Cheaper land key to making housing affordable: BRANZ

By NZPA

Monday 11th February 2008

Land prices are the key problem in making housing more affordable, a building industry report says.

The Building Research Association of New Zealand (BRANZ) found that the rising cost of sections was ahead of both interest rates and the cost of new house construction as impediments to new home ownership over the last decade.

Home ownership has fallen over the last 10 years, to 66.9% in the 2006 census from 70.7 in 1996 and 73.8% in 1991.

BRANZ economics manager Ian Page said the cost of sections had risen an average of 14 percent a year during the past five years, and it was the major reason why houses were now out of the reach of many.

"Housing affordability has fallen markedly since 2001 due to a number of factors," Page said.

"The fact that average wages have only increased by an average of 2.2% per year over the past decade has exacerbated this trend."

Existing housing had followed a similar pattern since 1993, the report noted.

Between the 1970s and 1988, rising interest rates and construction costs made houses hard to afford.

Then from 1998 and 1993, houses became much more accessible as mortgage rates fell from 18.5% to 10.5%, incomes went up 22% and house prices increased only 17%.

Home affordability fell again from 1993 and 1998, as construction costs climbed 30% and interest rates rose about 1%, even though wages rose 9%.

There was a blip in 1998 as mortgage rates dropped, but since then home affordability had declined markedly.

BRANZ said there were two possible future scenarios for home affordability, based in certain assumptions.

The "expected" scenario indicated a flattening out of affordability, based on modest wage growth, lower rates of increase for construction and land costs, and a slight reduction in interest costs.

But the outlook could improve under the "optimistic" scenario, in which wage growth would stay quite high while the growth in house and land price s would stay relatively low. Interest rates for home lending would be 3.0% below current rates -- 6% in 2016.

BRANZ said although aspirations to home ownership remained strong , it believed "on balance" there would be "a continued downward trend" and that more people would defer ownership until later in life.

The Government needed to encourage a more professional management of private rental accommodation to provide for people who would never own a home.

With a growing elderly population, there also needed to be more grants or rental accommodation for the less well-off elderly so they could move into more suitable housing or modify their existing house.

Drawing on other recent reports, BRANZ also noted that the demand for new housing units over the next decade would be about 24,000 a year, about 2000 per year fewer than current levels.

A larger proportion of new units -- about 32% -- would be "multi-unit" housing, due to planning changes, transport costs and lifestyle changes.

A significant portion of construction work would be demolition replacements and major refurbishments as houses from the 50s and 60s required refurbishment.

It noted calls for a revamp of the RMA process to reduce delays due to objections, and for penalties on councils with slow consent rates.

In Auckland especially, it noted there were real land constraints and that councils should "take leadership in urban redevelopment for medium-high density housing by a compulsory land acquisition process".

House values in Auckland were expected to grow 5 to 8% a year over the next decade, which would barely be sufficient to encourage enough private sector rental units.

A BRANZ survey of new home owners also showed only 22% were happy with their purchases.

About 45% did not feel they had the "thermal comfort levels" they expected due to poor insulation, lack of double glazing or poor heating.

About 21% reported that their new house was poorly laid out.

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