is incredibly low.

NICK            That is a good thing.

HEATHER    You know in this circumstance the Reserve Bank would normally drop the OCR. Do you deny that?

NICK            Oh no. The fact that inflation is at the lowest level that it’s been in about 20 years is great for households. It is a good thing.

HEATHER    Yes, but we have to accept that normally in this circumstance the OCR would come down.

NICK            And it has.

HEATHER    Because of the Auckland housing market.

NICK            Look, there’s no question that the Auckland housing market is a substantive challenge. Why do you think post-election the government put three of its most senior ministers – myself, Bill English—

HEATHER    So is it not holding the country to ransom?

NICK            No, I think that’s a gross overstatement.

HEATHER    Do you accept that Auckland’s housing market is now spilling over into other regions around Auckland?

NICK            I certainly accept that you’re getting an increased level of confidence in markets like Hamilton, like in Tauranga. I was down even in Invercargill, and there were people at that meeting who’d come from Auckland who had made a lifestyle choice to relocate to places like Blenheim and Invercargill because of those house prices, and that just reinforces the importance of the work that we're doing in the city.

HEATHER    Do you think that they should be worried about that? That their house prices are now going up as well, making it less affordable in those cities?

NICK            If you talk to a place like Gore or Invercargill, I think they’d welcome the fact that their house prices that have been relatively flat for five years are starting to move. Is it ideal from a government perspective? We don’t want house prices either plummeting or going up at dramatic rates. Steady increases in people’s equity and wealth, 4%, 5% per year.

HEATHER    Do you think young people in places like Hamilton and Tauranga would welcome house prices going up while they’re trying to buy their first house?

NICK            I think those communities have increased confidence, and I think that’s a good thing. I think house price increases of a few percentage points is actually good. I think the sort of levels we’ve got in Auckland at the moment of 16% have more downsides than up.

HEATHER    Okay, we’ve been talking about the OECD report. You’ve read it. It says you guys are not doing enough. Have you got anything up your sleeve?

NICK            I don’t know anybody who’s ever said to a politician they’re not doing enough. I think the report is fantastic. I’ll tell you why. There’s been a big political argument about what are the core issues that government should be doing around housing. We’ve had this sideshow, typical blame the foreigners, you know? I don’t care whether it’s a crime problem or an employment problem, the cheapest trick in the political book is to say it’s all the foreigners’ fault. What that OECD report says is exactly the same as what the Productivity Commission said, and that was your land regulation needs to be dealt with, the RMA needs to be fixed, and it is at the core of the long-term issues of housing and affordability.

HEATHER    And what it also says is the government needs to step in and help the Auckland Council to stop NIMBYism, where you’ve got people living in leafy suburbs stopping the development of apartments and intensification. Will you do that?

NICK            What wraps me about that is the very legislation that I passed two years ago through the Parliament, the Housing Accords and Special Housing Areas legislation, what it did was hugely reduce the legal rights of so-called NIMBYism to stop the sort of housing changes that are required. Auckland needs to grow out, it needs to grow up, and that is exactly what we are doing with that tool and those 84 special housing areas. In the next month or two I’ll be announcing more of those. They are a mix of getting pace around intensification so that there are more apartments, more townhouses in the central city, as well as allowing those areas around the fringe of Auckland to grow as well. And I’m actually hugely encouraged by the progress that we are making with council, and that’s seen in those dramatic building consent numbers.

HEATHER    So you’ve done enough to stop NIMBYism? You don’t need to do any more?

NICK            We’ve got more to go. In fact, one of the more important challenges I’ve got over the next six months is reform of that RMA so that it is more focused on genuine environmental issues and not simply being used for wealthy NIMBYism. This week I was in Queenstown, where actually housing affordability is worse than Auckland, and that is a place where NIMBYism has prevented any homes being built that are less than about 800,000. We’ve got 2000 people working in Queenstown on work permits rather than New Zealanders taking up those jobs. If we really are going to take up the opportunities from a growing tourism industry, we need to resolve housing, and that’s why we are using those same tools – the special housing areas and the HomeStart package to help young families.

HEATHER    Okay, so in trying to free up some land here in Auckland, you’ve had a spat with Ngati Whatua. You’re meeting with the iwi today. What are you going to say to them?

NICK            Firstly, the government is totally committed to its Treaty settlements, both in terms of word and spirit. I’m going to be saying to them that in Christchurch we have used the Housing Act and in our partnership with Ngai Tahu to bring new housing on supply, and also it’s a very close relationship with the Christchurch City Council that is delivering more houses. We need to apply the same sort of approach in Auckland, and I’m committed to working with them. We’ve done one project, one of the most exciting housing projects going on in Auckland right now – Weymouth, a project called Waimea, that we have done with the Tamaki Collective, and we’re going to want do more of those as part of this package.

HEATHER    Do you think you can resolve this without going to court?

NICK            I hope so. You can never stop parties going to court. I just want to reassure them that the government is totally committed to working with them. Look, if you look at the housing issue and you look at organisations like Ngati Whatua, many members of their iwi understand the need for more housing, and that’s why I’m so optimistic that we can have a meeting of the minds and get on and build the houses that Auckland needs.