HOUSE PRICES: FOCUS ON LAND MR SEWELL

Hugh Pavletich
Performance Urban Planning
Christchurch
New Zealand

30 May 2014

Rather astonishingly, Tony Sewell, Property Manager with Ngai Tahu, outlines the high costs of building processes and materials in New Zealand, within a recent New Zealand Herald article by Phil Taylor “House Of The Rising Sun”.

Mr Sewell notes California pricing. He should have instead focused on Texas, as the Annual Demographia International Housing Affordability Surveys clearly illustrate the latter is the best performer in the United States, with its open land markets and sound infrastructure financing arrangements.

California is generally regarded as a “basket case”.

The major issue is land supply … affordable land supply.

There is a well-known saying in the development business “If you get the land price wrong everything else is wrong”.

Since the release of the first Demographia Survey early 2005, there have been numerous Inquiries and extensive academic research, but remarkably, no simple structural “nuts ‘n bolts” research, as (again) outlined mid last year with “Focus on Restoring Housing Affordability”.

That is …

1. Clearly setting out the current unnecessary artificial land scarcity values on the fringes of our metros. These are roughly $2 million per hectare on the fringes of Auckland, a million dollars on the fringes of Christchurch and remarkably about half a million dollars per hectare on the fringes of tiny Rolleston. They need to be eliminated with open zoning as outlined within Section 4 of “Christchurch: The Way Forward”.

2. Detailed cost breakouts of the price of fringe starter housing in Houston with the detailed costs of development / construction on the fringes of the New Zealand metros … as illustrated by the Andrew Atkin THE REAL DEAL poster.

Basic … but essential structural research.

What Mr Sewell omitted to mention within the otherwise excellent and helpful New Zealand Herald article, is that with artificially inflated land prices, the structures and performance of the New Zealand house-building industry is understandably degraded as well.

In essence … the industry has been bureaucratically bludgeoned back in to the Stone Age of a cottage industry. Even the remaining so-called production builders are “marketeers” who farm out the work to inefficient cottage builders… and clip the ticket on the way through.

The reason why this has happened, is because with the artificially inflated raw land values, it is too risky for larger builders to put in place more efficient production systems.

Artificially inflated housing markets are more volatile and hugely risky.

For example, when the Irish bubble burst, housing production on an annual basis slumped from 90,000 units a year to just 8,000. They just sent the Polish workers back home.

The young Irish bailed soon after when unemployment hit 14%. Again Ireland had failed its young … as Paddy Reilly the Irish folk singer illustrates with Flight of Earls (Youtube) .

Recently, Australian Federal Senator-elect Bob Day (formally one of Australia’s largest production home builders and National President of the Housing Industry Association) made it clear within a Business Spectator (video) interview, that the problems are land supply and infrastructure financing … Business Spectator interviews Bob Day .

The issues were further discussed by this writer with …

New Zealand’s Bubble Economy Is Vulnerable | Hugh Pavletich | Scoop News

Christchurch Failure – The Long History | Hugh Pavletich | Scoop News

Christchurch Housing Accord a Joke | Hugh Pavletich | Scoop News

Mr Sewell of Ngai Tahu and other favoured land bankers on the fringes of the New Zealand metros need to be asked by the media, what part they are playing in encouraging the Authorities to open up fringe urban land, so that normal market pricing can be restored as soon as possible.

And too, get the Texas type Municipal Utility District infrastructure bond financing model in place as soon as possible.

When land supply and infrastructure financing are sorted out, Mr Sewell will learn that with normal land markets restored, the builders will have the confidence to “lift their game” and perform much better.

Competition will see to that. New home buyers will then support the efficient builders and let the inefficient fail.

That’s how open and honest markets work Mr Sewell … so the consumer gets a “fair go”.

ENDS

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