Productivity Commission on land for housing

The Productivity Commission has done a final report on using land for housing. The report is over 350 pages long with lots of data.

Its recommendations:

• When councils review their rating policies in the future, they should review the evidence in this report with a view to adopting land value as the basis for setting general rates.
• In future local government amalgamations, central and local government should take the opportunity to consider the merits of adopting land value rating to encourage the efficient use of land.
• The government should investigate removing the rating exemption on land owned by the Crown (including on land used for health and education purposes), land used by local government for recreation and community facilities, and the Crown’s exemption from other local government fees and charges.
• Councils should remove minimum apartment size rules in district plans.
• Councils should remove minimum parking requirements in district plans and make more use of traffic demand management techniques (for example, variable pricing for on-street parking).
• Councils should lift current height limits where it cannot be demonstrated that the benefits outweigh the costs; and undertake robust cost–benefit analyses before considering the introduction of building height limits.
• Councils should review district plan controls on the internal design and construction of buildings or dwellings that exceed standards set under the Building Act 2004, with a view to removing them.
• The government should amend the Land Transport Management Act 2003 to allow pricing on existing roads where a case has been made that it would enable more effective use of the roading network.
• The government should legislate to create a regime similar to special housing areas whereby certain developments undertaken by local urban development authorities are designated by Order in Council as having the potential to deliver significant numbers of dwellings, and within which the urban development authority will operate with different powers and land use rules.
• The government should provide for ‘designated developments’ undertaken by local urban development authorities to allow higher height and storey limits than in the special housing areas regime, and to allow non-residential uses that may be necessary for the development to be economically viable.
• The government should legislate to grant compulsory acquisition powers to local urban development authorities for ‘designated developments’, subject to the normal processes, compensation and protections of the Public Works Act 1981.
• The government should establish a threshold for the price difference between developable and non-developable land, beyond which it will ensure additional developable land is made available.
• The government should establish a process involving the relevant council to bring forward the release of additional greenfield land where relative land prices exceed the threshold set.

There is no one silver bullet there but the combined impact of the recommendations would be considerable.

How much difference could this make:

A report considering global housing affordability issues concludes that “unlocking land supply at the right location is the most critical step in providing affordable housing” (McKinsey Institute, 2014, p. 7). The report estimates that unlocking land supply could reduce the annualised cost of a standard unit of housing by between 8% and 23%. Remarkably, in the world’s least affordable cities (including Auckland), unlocking land supply could help to reduce the cost of housing by between 31% and 47%. Productivity improvements in construction, by taking advantages of scale or taking an industrial approach to construction, could help to reduce the cost of housing by a further 12%–16%.

So in total, you could halve house prices in Auckland and reduce them by a third elsewhere.

Local regulatory constraints to releasing land and development capacity for housing have national and economy-wide impacts. Overseas research suggests constraints on the supply of housing in high-wage cities can price out workers who would be more productive if they could move to take up the opportunities available. Lifting barriers to urban growth by releasing land and development capacity in these cities would increase a country’s gross domestic product (GDP). Quantifying the size of the prize is difficult but it could be significant. One US study (Hsieh & Moretti, 2015) estimates that lowering regulatory constraints on land supply in three high-productivity US cities – New York, San Francisco and San Jose – to that of the median level of restrictiveness in the US would increase GDP by 9.5%. A productivity bonus anywhere near this level would be of major significance to the New Zealand economy. Indeed, it is difficult to think of many other policies that would yield such an improvement in the nation’s economy.

RAW DATA: Productivity Commission report Using Land for Housing

Poilitical commentator and pollster David Farrar posts at Kiwiblog.