Q+A: CORIN DANN INTERVIEWS BILL ENGLISH
CORIN DANN Good morning, Mr English. You've said the housing market is still a serious problem. It's not working. Why isn't it working, and how isn't it working?
BILL ENGLISH, Finance Minister Look, it's very complex, so any explanation is partial, but it looks to us as if there's a number of problems. One is the cost of building. That does appear to be pretty high, particularly compared to Australia. There's a lot of work being done on why that might be the case. More scale, building regulation - all of that can be improved, and that process is underway. We're also concerned about the supply of housing coming to the market. It does look like the councils have got a very difficult job ensuring that there's enough new land but also enough development within our cities of more dense housing to enable enough housing to come on to the market to stop prices rising unnecessarily.
CORIN I mean, we've talked about housing affordability being the problem here. Is it just a case that house prices are too high and that somehow you need to get the house prices down?
BILL Well, in very simple terms, yes. New Zealand has, by international standards, high prices for its urban land and high prices for the total housing package. It's way higher than it was.
CORIN How much are we overvalued?
BILL Well, there's various measures, but one of them is median house price over median wages. We are now somewhere between five and six times the median wage for a house, and it used to be somewhere around two to three times that 20 years ago.
CORIN And this has damaging effects on a number of fronts, doesn't it, not just for the economy but also for the social cohesion of New Zealand. So how much urgency are you going to put on this issue?
BILL Well, there's a lot of urgency, and you need a lot of urgency because getting something to actually change is very difficult. But it does undermine social cohesion. The Productivity Commission Report showed that for the lowest quartile incomes, there's really no new housing being produced, apart from what the government is building. There's a real shortage of good quality lower-priced housing.
CORIN Why is that? We've got 4500 builders. Why can't we seem to build low-income houses?
BILL Well, look, at the moment one of the reasons is simply that people are being very careful about over-investing and over-borrowing. But as the economy picks up, demand is going to pick up, and we want to be in a position where by that time our building industry is better regulated, that government has been working with councils to ensure that more supply can come on stream in response to the demand. Because if that doesn't happen, the prices will spike, they'll rise. We'll end up with New Zealanders borrowing more than they need to. That makes us more vulnerable to our overseas lenders. We'll end up with investment being diverted into housing unnecessarily when we want it in our productive business, creating jobs.
CORIN All right. So, you'll be taking a paper to Cabinet tomorrow outlining your response to the Productivity Commission's report on this issue. They clearly identified that supply of houses in places like Auckland and Christchurch, to some extent, is the problem here. How are you going to speed up the number of houses that are built and boost that supply? I mean, something like 10,000 more houses are needed in Auckland a year alone.
BILL That's right, and we're well short of that at the moment. So, look, we'll be looking at a whole range of measures because there isn't one big thing. Councils, such as the Auckland Council, have quite a difficult job. On the one hand, the existing homeowners don't always want new houses. They don't always want their views spoiled-
CORIN This is the NIMBY thing, right?
BILL Well, the NIMBY thing, yeah. But you can understand people have invested a lot in their house and they want to keep their view or they don't want a block of three-storey, more dense housing next door to them. So the council's got to balance that up. It's then got to coordinate the schools and the roads and the public transport with the new development. So the kind of things that we'll be looking at in response to the Productivity Commission is a broader range of tools that give us more options for getting those decisions made in a way that'll get the houses there.
CORIN What are these tools? I mean, are you going to give financial help to councils to build, say, what they call green fields out on the outskirts of cities? Because that will need sewerage and electricity. I mean, they don't want to pay for that. I mean, what are the specifics here? How are you actually going to get councils to do what you want?
BILL Well, in the first place we need to understand exactly what happens now, and that's not clear. For instance, in the process of responding to the Productivity Commission, we've spoken to councils and to developers who, after all, are the people who actually build these houses. And it's been amazing the different views about what impact the plans have. So, you'll have councils saying, 'Look, there's thousands of sections out there. There's no problem. They should just get on and do it.'
CORIN That's right, because Auckland Council says they've got 18,000 free.
BILL And then developers are saying, 'Well, once we've done this lot, we actually haven't got anywhere else we can go where it's going to be worth our while.' So some of it is about how developers actually make a return on their cash, and some of it is about how the council thinks the cities should develop. So we've got to close that gap, and that's been one of the first biggest steps: the government understanding the problems for councils, which are many, and then government and councils understanding how it works commercially so we can actually get more developers freeing up their land and making it worthwhile for them to build houses.
CORIN So councils don't seem that keen on the idea of urban sprawl here, the idea of building on the outskirts, because they have to fund the infrastructure to make that viable - the public transport, all that sort of thing. You want that? This is something you will push for in your response?
BILL And that's a fair enough concern from councils. In the end, the infrastructure's going to paid for by someone, either by development levies or by existing ratepayers or by the new homeowners. Often the problem is just timing and coordination. Can we get the infrastructure built a bit ahead of the market so that we can get the houses there when they're needed?
CORIN I'm just struggling - the changes that you're going to make, how are you going to incentivise for there to be more houses built in both those outskirts and also in the inner-city limits? What's the incentive?
BILL Well, look, the incentive for all of us is a more balanced economy with more investment available for jobs and growth, and the incentive for all of us is to avoid unnecessary debt. So our first job is to get a common sense of purpose here. It's not the government trying to tell the councils to do something they don't want to do. So get a common sense of purpose. And then we've got to look at what I have to say has turned out in my experience and, I think, others looking at it, a very complex interaction of planning and economics that lead to the incentives to build more or not. So what we've got to do is pick our way pretty carefully through that. We've got a couple of special opportunities - one in Christchurch, where, essentially, we can change all the rules if we really need to under the Earthquake Recovery Act. That's spurred some controversy, but we're learning a lot from making a lot more land available and changing the central city plan to create opportunities for all the people who lost their houses in the earthquake.
CORIN So that's in Christchurch where you've got emergency powers, but will you also now change the law for the rest of New Zealand in this response of yours so that you can open up more land?
BILL That's possible, and I think we've got to work with council to find the right balance of their decision making. They've got to balance up these local political concerns and the long-term growth of their towns and cities on the one hand, and the role the government has. Because the government has an overall interest in this. If house prices go up, we spend a lot more on housing subsidies. We currently spend about $2 billion a year-
CORIN I will get to that in a minute. But I just want to be clear here. So we're looking at potential law changes around urban planning, around urban sprawl, that will enable greater supply of houses.
BILL Well, that is the thrust of it. The thrust of it is to make it easier, both commercially and in the planning process, to enable more houses - not just green fields, but also within the cities. Because some of the best opportunities are within the cities.
CORIN And what's the goal here in terms of how much cheaper you want houses to be?
BILL Well, that's a very good question. Up until, I think, the Productivity Commission Report, no one really believed you could change this. People just seemed to assume that no matter what happens, house prices are going to go up. That has turned out to be quite dangerous for New Zealand. So we don't accept that house prices automatically have to rise. And we don't accept that a lot of New Zealanders are automatically cut out of home ownership because they can't find the half a million dollars you need for a starter home in Auckland. So we haven't got a target in mind. I think there's a lot more work to do now that people accept you can-
CORIN But I've seen figures showing that 30% of Aucklanders, for example, simply can't buy a $400,000 house. You know, there's big chunks of the Auckland market that can't even get into a $400,000 house.
BILL That's right, and more of those people are finding themselves in low-quality rentals, and a lot of them find themselves on government subsidies for those rentals. And those subsidies are growing quite fast, so the government has a direct interest in enabling those people into the market. So what we'll be doing is outlining a work programme where changes in local government legislation, changes in Resource Management Act legislation and maybe some changes in the balance of government influence with councils to enable that better supply.
CORIN You mentioned the RMA, so we're looking at changes here as well. Are you looking at trying to really speed up the consent process for building, because part of the problem isn't just land, is it, it's making houses be built faster?
BILL That's right, and the costs of those processes, it turns out, are really quite high. If you talk to banks and developers about the costs-
CORIN How do you cut those costs?
BILL Well, again, about working the councils. The councils want efficient processes, developers want them, government wants them. Part of this is about getting that three-way conversation so everyone understands the impact of their decisions on the other. A big part of this is a coordination problem. Getting government, developers and councils and banks to all work together on increasing it.
CORIN Do you think you'll have good coordination? Do you think you'll have the councils on board? I mean, we've already seen the Auckland Council in its submission to the Housing Affordability Report saying, look, they disagree. They've got plenty of land available they think they could get houses on.
BILL Yeah, and I think what we've learnt from that and in Christchurch is making land available is a long way short of people being able to rock up and actually being able to buy a built house on a section. But, look, Auckland Council, though, has already said in its new plan it's going to have an affordable housing strategy. We think that's excellent. We're working alongside them closely. We've got to be careful about government not blundering in here too much into council business, because we don't understand all the local issues.
CORIN You talked about the housing accommodation supplement - effectively, the money you give to, I guess, tenants struggling, who can't meet rents. Enormous amounts of money. How much are you paying on that at the moment? $15 billion a year or something.
BILL Well, the government owns $15 billion worth of houses, and, in most cities, the best opportunities within the cities is actually on the government-owned Housing Corp land.
CORIN And you talked about an extra $200 million a year being spent on that because of rising rents, and we hear people say that this is effectively a subsidy for landlords. You're obviously quite worried about this.
BILL Yeah, we are a bit. We spend $2 billion a year on direct cash subsidies. 300,000 people have some of their rent paid by the government, effectively. And so if the housing market rises, it's going to cost us a lot more, and those subsidies are forecast to increase fairly significantly.
CORIN Do you think that money could be better used in other ways?
BILL Well, we're looking at that. We're looking at some more changes in social housing, because the people in the social housing community want more change. But we do have to be careful there, because people are relying on this cash for their week-to-week income. So any change-
CORIN You can't just cut their-
BILL You can just cut it. You can't just shift it around. You've got to be very careful.
CORIN But you could get community social housing groups building more houses. Is that the plan?
BILL Yeah, that is one of the plans. So we want to do the response to the Productivity Commission on housing affordability, which is about the broader market, and then we've got a lot of work going on on the reform of the $15 billion of housing that the government itself owns, and those sort of changes we do have in mind.
CORIN You know, there will be some people who will say once again this is people with unrealistic expectations. They want the big, flash house, and they're not thinking about starting small and building their way in. Is that still a fair criticism, or is the Kiwi dream of that house actually a bit more difficult now than that?
BILL Well, some of it is because the standard's a lot higher. You know, parents of people our age often went up to a subdivision where there was a gravel road, there was no pathways, often they were on sewerage tanks, and that was their first house. Now that's not the standard we build to now. It's quite a lot higher. Look, there's room for the double-income couple who don't buy their house till they're 35 and they've got 50% of the value. But we've also got to provide access for those households who are caught in this high-rent situation where they can't make savings. If they could get some savings, they'd need to be houses they can afford.
CORIN Can you guarantee, I guess, that these sort of changes, that what you're doing, is going to ensure that that dream is still alive for our kids, that they're going to be able to own homes in New Zealand?
BILL I think if there's a collective will to have more affordable housing, we can achieve it, and a big part of that is the wider community believing it's a good thing. If the wider community decides that they want to lock up the housing market to drive up the value of the existing houses and keep other people out, then we won't get there. But, look, I think most people understand that the fact that they've achieved the dream is a good thing, and they'd like others to be able to achieve it. And if we can get there by looking hard at the planning process and the way councils and government make decisions, then I think people will think that's a price worth paying.
CORIN Finance Minister Bill English, thank you very much for your time.
BILL Thank you.