MONEY TALKS: Making homes affordable

By Paul McBeth

You may have missed it, but the government gave a nod to a worthy tome from the Productivity Commission this week, saying it's looking at the problem of home affordability and wants to crack on with something to fix it.

That something is still up in the air, with the official response boiled down to a raft of new research, some tweaks to laws that are already being reformed, and a heavy hint the government will start leaning on councils to free up land supply for developers to come in and build homes at the bottom end of the market.

The one thing Finance Minister Bill English was clear on is that he doesn't want to take a great big whack at existing property owners' house values, he just wants to make it easier for first-home buyers to get themselves on the ladder without killing themselves.

You could be forgiven for thinking 'so what'. And that was largely the same response from most pundits who couldn't get themselves excited about a 'softly-softly' approach that wasn't going to show any tangible detail for at least another six months.

It's a fair enough assumption to make that if you can free up more land to build low-cost housing, then the prices of those homes should be cheaper - after all it's a straight supply and demand graph.

But it's not that simple.

We've got massive construction efforts in the pipelines with Christchurch city to rebuild, major roading projects to roll out, a nationwide broadband infrastructure to construct, not to mention the usual school and hospital building that goes on.

That's going to take up the time and effort of the country's big construction firms, so what's left over to throw up a few thousand residential houses for people at the bottom end of the market with less dosh to spend?

Well the government seems to think it can magically bring down the costs of delivering these houses by tweaking legislation and freeing up land so much so as to make it a compelling business case.

Oh yeah, and it's also got a study into how the construction sector prices things so it can get a handle on those things, just in case all doesn't go to plan, and things like sector capacity do actually feed into pricing.

That's all well and good, but it takes a decent leap of faith from those who didn't jump on to the property bandwagon during the boom times and don't have a spare $400,000 lying around to get a foot on the bottom rung of the ladder.

The case is hardly strengthened by the government's dismal view of the construction sector, which it says is one of the "least productive and efficient contributors to the economy," according to English and Economic Development Minister Steven Joyce's glossy report on building the business growth agenda.

The report points out that New Zealand's construction accounts for about 4 percent of gross domestic product - about half the rate in Australia, the US and UK - and not nearly productive enough to raise the wages of its workers who are typically at the bottom of the socio-economic heap themselves.

What's more, even if the potential tweaks do build enough of a margin to incentivise low-end housing for developers and builders, there's no guarantee the stock will be any good.

The Productivity Commission report was scathing of the poor quality of New Zealand's $625 billion housing stock, with the most common issue being damp and cold homes.

The commission identified a 2011 survey by building and construction research outfit BRANZ, which found the condition of local housing hasn’t changed much since the mid-1990s, and earlier reports showed owners spent less on maintenance than expected.

What's more, it was significantly worse for renters than it was for owner-occupiers.

To top things off, the government wasn't that keen on tackling the state of rental property, saying there's no work to consider rental stock and noting "quality standards can work against housing affordability by increasing the cost of housing."

Which makes sense if the government's focus is on trying to make sure housing supply will keep a lid on prices, but seems pretty short-sighted given the extend of people renting.

So if you're looking to get into the market and you're not wearing a white-collar, try not to spend too much at the hospital.

And if you're on your way to being freehold, you can probably exhale now.



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