Nick Smith has in that particularly Nick Smith style announced proposals he says will solve the housing crisis and deliver us from the evils of the Resource Management Act. You have to admire such simplistic utter confidence in what he says although you also have to worry at what damage such a simplistic view may do. He has also released the treasury commissioned report that details how much the RMA is apparently costing us.
The study is based on an interesting methodology and comes up with unusual conclusions but stand by as we are inundated continuously by claims that Council red tape is costing us $15,000 per house and $30,000 per apartment. I have not had the time to study the report properly but a quick skim suggests that it has some interesting claims and conclusions.
Firstly the study is based on interviews with sixteen developers, not on an analysis of actual costs. Call me sceptical but I worry when we go to a group with a clear vested interest and ask them what they think of the current state of the law and then design reforms based on their wish list. And the report does not attempt to measure actual benefits, such as improved amenity. As stated in the report:
We do not attempt to value the corresponding benefits of the planning rules and regulations, so this study is not a cost: benefit analysis of council planning approaches; rather it documents the costs of the rules and regulations – as perceived by developers – to provide a basis for benefits to be compared.
From the comments in the executive summary it appears that it is not the red tape per se which is causing the claimed cost increase, rather it is minimum requirements and the implementation urban design features which means additional cost.
Regulations that have had major effects on the actual building costs of apartments include: building height limits, balcony requirements, conforming to Council’s desired mix of apartment typologies and minimum floor to ceiling heights.
Obviously if we had buildings with lower ceilings and apartments without balconies prices could reduce. And smaller lot sizes will reduce cost. We could even go as far as removing windows in apartment buildings and insist on footpaths and road berms being removed. But would you want to live there? Or would you want to live down the road from such buildings?
The quality of the thinking of National’s support party leaves a lot to be desired. ACT Epsom MP David Seymour has achieved the unusual achievement of completely contradicting himself in the same interview. He firstly railed against Council red tape and suggested that property rights were sacrosanct. He then expressed loathing for medium density occurring in Epsom. Earth to David Seymour, increased landowner rights will mean more medium density in your electorate.
The basic problem with housing is that there is a localised (Auckland and Christchurch) failure of the market. The causes are numerous and somewhat complex but major factors are the leaky home debacle and the huge damage it caused to the building industry, the global financial crisis and the wiping out of finance companies that builders used to rely on, increasing concentration of wealth in the hands of the already wealthy and the developing advent of landlords with multiple holding and favourable tax treatment of landlords which Labour’s capital gains tax was meant to address.
In Christchurch there is the added feature that the place has been wrecked twice by earthquakes.
In the rest of the country the real estate market is essentially stagnant apart from in localised areas such as Queenstown and Wanaka. It seems that the RMA works perfectly well in those areas.
The announcement is frustratingly short of detail. It is a collection of a string of slogans with no detail. In particular what changes to sections 6 and 7 of the RMA are proposed of the RMA have not been detailed.
But stand by for a debate where National stooges will claim that the RMA is causing the housing crisis. We can solve the problem. All we have to do is be prepared for slum areas to be built in Auckland.
Update: With his usual clarity Rob Salmond on Polity has also addressed this issue. He has pointed out that the suggested savings will achieve very little in terms of making housing more affordable.
How much cheaper? Treasury commissioned *a little* work on this, in that they asked some developers how much the RMA regulations cost them. The answer the developers gave was around $15,000 per house, or around $30,000 per apartment.
Now, not even Nick Smith is talking about getting rid of environmental regulations entirely. So if the current cost is $15,000-30,000, what is the new cost? Nobody seems to have a figure for that. Certainly not Nick Smith in his speech last night.
Let’s be generous here. Assume (1) the developers are being completely honest in what the RMA is costing them, and are not over-egging the pudding one little bit. Also assume that (2) Nick Smith can cut the RMA compliance costs completely in half. That’s a huge ask, but let’s assume he can do it. Then we will have – wait for it, a $7,500-$15,000 one time reduction in the cost of building a new house / apartment.
Let’s be even more generous. Now assume that, (3) through completely entirely frictionless perfectly competitive market forces, that saving automatically translates into a one off reduction in the sale price of absolutely all the other properties in Auckland. (Yes, it is a ludicrous assumption, but hear me out.)
Even if those three heroic assumptions come to pass, Auckland house prices would drop (once you average out houses and apartments) by about $10,000, one off. Which would make Auckland’s “severely unaffordable” score of 8.2 in the Demographia survey drop amazingly to a “severely affordable” 8.06.I will post separately on the shortcomings of the Demographia survey itself. Whoop-de-fricken-do.
Any progress is good, of course, but pretending RMA reform is a main solution is, as you see above, laughable.