English warns of 'price spiral' in Auckland housing

Finance Minister Bill English warns of a “price spiral” in Auckland housing if Auckland Council doesn’t deliver more houses.
 
“If the plan is seen not to deliver the supply that’s required, you’re likely to see upward pressure on prices” at a time when prices are already “pretty high” by “historical standards," he says.
 
Mr English says tax cuts and increased social spending “aren’t mutually exclusive options” and that “surging migration” means pressure is growing for more spending on early childhood education, schools and hospitals.
 
Auckland Council’s change of plan on housing “might make the challenge a bit more difficult” but the debate is “a legitimate community discussion,” he says.

He's “optimistic” the independent hearings panel will deliver “a good result.”
 
The finance minister suggests Auckland’s eastern suburbs may get a free pass on intensification: “The government has made it clear. It needs to see a plan ultimately that enables enough houses. And if that means more in the south and the west out on the edge of the city, well, that’s where they’ll go."

When asked if he’s going softly because it’s National voters leading the charge, Mr English says he doesn’t know who is leading the challenge to plans for more intensification in Auckland. Neither does he know anything about the possibility of selling the Remuera golf course for housing (a possibility raised by mayoral front-runner Phil Goff earlier this week).
 
Mr English defends his off-the-speech statement on Thursday that “unemployment has peaked” and is “likely to continue to decrease” despite Treasury’s forecasts that it will rise above six percent in 2016 and 2017.
 
“Sometimes we disagree on things… part of that story, I think, would be that instead of unemployment going to 6.5% or 7%, as some were saying, including the Labour Party, it’s likely to be under 6% and maybe drop off”.

RAW DATA: The Nation transcript: Lisa Owen interviews Bill English

Watch the interview here

Lisa Owen: Finance Minister Bill English gave his annual State of the Economy speech on Thursday, talking up positive signs despite concerns about dairy prices and a U-turn this week by Auckland Council on its housing plans. Needing 280,000 new houses by 2040, the council reverted to a 2013 plan that, by its own estimates, delivers just 80,000. Well, Bill English joins me now from Wellington. Good morning.

Bill English: Good morning, Lisa.

You actually fired a shot across the bow of mayoral candidates and council candidates. You said you hoped that they would feel the same pressure you do around housing, but their decision this week has undermined your plans, hasn’t it? It means fewer houses for Auckland.

Well, I think that’s yet to be seen. I mean, look, it might make the challenge a bit more difficult, but I think everyone pretty much understands, including the people who were opposed to the Council’s proposition. Everyone understands Auckland has to be able to grow. It could grow up or grow out. The plan is about finding the right balance. They’re having a legitimate community discussion about it. We’ve just made it pretty clear that we’d expect the plan will deliver enough room for the houses that are needed in Auckland. Because if it doesn’t, we’ll end up going back into a price spiral, and we’ve talked about the risks of that for the last couple of years.

Enough houses? That’s 280, though, isn’t it? 280,000 houses.

Well, there’s a lot of people that have got to fit in Auckland if you believe the growth forecasts. There’s significant progress being made now. The Council has become much more efficient in the way it deals with consents and so on, so the number of houses being built per year has built up quite rapidly. That needs to keep going, and the plan, if it comes through in the next couple of years, will send a pretty clear signal to the market there’s going to be enough houses, and that might take some pressure off prices.

But hang on. Let’s get this clear. The need is for 280,000 houses, and the plan is just 80,000 houses.

Well, let’s just see where the plan gets to. There’s quite a bit of complexity about what those numbers mean. You know, they can allow for a whole lot of houses but only a certain proportion are commercially viable.

But you can’t be, Minister, happy with the plan as it stands. You can’t be happy with that, can you?

Well, we haven’t got a plan yet, right? We’ve got an independent panel going through the hearings. The Council’s decided not to submit more evidence to that panel. The panel has yet to make the significant decisions about the plan. So we’re reasonably optimistic, that given the broad understanding of what’s required will get a good result.

The Council plan, Minister, as it stands, is not satisfactory, is it?

Well, look, there’s different versions of where everyone—

No, the plan as it stands – 80,000 houses – it’s not satisfactory, is it?

Well, look, we’re not jumping to conclusions on what people are saying right now. The independent panel, who no one’s heard from, are hearing the submissions, and they will make decisions about it which will then be accepted or otherwise by the Council a bit later in the year. From what we see of the process, despite the vote during the week, we think it’s likely to generate a reasonable result.

Hang on. You mentioned the house price spiral. What does it mean for Auckland house prices if we just get 80,000 houses?

Well, look, I wouldn’t want to prejudge the number, but what it will mean if the plan is seen—

No, but in general terms.

Yeah, in general terms, if the plan is seen not to deliver the supply that’s required, you’re likely to see upward pressure on the prices. Now, by historical standards, Auckland house prices are already pretty high. I see a significant debate going on in Australia about Sydney and Melbourne house prices now and whether they’re far too high or not. So it’s in everyone’s interests that the plan delivers a reasonable availability of new supply and that allows prices to follow a pretty stable path.

Minister, you’re not using particularly strong language there. Is that because of the politics involved here in the sense that it’s not just that this plan was upsetting voters; it was upsetting National voters; in fact, it was upsetting the wife of the National Party president?

Well, look, I don’t know exactly who it’s upset. It’s just there’s nothing new about this argument in Auckland. In fact, for 20 years Auckland has struggled with the idea they want a denser city in the middle, but, actually, the people who live in the middle don’t want that and so the densest—

No, you know, Minister, it’s led by National Party supporters in the eastern suburbs, one of them being Desley Simpson.

Well, I actually don’t know who’s so-called leading it. All I know is it’s a completely predictable discussion for Auckland to have. The same discussion would happen in other suburbs of Auckland if the same propositions were put forward. It is for Auckland to make its own decisions. The government has made it clear. It needs to see a plan ultimately that enables enough houses. And if that means more in the south and the west out on the edge of the city, well, that’s where they’ll go.

Okay, well, Phil Goff is eyeing up Remuera Golf Course, and the perception is he could fit maybe 8000 houses there. So I’m wondering this morning, would you like to publicly back him on that – using the Remuera Golf Course for housing?

Well, I don’t intend to become a participant in the Auckland mayoral campaign.

No, I’m asking you about increasing housing stock. Remuera Golf Course – you could fit 8000 houses there. Would you endorse a proposal like that?

Look, I don’t know anything about it. It’s entirely up to them to decide. What we need to see is enough housing supply, because that’s what’s of interest to the rest of the country. There’s local issues that are of interest to Aucklanders, and they’ll resolve them.

All right. Well, I want to talk to you about tax cuts. You’ve said for several years you’re keen on moderate tax cuts if fiscal conditions allow. So what would those conditions be?

Well, we’ll have a look at that over the next two or three months in the run-up to the Budget. We just want to make sure that the government can stay on track with surpluses with a path to debt reduction. Those are important for protecting New Zealand in the long run from any instability in the global economy. We’ve also got spending demands. These surging migration figures, for instance, are putting quite a lot of pressure on early childhood education for growth; on our schools for growth; growth in numbers at our hospitals; prison numbers are going up. So we’ve just got to balance these things up – the need to accommodate that growth but to stay on track.

That’s a good point, Minister. Would you rather have tax cuts, or would you rather have spending in those other areas?

Well, some of the spending we simply have to do. I mean, if there’s more kids turning up at early childhood, more than we expected, then we have to address that. There’s more turning up at our schools. We simply have to pay for that. There’s no choice.

But what about police, who have had a frozen budget? What about universities and the health sector? What about them getting the spare change that you have rather than tax cuts?

Well, they certainly get thoroughly considered. It’s not really one or the other. We do have to increase the health budget. We are increasing the police budget. They’ve just had pay rounds. In both cases, those have to be paid for, as does the teachers’ pay increase.

But, Minister, you can only spend a dollar once. You can only spend that dollar once, so if someone’s getting it, someone else isn’t. So would you rather put the spending into those areas than give people a tax cut?

Well, these aren’t mutually exclusive options. I think this government has demonstrated a track record of getting the balance about right. So we’ve got to balance up the shorter-term need to meet the demand for services and new services where those are required with the longer-term need to support those middle-income earners to pay the bills for everything, to make sure there’s clear and strong incentives for saving, investing and exporting. And we’ve had the balance pretty right so far, and that’s how we’ll look at in the next few months.

All right. Well, in that speech you made an interesting veer off your speech notes on Thursday. You said unemployment has peaked and it’s likely to continue to decrease. But Treasury has unemployment at over 6% over the next two years, so who’s right? You or Treasury?

Oh, well, we sometimes disagree on things, but in this case, you saw quite a sharp drop just in the quarterly unemployment rate. Now, that might bounce back up again. It will drop from around 6% down to 5.3%.

You said it peaked, though. In your speech, you said it peaked. ‘Unemployment has peaked.’

I’m just taking you through the story. So it’s dropped down. It might bounce back up in the next… that number – 5.3% – might go up again a bit, but what I think we’re seeing is the underlying economy is stronger than the Treasury or others expected in the second half of last year. Most of the data coming through shows that… whether it’s confidence data, trade data, tax data, shows that things are a bit better than we expected, and part of that story, I think, would be that instead of unemployment going to 6.5% or 7%, as some were saying, including the Labour Party, it’s likely to be under 6% and maybe drop off.

All right. Well, thank you so much for joining us this morning, Finance Minister Bill English. Appreciate your time.

Thank you.

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