The Productivity Commission creates a compelling case for bottom up, top down reform in its draft report released last week on Using land for housing.

So far the only recommendation that Finance Minister Bill English has ruled out is that central government’s rating exemption on Crown land should be abolished. 

That leaves 37 recommendations still in play, at least for now.  Submissions are due by 4 August. 

Scoping the problem

The Commission focused its inquiry on the territorial authorities in New Zealand’s ten fastest growing urban areas. 

It found that, compared to other countries, planning matters in New Zealand are highly devolved.  This devolution has given rise to a “democratic deficit” in which homeowners exert disproportionate influence over council decision-making, often to conservative effect as they seek to protect the value of their property (NIMBY-ism).

The costs of this behaviour over time have been high.

Key findings in the draft report are that:

  • land values have been rising faster than total property values over the last 20 years, suggesting a shortage of residential land in places people want to live
  • the problem is particularly acute in Auckland where land value accounts for as much as 60% of property value, compared with about 40% in the rest of the country
  • even if Auckland adds 8,000 new dwellings each year, which is higher than has been achieved in any year since 2005, the shortfall will double to 60,000 by 2020
  • an analysis by McKinsey Global Institute last year on global housing affordability, estimates that unlocking land supply could help to reduce the cost of housing by between 8% and 23% and - in areas of high demand pressure - by between 31% and 47%
  • a more “industrial approach” to construction, one permitting economies of scale, could reduce costs by a further 12% to 16%, and
  • resolving New Zealand’s land supply and housing availability issues will require striking a new balance in the planning system between local and national interests, and between protecting existing amenity values and enabling development rights.

Constructing the solution?

The Commission’s proposed approach embodies a mix of attitudinal, legislative and structural change.

Attitudinal change

These draft recommendations are aimed predominantly at councils, consistent with the Commission’s view that they tend to protect the interests of incumbents in the property market at the expense of aspiring homeowners.

Changes aimed at “high growth” local authorities include:

  • expressing their land supply targets in terms of zoned and serviced land (currently only Auckland and Hamilton Councils do this) and reporting publicly on whether these targets are being achieved
  • monitoring and reporting on dwelling completions and net changes in the dwelling stock relative to expected and actual population growth
  • removing from their District Plan balcony/private open space requirements for apartments, and minimum parking requirements
  • reviewing with a view to removing minimum size rules for apartments, but only after the Ministry of Business, Innovation and Employment (MBIE) has completed a planned update on Building Code rules and guidance related to air quality, lighting, acoustics and access in multi-unit dwellings
  • imposing building height limits only after a thorough cost benefit analysis and lifting existing limits where the benefits do not outweigh the costs
  • reviewing any District Plan rules that exceed the standards contained in the Building Act (the Commission suggests that these may be unlawful based on case law that Christchurch City Council had exceeded its authority when it sought to impose a higher seismic standard than required by the Building Act)
  • identifying areas where there is spare capacity within existing infrastructure networks and ensuring that planning rules do not prevent intensification in these areas
  • basing rates on land values rather than capital values (which would mean reversing the trend of the last 20 years) as this will reduce the incentives to land bank 
  • making more use of user charges for infrastructure services (the Commission notes that water use dropped significantly in Tauranga after the Council introduced water meters and volumetric charging), and
  • considering targeted rates for new developments (these would perform a similar role to development contributions in enabling Councils to recover infrastructure costs from the beneficiaries of the investment, but would apply over a longer timeframe rather than being paid upfront in the price of the house).

Legislative change

A number of the draft recommendations would require law reform.  Among these are:

  • creating a new “legislative avenue” which would combine elements of the three main planning Acts – the Resource Management Act (RMA), the Local Government Act (LGA) and the Land Transport Management Act (LTMA) – to enable integrated spatial planning for the purpose of “effective, efficient and sustainable development of cities and urban environments”.  Spatial plans would be developed in partnership with the full set of central government agencies providing relevant services (schools, hospitals etc)
  • amending the RMA to clarify the role and importance of housing and the urban environment
  • examining whether Independent Hearing Panels should become a permanent feature of the planning system, based on the experience of Christchurch and Auckland     
  • amending the LTMA to enable user charges on the transport network (currently this requires specific legislation)
  • developing a National Policy Statement relating to the provision of adequate land for housing
  • expanding existing powers in the RMA to enable Ministers to direct changes to District Plans and Regional Policy Statements where there is insufficient provision for development capacity to meet population growth, and
  • creating an exemption to the Overseas Investment Act (OIA) screening regime for developers who buy land to develop in the near term for housing.

Urban Development Authorities

These are widely used in Australia, the United Kingdom, Hong Kong and parts of the United States.  They can take a range of forms but are typically engaged in large scale regeneration, renewal or development projects.

Wellington is considering creating a variant of the Urban Development Authority (UDA) and Development Auckland is a step in the UDA direction, but the Commission clearly thinks that more is required, particularly in Auckland. 

It says that Special Housing Areas (SHAs) do help to streamline planning processes but that they do not address the lack of scope for large residential developments.  Only one of the SHAs so far announced in Auckland has the capacity to deliver over 3,000 dwellings. 

A UDA as a public agency could lead and coordinate residential development at scale, possibly using powers of compulsory acquisition to buy tracts of land for release to private sector developers on both green field and brown field sites.

Process from here

The Commission is due to present its final report to the government by 30 September, and is seeking public submissions on the draft.  The pattern from the Commission’s previous inquiries would suggest that a number of its recommendations will be adopted, if not in whole then in part. 

Many of the recommendations, with their focus on greater central government control over planning matters, and more robust cost benefit analysis to support planning rules, are in line with the general tenor of the (recently stalled) ‘Phase 2’ amendments to the RMA, suggesting they will get a sympathetic hearing in the National Caucus.

Bill English provided a guide to the government’s early thinking in a “stand-up” on his way to the House on Wednesday.  He said that compulsory acquisition would be “a bit of a stretch" and, as noted at the top of this Brief Counsel, kiboshed the idea that the government should pay rates.

But he said the suggested exemption from the OIA for foreign investors was “interesting”, that congestion charges were difficult but could not be ruled out, and that he was open to targeted rates.

The Commission has come up with some bold and interesting ideas, many of which deserve more scrutiny.