On The Nation: Patrick Gower interviews Nick Smith

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Headlines:

Smith denies the Government has been missing in action over landbanking in Auckland, saying he can’t force private developers to spend money.

“Is the government or the council to force people to spend tens of millions of dollars? No, it can’t. What it does need to do is get the incentives.”

Smith has written to four developers since mid-2015 saying he is keen to see progress in Special Housing Areas and strongly encourages them to contact the Auckland Council with an update. Denies that’s giving land bankers a free pass.

“The people who promise they are going to get rid of landbanking are dreamers, because it isn’t possible.”

Patrick Gower: In a week or so, average house prices in Auckland look set, or they really will, hit $1 million. That comes as the Government’s housing accord and special housing areas are due to make way for the new rules of the council’s unitary plan. But have these measures really worked to open up supply, or has it just meant more land banking? Well, Housing Minister Nick Smith joins me now. We appreciate him being here. Nick Smith, that $1 million average price rise – that makes you the $1 million minister. What’s the good bit about that?

Nick Smith: Well, firstly, government and neither do I control our house prices. What we are responsible for is getting the rules right so that the housing market works for New Zealand families.

I know you don’t control house prices, but you are the $1 million minister. House prices in Auckland, the average house price, is $1 million. That is nothing to be proud of. Have you personally failed, has the Government failed, with that house price of $1 million?

Well, you look at what the Government’s been doing. Everybody knows the solution to New Zealand’s housing challenge is to build more houses.

But the question-

And we are achieving just that. We are right in the middle of the biggest building boom in New Zealand History.

We will get to that, but I want to talk to you about- I know, and we’ll come to this, and we’ll took about a lot, but I want to talk to you about the symbolism of $1 million average house price. You are the $1 million minister. Is it good enough? Have you failed, personally failed?

Well, no, I don’t accept that. I have worked very hard on a programme that is delivering an increase in supply of housing. If you look at the problem, whether it’s been the RMA reform, whether it’s been the special housing areas, we’ve gone from building about 13,000 homes a year when I became minister; we’re now building 29,000 houses a year. I’ve got confidence in the programme. We’re making good progress. We’re not there yet.

Well, let’s look at your programme. Let’s look at your programme, and let’s look at special housing areas, because here we have one in Manukau that’s meant to have 800 houses on it in over 300 workdays. Have a look, Minister just over there. It’s a field. It’s got pukeko in. There are no houses. Look at it.

Absolutely, and that is-

It’s a failure, isn’t it?

No, it’s not. If we take the 154 special housing areas-

Look at it.

It’s a block of land. It’s a block of land.

It’s a block of land without a single peg in it. It’s got rubbish all over it.

If you take- Let’s go through the 100-

This is what you just told me about, Minister. It’s a muddy paddock.

And equally, I could show you pictures of a place like Weymouth, which was a blank piece of land for 20 years.

We’re looking at a special housing area, Minister.

Sure.

There’s nothing on it but mud.

Well, there is 154 special housing areas. Here’s the part. The government cannot force a private landowner to invest the millions of dollars in infrastructure in houses. What we can do-

Yes, you can.

No, you can’t force. If somebody owns a private piece of land, the idea that either government or the council can come along and say, ‘You must spend $10 million building roads and infrastructure. You must spend $50 million on houses,’ that’s nonsense, Paddy. What you have to do-

So you’re saying the landbanking is A-OK? Because let’s look at another thing here. Let’s look at another advertisement, this time in Otahuhu. It’s called a ‘gold mine’. This is what you’re talking about. It’s a land bank. That’s how they advertise it. It’s a special housing area. You’re saying you can’t do anything about this.

I’m saying that we-

You’re saying this is fine.

I’m saying if the government owns the land at a site like Weymouth, at a site like Tamaki or Hobsonville or others-

We’re looking at landbanking here, Minister.

Look, landbanking has been around- I can show you newspaper articles in my home community of Nelson in the 1860s when people were landbanking. That is the government- If you have a private-landowner system, you cannot force-

Just because it happened in the 1860s, doesn’t mean it’s okay. I mean-

It happens in every single country in the world. Here’s the question for you, Paddy, if you want to go down that road – is the government or the council to force people to spend tens of millions of dollars? No, it can’t. What it does need to do is get the incentives. The best way to stop land banking is to provide a competitive market in which people have the incentives to get on and build those houses. Now, we’ve achieved that in Christchurch, where you have got- In the last year, house prices in Christchurch have gone up 2%; rents have dropped by 8%. That’s because the Government’s got the planning rules right, and so there isn’t the advantage for landbanking, and that’s why the completion of the Auckland Unitary Plan is absolutely critical.

Minister, this is contrary to the last time you were on The Nation when you said- and I’ll quote you. You said if developers don’t use this special land, you would threaten to withdraw it. Did you do that? Did you do that?

What happens- And let’s be clear about the process.

No, that’s what you said.

That’s right.

Did you threaten to withdraw this land?

There were a number of letters that I wrote to developers. But let’s go through- Let’s go through, Paddy-

Let’s have a look at the letter. Look at the letter. That’s under your- That’s under your name right there. And you didn’t actually threaten to withdraw it. I’ll quote from it. You said to four of them that you ‘strongly encourage’ them to get in contact with the council.

And get on and get the developments-

That’s not threatening. That’s saying, ‘Go down to the office and have a yarn.’

But here’s the bit, Paddy, you don’t get, and that is-

I mean, I get it. That’s your words. Look at it. That’s your signature.

But the part you don’t get, Paddy-

‘I strongly encourage’ a hard-headed property developer.

But here’s the bit. You cannot force any private landowner to spend the millions of dollars that’s required. What you can do is to create a market in which the incentive is for them to get the houses built. And let’s come back to the hard numbers – 154 special housing areas; there are 1300 homes that are completed that would not be build, that families would not be living in, if we’d not taken that initiative; there are 7000 sections that have come through that system that would not exist if we had not been down that process of-

You’re setting up a carrot. You’re setting up a carrot, but you refuse- you refuse to use a stick, don’t you? You refuse to take any enforcement measures whatsoever against land bankers.

Well, on the 16th of September when the new unitary plan comes into effect, if people have not lodged a resource consent for converting those special housing areas into housing, they lapse.

Minister, will you use a stick against these people, though, if they don’t use that land to put houses on them?

There is already a stick in the legislation in the sense that if they do not have resource consents and process those special housing areas, they become null and void on the 16th of September, only three weeks away.

You’ve sent this letter that we’re looking at here.

Sadly, Paddy, I need to comply by the law like everybody else.

It just seems, and I’ll translate you here, land bankers get a free pass under Nick Smith.

No, that is not correct. But the people who promise they are going to get rid of landbanking are dreamers, because it isn’t possible, as I said to you earlier, to physically force people to spend the tens of millions of dollars on what is required to convert land into subdivision housing.

But there are options. There are options. There are rating options. There are land-tax options. There are a whole lot of options. There’s legislation. You don’t want to use any of them, do you?

Well, I just simply say by legislation, you cannot force people to spend private money. And I look at Christchurch, and I say the formula-

What about increasing rates for land bankers?

Well, of course, that is a tool that is available to councils. Many councils use that tool, and what they do-

Do you want councils to use that?

Look, I am perfectly open, and one of the things that councils are able to do is that they have a huge cost with infrastructure; Government’s helping with that cost with the housing-infrastructure fund, and councils- councils already had the rating authority to be able to rate developers who are choosing not to land into market with housing.

Okay. Foreign buyers – before the next election, will you do anything more to restrict foreign buyers?

Well, right across the housing picture, I’m taking an evidence-based approach. Now, what the evidence shows-

So you could do something more about foreign buyers?

Well, all I’m simply saying is that the evidence that we’ve got with a very thorough database of the tax residency of every single person who’s buying-

It’s not thorough.

Well, it is in my view.

No, it's not.

Every single transaction, Paddy, we know the tax residency of who is the buyer and who is the seller. That shows that it is less than 3%. It is very small.

OK, so nothing before the next election on foreign buyers.

What I'm simply saying is that if the evidence changes, the government's prepared to do so.

I just want to ask you this.

But my approach to housing is going to be based on evidence and facts and not rumour or speculation.

OK. Affordable housing, the government building it. Will you do that?

Well, actually, the government has built more houses in the last year—

Yes, but will you build affordable housing?

No, let me finish, Paddy.

I know what you've built, but—

Well, the government is building. The government is building more houses right now, Paddy.

Affordable housing for first-home buyers. Will you build some? Yes or no?

Well, yes, we are. And we are doing it right now, and we're doing more. This government is building more houses directly than any government in 25 years. I could take you to sites like Weymouth, like Hobsonville, like Tamaki, where the government has built in the last 12 months — completed, not consented — completed — 1500 homes, and we are going to be building a record number in future years through both Housing New Zealand, through the Crown land programme and through agencies like Hobsonville and Tamaki.

OK, here's a straightforward question. And I want a yes-or-no answer on this one.

Oh, you can try me.

Do you want house prices to fall, Minister?

The government—

(SIGHS)

Well, you want houses prices to fall? No. You know what that will do?

Yes.

Let's say that house prices in a city like Auckland drop by half, as the Green Party wishes.

So you don't want house prices to fall?

No, I've consistently said I want house-price inflation, but—

So you are happy—

I want house-price inflation in single digits.

You are happy with house prices of $1 million on average in Auckland? You're— That's good?

No, I'm saying that a significant drop— Paddy, let's look at the opposite. If you're out there, like the Greens are, and saying you want house prices to halve, you're going to have tens of thousands of Kiwi families effectively gone broke. That is, their mortgage if worth more than their homes. And I would not wish that on any Kiwi family, and that is— effectively, you're asking me to endorse that.

No, I'm not. I'm saying, 'Do you want house prices to fall from $1 million average—?'

I'm saying— If you ask me what the objective of my policy, both in Auckland and throughout New Zealand, it's for house-price inflation to be in single digits.

OK, now, I want to ask you about this — about housing affordability again and the house-to-income multiple, which is the world standard — the world standard — of affordability.

Well, I don't— No, I question that,...

OK, well, anyway, I want to actually—

...because it ignores interest rates.

I want to quote—

Well, interest rates are at the lowest level they've been in 60 years, Paddy. And you cannot ignore—

Yes, but the question is this, and I'm going to—

You cannot ignore interest rates in the story about housing.

I want to use your own words, because, look, in 2014, just before the election, you said— and this is when the housing multiple was seven, you said— Do you remember this? You said your goal was to get it down to four.

Yeah, I think, long-term. And the thing is—

It's gone up to 10.

In Auckland.

It's gone the wrong way. We're talking about Auckland.

Oh, that's right. And what's happened is that New Zealand—

So you wanted it to go down, and it's gone up the other way.

But let's be honest, housing ownership in New Zealand has been in decline for 25 years, and you and a number of commentators are looking for these instant solutions. They are not. If this was easy, house prices would not have doubled under the previous government.

Well, here's a number—

And so we have a plan, and we are going systematically, addressing the real issues that will make a material difference long-term to housing affordability.

What I'm pointing out to you is you are the one who proposed instant solutions. You are the one who set yourself a target that's gone the wrong way. Not me — you.

No, that's not correct.

Here's another one, then. And you said this to me, sitting here, one year ago. I said, 'Auckland's got a shortage of 32,000 houses. Do you think by the next election you can bring that shortage down?' Do you know what you said to me? You said, 'Absolutely.'

Mm-hm.

It's gone the other way again.

No, I don't accept that. And I'd say to you again is if you look in terms of the number of houses that are being built in Auckland, we have a record building boom in this city. If we look in terms of when I became minister, 4000 homes per year were being built when I became minister. In the last year, 9500.

The Unitary Plan—

The programme is showing that that's stretching out. Look, in this city.

The Unitary Plan advisory panel says there's now a shortage of 40,000.

Well, I'm—

Your own ministry is going to take till 2030 to catch up.

I've seen four or five different estimates on those. What I do know — and this is where my responsibilities are —

Minister. Minister.

is they're to grow supply. Those projections forward is looking at a Whangarei being built on top of Auckland this term of parliament and another Whangarei in the next term of parliament. That is a building boom in anybody's terms, Paddy.

I need to know this — whose side are you on? Are you on the side of the landbankers, the developers, the speculators, or are you on the side of the first-home buyer?

I'm absolutely on the home of Kiwi families wanting to get an affordable home.

You're on the side of the first-home buyer?

I'm on the home of Kiwi families— Well, it's not just first-home buyers. There are other people that are wanting houses. There are people that rent — all of those. But let there be no question—

But why won't you do anything about developers, about landbankers?

Well, I just want to do things that are going to make a real difference. And so when I hear people are saying that they are going to prevent landbanking, they've got a better chance of getting to the moon. What you can do is actually provide the incentives, as we have successfully in Christchurch, to ensure that the market does not make it an incentive for people to simply sit on land.

OK. Here's a question that everyone thinks about all the time, and I'm sure you do as well. Will the housing bubble burst, and does that worry the government?

Well, ultimately — and I said at the beginning of the programme — the government does not control house prices. What we do control—

Do you think the bubble could burst?

I think house pricing in Auckland has increased at unsustainable rates in recent years. That is a symptom of New Zealand doing well, large numbers of New Zealanders not leaving, coming home. So there's a large amount of pressure. The thing that gives me real confidence is because with that Unitary Plan completed—

If it bursts before the election— If it bursts before the election, what are the consequences for your government?

Well, look, you can speculate on all of those things. I'm simply in the business of building houses as quickly as possible.

What would happen, though, if that bubble burst?

Look, you can get into all sorts of speculative arguments that go well beyond my ministerial portfolio. It is my view that with the programme we have underway around housing, I am confident that we are going to get house-price increases that are into that single-digit range, that are far more sustainable. Actually, my view for the next three or four years is because New Zealand is doing well, because those Kiwis are staying home, our economy is growing faster than others, I am actually confident that house prices will not slump as you suggest.

No correction now. Thank you very much, minister. We'll end it there. Thank you very much for your time.

Thank you.

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