Source: New Zealand Government
Speech to the Real Estate Institute of New Zealand – 4 July 202
Acknowledgements
Good morning. Can I acknowledge Jen Baird and the team from REINZ. It’s good to be
here with you this morning.
Introduction
This morning I’d like to talk to you about the Coalition Government’s plan to fix our
housing crisis and share some more details about our ambitious agenda for
change.
Our government is determined to fix our housing crisis by focusing on the
fundamentals. Various governments of all different colours have put housing in the
too hard basket and failed to take the tough decisions required.
This government is different.
We need change:
• After inflation house prices have increased by more than any other OECD
country in the past 30 years. Between 2000 and 2021, inflation adjusted
house prices rose 256 per cent in New Zealand.
• In the year to June 2023, 45 percent of renting households spent at least 30
percent of their post-tax income on housing. Research by the OECD shows
that this is even higher for low-income households and higher in New
Zealand than any other country.
• There are 23,500 families on the social housing wait list, a measure of
unmet demand for people in severe housing need.
• And tomorrow, more than 2000 families will wake up living in an emergency
housing motel room.
We are determined to fix housing for three reasons.
The first reason is to boost the economy.
Now, you may find yourself thinking that you are getting an announcement about
residential property, when you are part of the commercial and industry property
sector, but I wanted to make this announcement to this audience today for this
reason: residential property is never just about residential property.
Housing is fundamentally a productivity enabler, and for decades, New Zealand
has suffered from a productivity disease.
As Paul Krugman so famously observed, “Productivity isn’t everything, but in the
long run, it’s almost everything.”
Productivity growth is what drives our standard of living and our prosperity.
It will probably surprise – and I hope alarm you – to learn that our productivity is
closer to places like Poland, Hungary and the Czech Republic than Australia and
other western European countries.
So in other words, our productivity rates are on par with countries that endured 40
years of communism.
The last government used to talk a bit about productivity, particularly at the start of
their time in office. But as they discovered, productivity growth isn’t created by
endless pretty government strategy documents and nice words. Good intentions
aren’t enough.
It will take a sustained effort across many years to really get productivity going in
New Zealand. It isn’t going to be easy.
But a good starting point is housing.
There is now a mountain of economic evidence that cities are engines of
productivity, and the evidence shows bigger is better. 85% of New Zealanders live
in cities.
On average, cities with more than a million people have productivity and wages
that are one third higher than cities with fewer than 250,000 residents.
Limits on urban growth lower productivity by locking workers and businesses out
of cities where they would be more productive.
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.
You all know this more than most – 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.
I’m told that the theme of this conference is “What is the future looking like for this
industry: Hurdles and Challenges’.
Here is my insight: a well-functioning housing market that delivers thriving cities,
growing productivity, and super-charged industry will do more to create a future
that is bright for everyone in this room – as well as all other New Zealanders – than
just about anything else government can do.
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.
The second reason to fix housing is to help get the government books back
in order.
Central government spent over $5 billion last year alone on housing assistance in
many different forms. That includes the accommodation supplement, subsidies for
income-related rents for people in social housing, emergency housing grants,
transitional housing, and initiatives to address homelessness.
Each new government programme has begat another government programme;
and they have grown like mushrooms. The system is complicated, confusing, and
often duplicative. Most importantly, it is extremely expensive.
If that $5 billion amount stayed 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, an astonishing amount of money.
Every dollar spent on subsidising rents is money that isn’t spent on improving our
education system, on funding the health system, and resourcing our police force.
The third reason to fix housing is the moral case
Something has gone very wrong when it is normalised for thousands of people to
live in motels for months at a time paid for by the government. It’s a get-rich-quick
scheme for motel owners but awful for the families involved and of course awful for
taxpayers.
Something has gone very wrong when the Supreme Award winner of the 2022
Property Awards was the Auckland City Mission building.
It’s a great development and the Mission does fantastic work, but what does that
say about modern-day New Zealand? We build award-winning homeless shelters
– and we’re proud of it?
Something has gone very wrong when home ownership is at record lows in a
country that used to pride itself on being a property-owning democracy.
Something has gone very wrong when so many New Zealanders and their families
look overseas in search of more affordable 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. In just
2002, New Zealand’s housing market met the widely accepted international
standard of housing affordability, with the ratio of house prices and wages at 3:1.
Now, house prices outstrip wages by almost 7:1.
Fundamentally this is an issue of intergenerational equity.
Housing: our agenda
To fix the house crisis, it has to be easier to build a home. Our agenda to fix
housing consists of five interlocking actions.
• First, our Going for Housing Growth policy.
• Second, improvements to the rental market to make it easier to be a
landlord, and easier to be a tenant.
• Third, building and construction changes to improve competition and lower
building costs.
• Fourth, better social housing to better look after those who need support.
• Fifth, reform of the Resource Management Act.
Going for Housing Growth
Today I want to focus on the first of these, called Going for Housing Growth. It
consists of three pillars that address the root cause of our housing crisis.
Going for Housing Growth involves freeing up land for development and removing
unnecessary planning barriers, improving infrastructure funding and financing, and
providing incentives for communities and councils to support growth.
Report after report and inquiry after inquiry has found that our planning system,
particularly restrictions on the supply of urban land, are at the heart of our housing
affordability challenge.
We are not a small country by land mass, but our planning system has made it
difficult for our cities to grow. As a result, we have excessively high land prices
driven by market expectations of an ongoing shortage of developable urban land
to meet demand. This explains why each square metre of urban land at
Auckland’s fringe costs 4.2 – 4.4 times more than nearby rural land, and the
zoning premium doubled between 2011 and 2021.
In February this year I said that the government was working on a series of
changes to make it easier for our cities grow out and up and today I want to outline
the changes that Cabinet has recently agreed to.
Our plan builds on the existing National Policy Statement on Urban Development
(NPS-UD) and the Medium Density Residential Standards, both advanced by the
previous government. The NPS-UD in particular is a good step forward but it
needs strengthening and refining.
Our position on the MDRS is well-known. It was a well-intentioned move to
liberalise urban land markets but was too much a one size fits all solution. As
agreed between National and ACT in the coalition agreement, the MDRS will
become optional for Councils.
Today I can announce six changes Cabinet has agreed to, under the Going for
Housing Growth pillar of land supply.
1. The establishment of Housing Growth Targets for Tier 1 and 2 councils
2. New rules the make it easier for cities to expand outwards at the urban
fringe
3. A strengthening of the intensification provisions in the NPS-UD
4. New rules requiring councils to enable mixed-use development in our cities
5. The abolition of minimum floor areas and balcony requirements
6. New provisions making the MDRS optional for Councils
There’s quite a bit of detail in all of these changes, which have been carefully
worked through by a cross-agency group involving the Ministry of Housing and
Urban Development, the Ministry for the Environment, Treasury, and the
Infrastructure Commission, alongside a Housing Expert Advisory Group of urban
experts and economists.
1. Housing Growth Targets
The first change will be a requirement for Tier 1 and 2 Councils to meet Housing
Growth Targets.
These requirements will apply to 24 city, district, and unitary Councils across New
Zealand, including our largest urban centres of Auckland, Christchurch, and
Wellington, as well as places like Tauranga, Hamilton and Dunedin.
These targets will require these Councils to “live-zone” feasible development
capacity to provide for at least 30 years of housing demand at any one time.
Let’s unpick this a bit.
Live-zoning means to provide for housing to be enabled, in other words the land
can be used for housing in a plan that is legally operative and in effect.
And feasible development capacity means housing capacity that is commercially
viable for a developer to build at a profit.
How does this differ from the status quo?
Currently, the National Policy Statement on Urban Development requires councils
to plan for 30 years of housing demand, but it only requires councils to ‘live-zone’
feasible development capacity to meet three years of demand at any one time.
So we will be changing the requirements to make councils live-zone thirty years of
development capacity and make it available right now. In effect, this will flood the
market with opportunities for development, and over time, drive down land prices
and the cost of housing.
Councils are required to prepare Housing and Business Development Capacity
Assessments, known as HBAs, at least every three years. These set out projected
demand for housing and business land and calculate the development capacity
enabled in their plans to meet this. Right now, Councils have a lot of discretion
about the inputs into these assessments.
Central government needs to have confidence that demand for housing is not
being understated, or that the amount of available and feasible development
capacity is not being overstated.
We will therefore be requiring councils to use the “high” demand projections in
their assessments, and also strengthening the requirements and guidance for how
councils’ model how much capacity is live-zoned and feasible.
We also need much greater information about how urban land markets are
functioning, such as measures of urban fringe land price differentials or price-cost
ratios. We will therefore set new requirements that price indicators do not
deteriorate (and ideally improve) over time as a measure of how well land markets
are functioning, accompanied by enforcement powers for central government.
2. New rules requiring cities to be allowed to expand outwards at the
urban fringe
Some people say all you need to do to solve the housing crisis is allow more
density in cities. Some people say you just need more urban expansion through
greenfield growth.
The truth is that we need both.
Cities should grow both “up” and “out”. The economics of development should
guide what happens, rather than planning rules. When there are abundant
development opportunities, developers and ultimately house-buyers will dictate the
scale pace and location of development.
The NPS-UD requires Councils to prepare Future Development Strategies at the
moment, which are long-term spatial plans. These are meant to identify broad
locations in which growth will be enabled, the infrastructure required to service that
growth, and any constraints on development. However, practically, they haven’t
delivered what was promised. There is a perception that some have tended to
stifle development on the edge of our cities, rather than enable it.
So we will look to improve Future Development Strategy requirements to ensure
that growth strategies are more responsive to development opportunities, and
actually enable more housing in both greenfields and brownfields areas.
The government will also work towards embedding an effective “right to build” on
city fringes, on the condition that the infrastructure costs of new development are
covered. In other words, where “growth pays for growth”. Councils would not be
able to turn down a development on the grounds that perceived demand isn’t
there, or that the infrastructure costs are too high.
In addition, councils will no longer be able to impose rural urban boundaries in
their planning documents. This doesn’t mean they can’t have land zoned for rural
use, but it does mean they can’t set hard regulatory boundaries that constrain
growth.
Many political parties and many governments over many years have said they
would do this: our government will be the one to finally deliver it.
There’s further work to be done on urban expansion and it’s obviously intimately
connected to our work on infrastructure funding and financing. I’ll have more to say
by the end of the year.
3. A strengthening of the intensification provisions in the NPS-UD
The third set of changes we’re going to make is to the NPS-UD requirements
around where councils must enable intensification, to ensure that the capacity that
is enabled is in locations where there is demand and that are well-connected to
businesses, services, and transportation.
We have developed a package of liberalisation and deregulatory measures that
will collectively make it easier to build housing across our cities and enhance the
rights of property owners.
There are quite a few big changes here.
We will restore the NPS-UD’s baseline intensification requirements to their original
position. Prior to the MDRS’ introduction, Policy 3(d) of the NPS-UD required Tier
1 councils to deregulate to enable heights and densities commensurate with levels
of demand and/or accessibility to businesses and services across all of their urban
areas.
This requirement was narrowed when the MDRS was introduced because the
MDRS arguably made this policy redundant outside of neighbourhood, local, and
town centre zones. However, in making the MDRS optional, this rationale no
longer applies, and so we will return policy 3(d) back to its original scope.
We will strengthen density requirements around transit corridors. Currently the
requirement to enable at least six storey development around rapid transit only
applies to Auckland and Greater Wellington’s rail networks, and Auckland’s
Northern Busway.
We will go further and also specify density requirements around strategic transport
corridors. Councils will be responsible for determining these corridors, subject to
criteria set by central government.
We will simplify the definition of rapid transit, to address alleged ambiguity in the
current definition. The interminable and frankly boring debate in Wellington over
whether the Johnsonville train line was “rapid transit” was time-consuming,
expensive and frustrating. We will probably simply list the metropolitan train lines
and busways that trigger upzoning (while future-proofing for new lines and
busways that are developed).
We will clarify the definition of “walkable catchments” in the context of centre
zones and rapid transit. Councils are currently required to upzone within a
walkable catchment of centre zones and rapid transit, but there has been
significant debate about what is “walkable”, leading to costs and inefficiencies in
plan changes. We will set minimum catchment sizes councils must use, with
catchment sizes based on the level of service provided by the type of centre or
node. This means, for example, there would be larger catchment sizes for city and
metropolitan centres than around rapid transit stops.
We will also clarify the rules around “qualifying matters”. Councils are not required
to implement the intensification provisions of the NPS-UD in particular areas if a
‘qualifying matter’ – for example, risk of flooding – makes intensification
inappropriate in those areas. Think of these as permitted exemptions to
intensification.
However, some councils have misused these exemptions, relying on unlisted
exemptions without sufficiently justifying why they actually make intensification
inappropriate, and not properly undertaking any site-specific analysis.
We will therefore clarify that decision-makers must explicitly consider the process
and evidentiary requirements in their decisions to use a qualifying matter to reduce
density. This would ensure that decision makers must engage with the economic
evidence and trade-offs that using qualifying matters entails, and test the
robustness of evidence provided in reaching their decisions.
We will also require that the loss of development capacity through use of an
unlisted qualifying matter (including special character) is offset by a direct and
corresponding increase in development capacity elsewhere. This reflects the view
that local impacts can be managed without limiting the overall supply of housing.
4. New rules for mixed use development
The fourth major change is around facilitating more mixed-use development.
Mixed-use development refers to enabling different types of activities to happen in
proximity to each other. The greatest cities in the world – New York, London, Paris
– all have areas that contain a mix of housing, supermarkets, cafes and offices.
There’s no reason why we can’t have the same here. Our cities need to look and
grow the way that people actually want to live, and not the way a tidy-minded
planner in a council cubical think people should live.
Mixed-use development promotes productivity and competition; supports efficient
land use; makes a range of services more accessible; and creates safer, more
vibrant neighbourhoods and cities.
We will issue national direction requiring Tier 1 and 2 councils to enable a baseline
level of mixed-use across their urban areas. This might include, for example,
allowing small-scale activities such as dairies and cafes to operate anywhere
within urban areas, or activities of a greater scale if communities wish for this to
occur.
On top of this, we will also require Tier 1 councils to enable small-to-mid-scale
activities like cafes and restaurants, retail, metro-style supermarkets and offices in
areas subject to the NPS-UD’s six storey (or greater) intensification requirements.
Put together collectively, these changes will mean much more liveable, connected
and functional cities.
But there is more.
5. The abolition of minimum floor area and balcony requirement
The fifth major change we are making is to abolish minimum floor area and
balcony requirements.
Some councils set minimum floor area and balcony requirements which can
significantly increase the cost of new apartments, and limit the supply of lower cost
apartments. In some cases, this can make development uneconomic, or push the
cost of housing outside of the reach of first homebuyers.
Evidence from 2015 shows that in the Auckland market, these balcony size
requirements increased the costs of an apartment by $40,000 to $70,000 per unit,
and minimum apartment sizes result in fewer low-cost dwellings being developed.
These costs will have only increased over the last decade.
We will therefore remove the ability for councils to set rules or guidelines that
require balconies, or floor areas to be of a minimum size.
This will increase housing supply by enabling more homes to be built at a cheaper
price point and most importantly reduce the demand for inferior informal
accommodation. Developers would still be able to size dwellings and choose to
provide balconies as they and their customers see fit, provided they comply with
national building standards.
People often complain to me about all these ‘shoebox apartments’, and I agree
that they won’t be the right housing solution for everyone. But do you know what is
smaller than a shoebox apartment? A car or an emergency housing motel room.
Young people need affordable ways into the housing market. Students and young
professionals often want small, low-maintenance, and affordable dwellings that are
near to their jobs and transport connections. These changes – along with our
recent changes to granny flat rules – enable more choice in our housing market,
and that can only be a good thing.
6. New provisions making the MDRS optional for Councils
Finally, as per our coalition agreement with ACT, we will be legislating to make the
MDRS optional for Councils and requiring the ratification of their use.
This is not a simple undertaking. The MDRS was passed in 2021, and councils are
implementing it at the same time as NPS-UD requirements. Different councils are
at different stages.
As of today, eight of the 15 councils that are required to implement the MDRS
have done so (including Wellington City), with seven councils including Auckland,
Hamilton City, and Christchurch City not yet having completed their plan changes.
We need to move quickly to provide certainty for councils, developers, and the
community.
So here is how it will work.
We will require in legislation that all councils currently required to implement the
MDRS must carry out a ratification vote to determine whether they plan to retain,
alter, or remove the MDRS from their urban areas. Councils will then need to notify
me and the Minister for the Environment of their decision in writing.
For councils that have already completed their NPS-UD and MDRS changes, if the
council chooses to alter or remove the MDRS in its ratification vote, the council
must start work to progress a plan change that proposes to give effect to this. We
will amend the RMA so that a variation of the Streamlined Planning Process (SPP)
is mandatory for councils who vote to remove or alter the MDRS. This is a faster
process than the RMA’s standard plan change process and provides for central
government oversight and approval of council plan changes.
When they do the plan change to remove or alter the MDRS, councils must give
effect to the relevant Housing Growth Targets, intensification changes, and
direction on mixed-use through the same plan change they use to remove the
MDRS.
For councils that have already completed their NPS-UD and MDRS changes, and
that vote to retain the MDRS, then nothing will change. I am doing further work to
develop a sensible process and timeframe for implementation of the other
important changes I’ve talked about today (the Housing Growth Targets,
intensification changes and direction on mixed-use).
For Councils that are mid-way through their plan changes, the circumstances will
differ for each council. Each council will still be required to vote on the use of
MDRS, and it may be that we need a bespoke pathway for plan changes for each
council to implement our new Housing Growth Targets, intensification changes
and direction on mixed-use. We will work through that with the relevant councils in
good faith.
Next steps
What I’ve talked about today is just the start. Today’s changes deal with land use
rules and will help create competitive urban land markets to deliver more housing.
But there’s a lot to do on our infrastructure funding and financing system. Work is
underway on that and I’ll have more to say later in the year.
Long-term my objective is that the cost of infrastructure is not a bottleneck on
greenfield or brownfield development. The key to achieving this is adopting better
funding and financing mechanisms. We can, for example, improve the way that we
price infrastructure to ensure growth is a benefit for local councils rather than a
burden. Infrastructure should earn sufficient lifetime revenue from service charges
to recover its whole-of-life costs, to the maximum extent possible. Existing
communities should not have to subsidise the costs of growth.
There are other improvements that we’re looking at as well as part of our wider
RMA Reform work:
• Restrictions on development through the National Policy Statement on
Highly Productive Land and the National Policy Statement on Freshwater
Management.
• The often slow timeframes for getting a permit through the Wildlife Act
• Heritage rules; and
• Barriers to building on Māori land.
Conclusion
Let me conclude by saying that solving our housing crisis is one of this
government’s top priorities. It will mean a more productive, wealthier and better
New Zealand. Today’s changes opening up land for development inside and at the
edge of our cities will help. But there is so much more to do. I can’t wait to get on
with it.
Thank you.
