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Brief Counsel

Housing affordability paper - chance for a real change?

27 June 2011

The Housing Affordability paper from the newly-established Productivity Commission identifies a number of issues which have been a longstanding source of irritation to the property development and construction industries.

This suggests an opportunity for meaningful reform.  We recommend early engagement in the consultation process. 

Feedback is due by 3 August 2011.

The review

The Productivity Commission helpfully lists those issues to which the Government has asked it to give particular attention.  They are: 

  • factors influencing the supply of land and basic infrastructure for residential construction
  • factors influencing the cost of residential construction, including the cost effects of standards, specifications, approval and title requirements
  • the level of productivity growth in land development and residential construction and the effect of government regulations on these industries
  • the efficiency of taxes, levies and charges imposed at all stages in the housing supply chain
  • the tax treatment of owner-occupied and rental housing
  • the influence of changing consumer preferences, willingness to pay and financing costs on house prices, and
  • the operation of the overall housing market, with specific reference to the availability and range of public and private housing types, housing demand, and whether the existing housing stock is being used efficiently.

This Brief Counsel will focus on these areas rather than summarise the whole document because we assume that this is where the Government is looking to make policy change.

Urban planning, design and land use policies

The Commission asks how urban planning and development could better integrate strategies for land use, economic development, transport and infrastructure?

The current system is complex and fragmented, combining the Resource Management Act (RMA), the Local Government Act (LGA) and the Land Transport Management Act (LTMA). 

Development proposals are broken down into economic, infrastructure and environmental components and are examined separately according to the relevant statute.  Nor is there any single mechanism to facilitate engagement among stakeholders or to promote informed and robust decision-making. 

Infrastructure charges

Local authority infrastructure charges are a sizeable component of new housing construction costs and vary widely across the country.  There is also a view that they have been pushed up in recent years as councils load costs on to developers rather than raise general rates. 

The Commission asks whether alternative funding methods could deliver fairer and more efficient outcomes.  It also wants feedback on:

  • whether the costs of providing services such as schools, parks and libraries should be recovered via infrastructure charges
  • whether current charges are justified or if there is evidence of over-recovery, and
  • whether the basis for calculating charges is transparent or subject to too much council discretion.

Building controls

The Commission asks whether the 2004 amendments to the Building Act, made in response to the leaky homes crisis, have got the balance right or are adding unnecessarily to construction costs.

It also wants to know if there are unnecessary delays in securing building consent approvals and, if so, what’s causing them and how the process might be streamlined.

Performance of the building and construction industry

Productivity in the building and construction sector is low relative both to other countries and to other sectors within New Zealand.  Questions that the Commission raises around this issue include:

  • whether construction costs are higher than they need to be and, if so, why
  • whether rising construction costs have contributed to housing affordability, and what factors are driving the increases
  • whether there are concerns with the level of competition in the building materials market or in any other parts of the supply chain
  • whether the relative lack of standardisation in the New Zealand market is down to consumer preference or industry approach, and
  • whether the skills shortages the industry faces are temporary or long-term and how they will be affected by and affect the Christchurch rebuild.

Taxation

The Commission is planning to do more work on the effects of the tax treatment of both owner-occupied and rental properties on house prices and on the efficiency of housing markets and the wider economy.  Areas for exploration include:

  • how taxes are affecting affordability, especially for first home buyers
  • to what extent the tax treatment of investment housing is concessional relative to other assets and whether this has inflated demand and prices
  • whether the tax system is influencing tenure decisions toward or away from home ownership
  • the impact of rates on housing demand, and
  • the overall burden of taxation on housing in New Zealand compared with other jurisdictions.

Availability of finance

The Commission is also looking for input on a range of factors around mortgage finance, including:

  • whether product innovation and lending practices have changed since the economic downturn
  • whether lending facilities are meeting the needs of home buyers, in particular first home buyers
  • the extent to which the financial sector is exposed to property markets, and
  • what vulnerabilities present the greatest risk to the financial sector given household debt levels?

The timetable from here

The Productivity Commission has a lot riding on the outcome of this review as this is its first piece of work and will provide an early indicator of whether it will be able to achieve the same respect as  the Australian Productivity Commission commands in Australia.

A draft report incorporating the Commission’s further work and the responses to this paper will be put out for consultation in October with submissions due before the end of this year.

The Commission will deliver its final recommendations to the Government in February 2012.

For further information and assistance with submission preparation, please contact the lawyers featured.

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