More interventionist policies required to fix housing shortages: Productivity Commission

Wednesday 17th June 2015

The Productivity Commission strongly recommends "more interventionist approaches that will unlock land for large-scale developments to alleviate housing shortages and housing costs", which it says will not be solved by policies already in place.

"The scale of shortage in some settings, and especially Auckland, and the complexities in land regulation, indicate a need for bigger steps," the commission says in its draft report, Using Land for Housing, published today. "Business as usual is clearly proving inadequate to deal with Auckland's housing shortfall."

It recommends the removal of all local body building rules that exceed the requirements of the Building Act and that councils should scrap rules relating to balcony and open space for apartments, minimum apartment size, minimum parking requirements, and that they should be required to undertake "robust cost-benefit analysis before introducing building height limits."

It also proposes the creation of a new national urban development authority with compulsory land acquisition powers, which the commission says may be necessary to assemble large enough tracts of land to allow housing developments to occur on a scale that would bring construction costs down and justify the necessary infrastructure investments that many city councils are reluctant to fund.

"An Urban Development Authority could play an important role at the nexus of a number of barriers to land supply identified," the commission says in the 358 page report, on which public submissions are sought by Aug. 4 ahead of a final report to be issued on Sept. 30.

While Special Housing Areas are bringing new land for development to market, the commission says most are not large enough to allow large-scale developments and do not by themselves encourage private sector development or infrastructure funding. The commission recommends that more user pays charges should be permitted to help fund infrastructure, and that the current ban on local bodies being able to levy road tolls should be abolished.

The commission makes no recommendation on the way rates are levied, but argues that the increasing use of capital rather land value to set local body rates is discouraging the development of bare land. In analysis from Hamilton, where a move from rating on land value to capital value rating is under way, showed rates on bare land would drop substantially as a result of the change.

"Capital value rating acts as a tax on development," the report says. "Yet this sort of tax is increasingly favoured by councils in New Zealand's fastest-growing urban areas: a rating methodology that raises housing costs, discourages development and reduces investment in housing."

Land value rating would also be fairer because there is a stronger correlation between high land values and high income earners than between high capital value and high income.

"Land value is a more progressive valuation base and a better fit for ability to pay," the draft report says.

It also recommends ending the exemption from local body rates enjoyed by central government, saying "the rating exemption on core Crown land does not appear to have a principled justification", while forcing central government to become a ratepayer would encourage the release of unneeded Crown land for housing.

The report also dwells on the political dynamics of residential land development, suggesting that local body politics is inevitably captured by existing home owners, who are more likely to vote in local body elections and whose self-interest is to preserve property values rather than the broader public interest of ensuring sufficient and affordable housing.

Many land supply regulations "may be described as promoting amenity, character, productive agricultural land, the environment, or public health," the report says. "But many decisions of local government ... effectively protect the interests and wealth of those who already own housing, at the cost of those who do not."

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