We all agree there are problems within the New Zealand housing market. As a property valuation professional, Valocity's James Wilson is often asked the question, how can we ‘fix’ it? Here's his reply:
People are hoping for a single, magic bullet answer. Unfortunately, this elusive single solution doesn’t exist.
In my opinion, a solution lies in public and private sectors working together, and relies on mindset changes and aligning ourselves with international realities.
Let’s fix renting
There’s a higher-level mind-shift which may need to take place within New Zealand. It’s that home ownership is not a given, nor is it necessarily the only pathway for success.
Many of our main urban centres have ‘internationalised’ very rapidly. This brings with it significant benefits to the local economies, but the trade-off is the affordability of housing.
When we look around the world, home ownership in large cities is not always the reality. City-dwellers may opt to rent long-term and invest instead in the share market or other investments.
We may face this future, so let’s change residential tenancy law to introduce longer-term tenancies like those found in counties such as England and Germany. That way, tenants would have some security of tenure.
Help people get a deposit
Giving first-home buyers access to their KiwiSaver cash for a deposit was a step in the right direction, but we need to do more.
Loan-to-value (LVR) restrictions mean you need big money to meet banks’ deposit requirements.
If they can’t find this amount, borrowers are either turned away or forced to pay low-equity interest margins on their loans, making them more expensive.
I’d like to see government or private deposit assistance schemes helping borrowers meet their minimum deposit requirements.
They’d repay these over an extended time period, or over the full mortgage term. This would make it easier for people to buy.
Private banks and lenders would need to buy into the idea, however deposit schemes have worked successfully for borrowers in the past.
Get rid of the LVR for first-home buyers
Let’s remove loan-to-value (LVR) restrictions for first-home buyers.
In 2013, when LVR restrictions were brought in, they had the desired effect of reducing house-price inflation and ensuring our retail banks and lenders had healthy capital margins – but there’s a problem with them.
They present significant barriers to first-home buyers wanting to enter the market. They were loosened recently, but perhaps it’s time for the regulator to exempt first-home buyers from these restrictions.
We’ve all heard it, that the only way to fix the housing ‘crisis’ is to build more houses. But this has proven to be easier said than done. So, what else could we do?
There are alternative building solutions, some more extreme than others.
Pre-fabricated homes are one of the more viable options. They could be constructed on yards and relocated to sites. Many organisations across the country have been successfully building pre-fabs for decades.
They’re modern, high-quality homes built in significantly reduced time-scales when compared to traditional building techniques.
However, pre-fab construction is hamstrung by the problem of getting finance. No security is available to advance funds until a building is complete and installed on site, which means you’ll pay larger deposits.
We could see great results if there was innovation and collaboration between pre-fab build companies and the banking sector.
Hit the land-bankers
Let’s disincentivise people from buying and holding land to restrict supply.
The introduction of the metropolitan urban limit (MUL) introduced land-banking, and it almost encourages it by artificially restricting land supply.
The land available within the urban limit could be ‘freed up’ by introducing stricter tax policies aimed at reducing holding periods for raw land.
Find new land
I propose we set up urban development authorities and allow them to be used properly.
They could save time and money by identifying, planning and developing large tracts of new land; and regenerating older housing developments.
These authorities would have the power to buy property and collaborate on development programmes to convert raw land and existing underdeveloped urban areas to new housing.
The coalition government has proposed introducing these authorities, which is a positive step, but I think we need to carefully consider how they’re structured. The power of compulsory acquisition should not be wielded lightly.
Make it cheaper to subdivide
Let’s change the current model of development contributions used by councils across the country.
It’s a very expensive process for homeowners and developers, to the extent that it deters people from subdividing vacant land.
Councils could look at more innovative solutions, potentially looking to offer incentives for the subdivision of vacant land in areas where they want to ramp up development.
Bring in private building consents
Building consents take too long.
Let’s reintroduce private building consent contractors, to cut the time it takes from applying, to when the building consent comes through. It would free up the bottle-neck.
There’s been mixed success when this concept has been used in the past, but I believe it could work if it were implemented correctly, with adequate insurances in place. In short, this could rapidly increase the number of consents councils could get approved.
Let’s encourage larger-scale building companies. Traditional small-scale builders can’t put through the scale of building we need to ramp up supply to the levels we need to see.
The construction sector needs more large mass-build companies and, quite simply, we may need to look offshore to the international marketplace to find this kind of experience.
Embrace high-density solutions
As Kiwis, we need to accept that within our main urban centres, the quarter-acre dream is dead.
Smarter designed, higher density living means more of us can afford our own homes. Innovative construction companies are already bringing solutions to market which embrace density living.
However, we all have a long way to go to embrace this and view it as a viable option. Let’s think again.
Let’s start conversations to change mindsets on both the supply and demand side of the equation. Let’s work together.
First published 28 June, 2018
Story by James Wilson
James Wilson is a Registered Valuer and Valuation Panel Director at Valocity Ltd.
The opinions represented are that of the author solely and do not necessarily represent that of Valocity.
JUNO does not contain financial advice as defined by the Financial Advisers Act 2008. Consult a suitably qualified financial adviser before making investment decisions. This story reflects the views of the contributor only. Content comes from sources that JUNO considers accurate, but we do not guarantee that the content is accurate.