Source: New Zealand Government
Acknowledgements
Good morning. Can I start by acknowledging Simon and the team at the Chamber. Thanks for the invitation to be here today.
Introduction
In October last year New Zealanders voted for change.
The Coalition government was elected with a clear mandate to rebuild the economy and reduce the cost of living, restore law and order and deliver better public services.
As the Prime Minister said in his State of the Nation speech a couple of weekends ago, New Zealand is in a fragile state.
The last government went on a spending spree. Government spending is up 84 per cent since 2017 – and debt has climbed from $5 billion to a staggering projection of well over $100 billion.
And what do we have to show for it?
Well, inflation is high – with inflation here higher than Australia, the UK, the US, Canada, Japan and the EU.
The cost of living crisis isn’t over yet.
Interest rates are at their highest level in more than a decade.
In education, since 2000 our 15 year olds have slipped from 4th in the developed world for maths to 19th.
Where 79 per cent of students in the UK attend school regularly – the equivalent rate of attendance in New Zealand is just 46 per cent.
That’s a year of education lost by the time they’re 15 – and that’s not fair to them or their futures.
In health, our hospitals are no longer delivering the standard of care New Zealanders could once rely on.
Just a few years ago, 250 people were waiting more than 12 months to receive a first specialist appointment. Now there’s more than 4,000.
One in three of us now wait longer than six hours to be seen in emergency departments.
There are 70,000 more people on a Jobseeker unemployment benefit today than there were in 2017. That’s like adding every man, woman and child in Napier onto the Jobseeker benefit in just six years.
Even more catastrophic is that if you do go onto a benefit, you’ll stay there for longer.
MSD have told us that for the 2,000 young people receiving a youth payment or young parent payment, they are now expected to spend an average of 24 years of their working life on a benefit.
24 years. Up almost 50 per cent in just three years.
Almost every week, Ministers are uncovering new disasters in their portfolios.
For example – since we came into government, we’ve uncovered a big financial mess at Kainga Ora.
Advice from Treasury was that Kainga Ora’s forecasts relied on the sale of 10,200 homes in the coming years just to balance its books, even while Kainga Ora’s debt is set to rise to $29 billion.
You all know about the disastrous interislander ferry replacement project which we canned at the end of last year, after costs quadrupled to an eyewatering $3 billion.
Given all of what I’ve just outlined – and there’s much more I could have said – it’s no surprise New Zealanders collectively said last October that there has to be a better way.
In my view, New Zealanders rightly rejected the idea that talking about kindness was enough. They rejected endless working groups and consultations that lead nowhere. They rejected the idea that simply talking about good intentions was a substitute for real action.
Fundamentally, they chose a new path for New Zealand. One where government doesn’t try to do everything, in which we focus on the basics, and where we focus relentlessly on achieving outcomes for the New Zealand people.
Getting New Zealand back on track is going to involve some tough decisions in the coming years.
That’s especially true of the area of housing, which is the focus of my speech to you this morning.
Various governments have put housing in the too-hard basket for too long.
Housing
It’s my view that one of the most important things we can do to rebuild New Zealand’s economy is to fix our housing crisis.
Let me share the following harrowing facts with you.
- Between 2000 and 2021, inflation adjusted house prices in New Zealand rose 256 compared with 64 per cent in the United States and 110 per cent in Great Britain.
- In fact, after-inflation house prices in New Zealand have increased by more than any other OECD country over the past 30 years.
- In 2022, 46% of renting households spent more than 25% of their disposable income on rent, up from 19% in 1988.
New Zealand’s housing crisis affects almost every aspect of New Zealand society.
Our collective failure to build enough houses has trapped people in poverty, it has increased inequality, it has made us poorer rather than wealthier, and it has shattered the Kiwi dream of a property-owning democracy.
Let me articulate three key reasons to focus on fixing housing.
First, fixing our housing crisis will improve productivity.
As the economist Paul Krugman once said, “Productivity isn’t everything, but in the long run, it’s almost everything.”
If New Zealanders want world-class health and education, if we want to protect our beautiful environment, if we want to give support to those who need it most, our ability to pay for those costs is tied to what we produce. Ultimately, that depends on how much we produce for each hour of work.
For decades, New Zealand has suffered from a productivity disease.
In the 1950s, New Zealand’s GDP per capita was 125% of the OECD average. Today, New Zealand’s per-capita income is below the OECD average.
Between 1970 and 2020, GDP per hour worked in New Zealand fell from 89% of Australia’s to 76%; from 101% of the UK’s to 69%; and from 71% of the United States’ to 58%.
Today, the average Kiwi earns in one hour what an Australian earns in 45 minutes.
We are making up part of the income gap with other countries by working longer. The average Kiwi works 370 hours a year more than a person in the UK – the equivalent of nine extra weeks. And still our incomes lag.
Fixing that problem will require addressing a range of sectors and eliminating bottlenecks in all parts of New Zealand’s economy, including agriculture, financial services, and research and development.
But today I want to talk about the critical role of effective and efficient urban development.
Cities are engines of productivity, and the evidence shows bigger is better.
On one estimate, doubling a city’s population increases productivity by 15%.
When we stop people building houses, we lock people out of cities. That makes us poorer.
Cities also encourage innovation.
If you go back through history, transformational innovation has almost always happened in cities. Think Amsterdam in the 17th century, London in the late 18th century… and San Francisco today.
Cities bring people close together. They mix and mingle and share ideas. Cities increase the likelihood of chance interactions between innovators that change the world.
New Zealand can raise our productivity simply by allowing our towns and cities to grow up and out. We need bigger cities and, to facilitate that, we need more houses.
Of course, to really lift productivity, growth in our cities has to be connected.
Connectivity is what makes cities more productive. Economists use the term agglomeration to describe the remarkable fact that a worker whose job is located in a city is more productive.
From a productivity perspective, cities are large labour markets. Higher productivity comes from greater competition and deeper specialisation of large markets.
But if a worker living on one side of the city cannot reach a job on the other side of the city in a reasonable time, say 30 minutes, then the worker and job are effectively in different markets.
That is why connectivity matters. Without it, a large city is more like a collection of smaller cities joined together.
That’s why the City Rail Link is so important in Auckland. It will double rail capacity in Auckland, and lead to dramatically reduced travel times for many people getting around Auckland.
And it’s why here in Wellington we need the second Mt Victoria tunnel, Petone to Grenada and the Cross Valley Link in the Hutt Valley, and a strong focus on investment in our bus and train network.
Let me briefly mention the fiscal case for taking the issue of housing supply seriously.
The government spent over $5 billion last year alone on housing assistance.
If that amount stays flat, over the 4-year budget period the New Zealand government will spend over 20 billion just on helping people to be housed.
That’s 15 Transmission Gully motorways.
The taxpayer subsidises rents for people in social housing, we pay for emergency housing grants, we pay for transitional housing, we help people with their bond payments, and so it goes.
A failure to reform housing has made it extremely expensive for government.
Every dollar spent on subsidising rents is money that isn’t spent on improving schools, on more police, and on better cancer treatment.
Thirdly, let me talk about the moral case for housing market reform.
At its heart I believe housing is a moral issue.
How can anyone look at the mother forced to go into labour in a car in Rotorua and think that is kind or moral?
How is it moral for thousands of our fellow citizens to live in motels for months at a time, bouncing from grotty unit to unit, often surrounded by squalor, crime and poverty?
This is state neglect on an industrial scale. And it is entirely self-inflicted and unnecessary.
What sort of country have we become where this becomes institutionalised and normalised?
Of course, it’s not just about emergency housing.
The simple truth is that young people today just don’t have the same opportunity to get into the housing market as their parents did, or their grandparents.
Fundamentally it is an issue of intergenerational equity.
Young people stare at our broken housing market and think they have no hope of ever owning their own home.
And for many, they’re right. They don’t.
Are we surprised that so many are leaving New Zealand?
Most of my friends live offshore.
The lure of London, New York and Sydney will always be attractive to young Kiwis.
But our housing market is practically standing at the departure lounge at Auckland Airport and in big neon writing telling them to just get on the plane.
And the housing market is the giant sucking sound at the heart of the New Zealand economy telling them not to bother coming home.
Housing: our agenda
Our agenda to fix the housing crisis consists of five interlocking actions.
- First, our Going for Housing Growth policy will smash urban limits holding our cities back, fix infrastructure funding and financing, and introduce incentives to encourage cities and regions to go for growth.
- Second, improvements to the rental market will make it easier to be a landlord, and easier to be a tenant.
- Third, building and construction changes will improve competition and lower building costs.
- Fourth, better social housing will better look after those who need support.
- Fifth, reform of the Resource Management Act.
I want to focus on the first of these policies today.
Going for Housing Growth
Our Going for Housing Growth policy deals with the underlying causes of our housing crisis: uncompetitive urban land markets, infrastructure funding and financing, and a lack of incentives for councils and communities to go for housing growth.
Cabinet has agreed to this ambitious programme of work and I’m releasing the Cabinet paper relating to it today.
The first element of our package is to require councils to live zone enough land for 30 years of housing growth.
New Zealand is not short of land, but artificial constraints on using it have driven the price far higher than it should be.
For example, each square metre of urban land at Auckland’s fringe costs 4.2 – 4.4 times more than nearby rural land. This zoning premium doubled between 2011 and 2021. We see similar results for other Tier 1 cities (excluding Christchurch) and Queenstown. These differentials are the product of artificial supply constraints due to restricted zoning in plans, delays and uncertainty due to resource consents, and infrastructure.
The idea that zoning and land supply does not affect housing affordability is frankly nuts. The evidence is as plain as day: cities that make it difficult to build more housing have housing affordability problems. Cities that legalise housing find it is more affordable.
As part of requiring Councils to zone for growth, we will give them the flexibility to opt out of the Medium Density Residential Standards. Our Coalition agreement with the ACT Party requires Councils that have modified their plans already to ratify their use of the MDRS. In other words, they will get a chance to have a look at them again if they can prove they have sufficient development capacity.
What we’re trying to do is strike the right balance between zoning for housing growth and flexibility for councils to decide how that growth happens.
The government position is that the MDRS tools were too blunt and one-size-fits all. They met with considerable hostility from many councils and many communities.
So to put it bluntly, we are going to let councils have more discretion over where they have density, but they’re going to have more housing. It’s as simple as that. In some cases that will mean more greenfields development, where the infrastructure costs can justify it. In other cases it will mean more density. In most places it will mean a combination of both.
We are pondering right now the best way to give effect to our policy of 30 years of growth. It is important we get the policy mechanism right and I’ll have more to say soon.
We will also be making changes to the NPS on Urban Development. I am keen to make it easier for mixed-use zoning, particularly around transport nodes. It’s mixed-use zoning that produces the type of cities that New Zealanders regularly travel overseas to enjoy; but which we could have right here at home with some imagination and the right tools at our disposal.
In the coming months we will introduce legislation to give effect to the policies I’ve just talked about. We will also be legislating to amend the Building Act and the RMA to make it easier to build granny flats or other small structures up to 60sqm, as per our coalition agreement with NZ First.
There is additional complexity to all of this by dint of the fact that councils are at different stages of altering their plans to give effect to the NPS on Urban Development as well as the Medium Density Standards. Some have been given extra time for a variety of reasons; and others have already completed the process.
So there is quite a bit of legal complexity to work through – but the direction of travel is very clear. We want councils to continue with their plan changes to enable more housing and the optionality of the MDRS will be conditional on Council’s proving 30 years of development capacity is available in their area.
I can also announce today that I will be the decision-maker on relevant district plan changes relating to housing where councils and Independent Hearings Panels do not agree – for example, the Wellington IHP process depending on where the Wellington City Council lands on it, or any requests for extensions to timeframes – in my role as the Minister Responsible for RMA Reform.
The second element of Going for Housing Growth is around infrastructure funding and financing.
Zoning more land by itself isn’t enough. The plain fact is that Councils need new tools to fund infrastructure.
Currently, local roads and water infrastructure compete with other Council services for funding. For Councils at or near their debt limit, new infrastructure is necessarily funded from working capital, putting upwards pressure on water charges or rates and forcing Councils to depend on hand-outs from the central government through programmes like the Infrastructure Acceleration Fund set up by the previous government.
Our position is that pricing should play a greater role in infrastructure funding. Growth bottlenecks have emerged precisely where prices do not reflect costs. Infrastructure should earn sufficient lifetime revenue from service charges to recover its whole-of-life costs. Where charges are credibly signalled in advance, they will be reflected in urban land prices by lowering the price a developer is prepared to pay for land.
Infrastructure charges also provide the revenue base required to access finance. Revenue sufficiency is the key principle that growth should pay for growth and provides confidence that infrastructure will be available when and where it is needed.
The third and final element is around incentives for growth.
Too many Councils see housing as a burden, not a benefit. We aim to change that. Abundant housing benefits everyone, but too many councils are either ambivalent about growth or actively hostile to it. I want to shift the dial away from that so that councils and communities share in the benefits of growth.
In the coming months we will be looking at the best mechanism to give effect to our “Build for Growth” policy, where Councils gain a financial windfall from new housing. ACT campaigned strongly on sharing a percentage of the GST of new housing with councils. That will be part of the mix as we ponder how to get the incentives right.
Conclusion
Past governments have left housing in the too hard basket. As the Prime Minister has rightly said, this government is going to make the tough decisions in the national interest so we can get our mojo back as a nation. Part of that includes finally addressing the national disgrace that is our broken housing market. If we get this right, we will all be wealthier, more prosperous and better off.
Thank you.
