The Affordability Problem

Speech at Architecture Week, Monday 15 October 2007, Britomart Centre, Auckland.

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Thank you for inviting me to speak to you today.

Architecture encompasses many subjects and themes and includes almost everything about the "built environment". So it's fitting the range of subjects that will be discussed over the next few days are many and varied.

My subject is housing affordability, something you didn't hear much about a few years ago. When I was young, New Zealanders' attitude to a home was that you saved hard to buy one in as good an area as you could afford and then stayed put for decades if not generations.

Whenever I think of affordable housing and homeownership, I find myself thinking of the house I grew up in.

It was a small three-bedroom cottage in working-class Panmure in Auckland.

My dad was a truck driver. He didn't have much money, but like other serviceman returning from the war in the late 1940s, he got a loan to build a house. He chose a plot of land next door to my grandparents, and my family lived in the home he constructed for 35 years.

That house was integral to my childhood. It was never flash, but it was a secure and enduring base from which my family flourished. It was ours and it entrenched us in a diverse and fun community.

Today, I own a home in Te Atatu in West Auckland, and I routinely meet young couples in similar social circumstances to that of my parents in the 1950s: young, hard-working, family-orientated people on low to modest incomes.

But where my parents and I have had the advantage of owning our own homes, these young couples increasingly do not, and many are never likely to, at least not in Auckland.

For many New Zealanders, and Aucklanders in particular, a discussion of soaring house prices has become as common as a discussion about the weather. The subject is reported in the media almost daily. Last week the Dominion Post reported a median income would not cover repayments on a median-priced house with enough left to live on, even with a 20 per cent deposit. What the survey showed was that a single person on the average wage had little hope of affording their own home.

Despite relatively well-paying jobs and a deposit that has taken some years to scrape together, many young couples are facing an impossible "deposit hurdle". Where once hard work and hard saving would have seen them rewarded with their first house, today it has become that much harder for them to climb onto the first rung of the property ladder.

This is being reflected in statistics, with declining levels of home ownership. In 1986, in Auckland, the rate was 74 percent. In 2006, it was 64 percent and we have forecasts which predict it will drop even lower, to around 62 percent within the next decade.

The statisticians tell us that when people of my generation were putting down roots, the average cost of a house was about three times the average household income, which was usually one income.

Today, the average national house price is 6.6 times the average household income of $50,000, which is usually made up of two incomes, and up to 8 times the average household income in Auckland.

Increasingly, home affordability is not only confined to those on the lowest incomes. From 2001 to last year, the intermediate housing market - the number of working households unable to afford a home in the lower quartile house price range - has grown by 239 percent.

So why do all these statistics about affordability matter? They matter because a declining home ownership rate has a number of important ramifications for all of us, not just individual families. It means there is a gap between generations in terms of their ability to accumulate wealth, particularly when it comes to retirement. It also has implications for social equity, strong, unified and connected communities and education and health opportunities.

New Zealand is not alone in having to deal with housing affordability pressures that are the product of strong economic growth and prosperity. Britain has just committed ₤8 billion to housing supply-side measures and earlier this year Australia released a discussion paper addressing the decline in affordability for Australian families.

So what has the Labour-led government done?

We have introduced a number of new initiatives which support those on lower incomes to buy their first home, including the Welcome Home Loan scheme. Through the voluntary work-based KiwiSaver scheme people may become eligible for a deposit subsidy of $1000 for every year they save up to a maximum of five years. Those wanting to take advantage of this scheme must be first home buyers.

We are also supporting local communities and local government to provide more social housing through the Housing Innovation Fund, a $99 million investment included in this year's budget and spread over the next three years and we are involved in housing development projects such as the one at Hobsonville in Waitakere City.

The supply of affordable housing in Auckland is increasing through major integrated urban developments projects such as the new housing development at Hobsonville peninsula and Tamaki Edge.

Hobsonville will deliver a total 3,000 new homes. Five hundred of these will be available for first home buyers on modest incomes and 500 will be set aside for state rentals. The total site spans approximately 167 hectares of land.

At Papakura the Corporation will be developing up to 450 new homes. About 300 of these will be available for home ownership.

At Weymouth, there are plans for 160 new houses of which 80 will be available for home ownership. About 120 will be stand-alone family homes, 20 townhouses for smaller families, and 20 housing units for the elderly.

Together, these projects will deliver over 3,600 new homes to Auckland.

Housing New Zealand is also developing a shared equity scheme which complements the Welcome Home Loan scheme and is designed to help eligible families into home ownership in areas like Auckland where prices continue to remain high. The scheme involves the government paying for a share of a home. A pilot is being considered for Budget 2008.

Since Welcome Home Loans were introduced in 2003, more than 3000 loans have been settled on first-time buyers, amounting to a total of $441 million. The average loan to September this year was $145,748.

But these initiatives won't solve the problem and there is only so much any government can do. As a landlord, the state, through Housing New Zealand, controls just 5 percent of the housing market, the rest is privately owned. Shared equity and Welcome Home Loans can only ever be relatively small, finely targeted schemes and projects on Crown-owned land will provide at best a few thousand more homes.

Ultimately, the solutions to affordability must involve more players and by that I mean not just central government but local government and private companies as well.

That is why I am preparing an Affordable Housing Bill so we can provide local councils with enabling powers to support the development of affordable housing. Work on the bill is in its early stages but the legislation will ensure that cheaper dwellings are built in all developments where they were required.

Such a Bill might give local bodies the power to require a percentage of affordable housing in new developments and is about the changing the way developers and local government think about housing, creating opportunities for the private sector to step up.

The bill may allow councils to reward developers for the provision of affordable housing by permitting more intensive development than might otherwise be allowed and/or to be relieved of paying development contributions. It might allow Councils to extract levies if developers don't want to build cheaper dwellings.

It is important to balance the need to increase the supply of affordable housing without deterring private development but if we give local government more tools to implement more innovative policies then we can hope it will lead to an increased supply of affordable homes.

This government has a proud tradition of restoring focus on social and affordable housing, increasing the amount of assistance to those in need and reversing the policies of the previous government that resulted in market rent being charged for state houses and the sale of 13,000 houses.

Housing is a complex issue but it's clear that unequal opportunity contributes to social exclusion and the social problems that come with that.

Home ownership has been a big part of our national identity, and an important equalising and stabilising influence in our society. We have a responsibility to do what we can to maintain this tradition, and ensure an evenness of opportunity between generations.

And we cannot hope to bring about economic transformation in New Zealand, a goal of the government's, unless we confront our housing issues. A city or region that is unable to offer decent, affordable housing will struggle to attract and retain workers. This is particularly so for New Zealand because the liveability of our country has been a big selling point in the global market place.

Affordable housing diffuses social polarisation between suburbs, enhances the distribution of community services, and improves outcomes for families and children. Again, social harmony contributes to the liveability of our cities and towns.

With the affordability initiatives I have outlined, and with the Bill I mentioned currently under development, we are tackling the problem. Our aim is to ensure all New Zealanders have access to affordable housing and to ensure that as many of us as possible reap the rewards, both social and economic, that come with owning your own home.