Let’s fix this
Analysis: How do you provide affordable housing, outside of Christchurch? Find a home for investment money, reform water management and let local authorities borrow more, writes Bernard Hickey.
Mike Greer has been there and done that, and would like to do it again all over the country and in amuch biggerway.
His company was building around 1200 homes a year at the height of the Christchurch rebuild and Mike Greer Homes is still building around 1000 a year, including about 500 in Auckland.
He knows home builders in towns and cities all around New Zealand could unleash a lot more new homes if only they could more easily get cheap finance, and if councils could release more land inside and outside city limits, with the help of no-interest borrowing.
There’s plenty of demand from first-home buyers and rental property investors because interest rates are so low, he says.
It turns out there’s also plenty of savings and freshly printed money looking for a place to be invested at those low rates. The problem is putting together the savings and the house builders to get the housing supply created so the Christchurch affordability ‘‘miracle’’ can be repeated all over the country.
Treasury borrowed $250 million thisweek at a negative interest rate – minus 0.0142 per cent. That means fund managers and banks effectively paid the Government $14,200 to look after each $1m of their savings for three years. No interest back in return: just the relief of knowing they don’t have to employ security guards to look
Tenby Powell Tauranga Mayor after stacks of cash in their cupboards.
It seems astonishing to write this, but there was so much demand for this deal that almost all the $687m offered in the auction was at negative interest rates. There is no shortage ofmoney in the system, but councils and the Government are yet to loosen their purse strings in ways thatwould ramp up house building beyond pre-covid-19 levels.
Greer thinks that currently-free money could multiply the building rate and help the rest of New Zealand, if politicians and bureaucrats wanted to.
‘‘The Government should use its cost of capitalmore. It could easily build or fund the development community,’’ Greer says.
‘‘They should be pumping some of that money into the development community. How manymore houseswould that get you? The way to solve this is to just build more,’’ he says of New Zealand’s housing affordability crisis outside Christchurch.
The big four Australian banks are currently unwilling to lend to developers and builders, leaving Kiwibank, TSB and a few other smaller banks to do the heavy lifting, and they have almost run out of capital needed to keep growing lending.
‘‘The Aussie banks have been pretty tough on builders and land developers the last five years and they’ve made it difficult to produce volume,’’ Greer says.
So why don’t the big four lend? ‘‘It’s not to their benefit to lend to the development community. Their set-and-forget loans are to mums and dads on their own houses. They’re like the safest bet, and involve the lowest amount of capital that they have to hold,’’ Greer says.
‘‘That’s their big thing. But if they lend to developers who then oversupply, the thing that they’re scared ofmost is negative house price growth, and they’d end up with a lot houses with negative equity. So it’s not in their interests to lend to the development community.
‘‘All the four Aussie banks want to do is make super profits out of New Zealand. They don’t have any other care in the world for New Zealand.’’
Greerwould like to see the Government provide more capital for Kiwibank to expand its lending, and for the Government to help councils pay for all the infrastructure that is needed whenever new suburbs or brownfields apartments are built.
‘‘It would be amazing. They’re the only ones that you probably trust to direct it in the right way.’’
Greer is not the only one who wants to see that currently ‘‘free’’ money directed into house building and the infrastructure needed before any driveways are laid. The growth councils are crying out for funding to kick-start new developments on the fringes of town and in the centre.
The mayors of the growth cities with the biggest housing affordability problems – Auckland, Hamilton, Tauranga, Wellington and Queenstown – would like to see the Government help. They are all bumping up against the debt limits set for them by national legislation and the Beehive-directed Local Government Funding Agency. They also face ratepayer scepticism and sometimes outright anger at the prospect of councils taking on more debt.
They argue it is central government’s responsibility to solve a housing affordability crisis that mostly hurts the Beehive’s finances through higher accommodation supplement spending, higher hospital and prison bills and ultimately, poorer productivity in decades to come as kids who grew up in poverty in cold, mouldy houses or vans turn up in hospital A&E rooms and court rooms.
Central government coffers benefitmost from productivity and GDP growth through GST and income tax revenues, while rates revenues from growth aremuch lower and lag population growth.
Queenstown Lakes District Mayor Jim Boult says his council is bumping up against its debt limits and would appreciatemore help from the Government.
‘‘I don’t want to leave our district with an enormous financial rope around our necks. I think there’s a level you can go to, and a level you can’t go beyond,’’ Boult says.
‘‘Debt is debt, no matter what the interest rate is, and it has to be paid back in a point of time, and prudence says there’s only a certain levelwe can go to.’’
BBuilder Mike Greer
oult suggests the Beehive could help with a big new Southern Corridor wastewater treatment system to enable new development through Jack’s Point and Henley Downs.
He also sees an eventual move towards the Government owning the assets and the debt connected to council water assets, which would release councils to invest in other infrastructure to enable new housing.
‘‘I suspect in the future that those assets will disappear from councils, and I think that’s a good thing in the longer term,’’ he says.
The mayors of Tauranga and Hamilton also see the potential for the Government’s ‘‘Three Waters’’ reforms, which are aimed at pulling together smaller council water operations into larger and more efficient regional water operators, to help free up council balance sheets to invest in other infrastructure for housing.
Tauranga Mayor Tenby Powell says councils, the Government and iwi should treat the issue of housing supply as an existential crisis in need of urgent action and a different way of thinking. He has pulled together amayoral taskforce on housing called Ka¯inga Tupu, which aims to pull councils, the Government and community organisations out of their silos and working together.
‘‘We have a housing crisis in New Zealand, soaring land and property prices, plummeting home ownership and rampant homelessness. And, of course, we have a dire and abject shortage of social housing. Tauranga is not going to see a reduction in house prices, which are through the roof, until supply matches demand,’’ Powell says.
The Government needs to help to pay for the pipes, roads, parks, footpaths, wires and motorways that have to be laid before any houses are built, he says.
‘‘The answer is trunk infrastructure. There’s no point opening land tracts, which we desperately need to do, without the trunk infrastructure. That’s Three Waters, electricity and roads. All the linear infrastructure has got to come first. It is singularly the biggest impediment to the development of residential land.’’
Auckland Mayor Phil Goff is also calling for help from the Beehive to ramp up house building, both with a larger Ka¯inga Ora build programme and through Crown funding for infrastructure.
Tauranga’s council, like others, is bumping up against a debt limit, legislated centrally, of 300 per cent of revenues. The limit was raised from 250 per cent recently. Somewhat provocatively, Powell asked earlier this year for it to be lifted to 450 per cent.
‘‘All of the high-growth or metro councils are right up against it, because of the speed of growth and the lack of ability to put down trunk infrastructure or linear infrastructure. This is the thing that restricts rezoning,’’ he says.
Fletcher Building’s Residential and Development chief executive Steve Evans also sees the cost of trunk infrastructure as a key constraint, particularly when hard urban growth limits such as Auckland’s lead tomassive increases in land prices whenever rural land is rezoned at the edges, which had not happened in Christchurch.
Councils often put those limits on to avoid having to spend the money on extra pipes andwires and roads to turn the land into serviceable sections.
‘‘Serviceability of land is the issue. There is a political imperative or political dynamics here of what people are prepared to open up at the rural and urban boundary,’’ Evans says.
He also sees the need for other ways for that infrastructure to be paid for, including the use of recently passed legislation to allow the Government’s Crown Infrastructure Partners to fund it.
‘‘The industry needs to look at different models of providing that infrastructure, rather than just saying that this is a debt problem that council needs to take. You can look at the infrastructure financing that is now available privately,’’ he says.
‘‘You can look at more broad national government funding, because of the availability of that money. Or you look at the targeted rate mechanism that is being bandied around at the moment.’’
Powell’s frustration over Tauranga’s homeless crisis is palpable: ‘‘What I’m talking about is the working poor. We have families living in cars here in the Western Bay of Plenty, where one or two family members have jobs. It absolutely breaks my heart, and I find that completely and utterly unacceptable.’’
Yet many older ratepayers are actively campaigning to stop councils from borrowing and investing in the infrastructure.
‘‘A lot of the letters I get are all around stopping growth. What we’ve got to do in New Zealand’s fastest-growing city is tomanage the growth that’s coming. And the only way to do that is to start doing things very differently. We cannot repeat the templated thinking that led us to a locked-up city with a housing crisis, 4000 homeless and running out of housing stock.’’
He says there is nothing wrong with using debt to manage the growth.
‘‘A lot of people don’t really understand it and they worry hugely about debt, and they want to see councils effectively debt-free. Well, that’s not a good use of funds. And most particularly in a lowinterest environment. We should be leveraging debt and using it as much aswe can right now to get ahead of the game. And when I say get ahead of the game, for Tauranga, it’s catch-up,’’ he says.
‘‘We’ve got some of the country’s top building organisations that are ready to go and are deeply frustrated by our inability to act, which is hamstrung by our financial position – us and everybody else.
‘‘We need to start building houses. This is not rocket science. We have a housing crisis here in Tauranga. The supply and demand over the next 18 months will only mean that house prices continue to go up in a recessionary environment. How on earth does that work?
‘‘We are in a crisis right now. I just don’t know that we recognise it. We need to stimulate the thinking of the Government to act now.’’
‘‘We have families living in cars here in the Western Bay of Plenty, where one or two family members have jobs. It absolutely breaks my heart.’’
‘‘All the four Aussie banks want to do is make super profits out of New Zealand.’’