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Monday, July 09, 2007

Restricted Land Supply Drives Rising House Prices

While the Reserve Bank tries to lower house prices by retarding the whole economy, the real answer lies under their noses.

Not addressing local government strangulation of land supply is costing this country billions.

From today's NZ Herald Hat Tip KiwiBlog

In recent years, demand for housing in Greater Auckland has been outstripping supply.

That is apparent in the steep rise in house prices, and in Census data showing the population grew faster than the number of dwellings between 2001 and 2006.

A study by economic researcher Motu says the biggest single factor hobbling the building sector's ability to meet demand is land availability.

The councils can either accept a future of high prices and slower growth or move to contain development costs by expanding or removing the metropolitan urban limits - the boundary under the regional growth strategy within which residential, business and other "urban activities" are to occur.

The alternative to expansion is intensification or higher density housing, which would be suitable if enough people preferred - or settled for - apartment living.

Intensification is being stifled by zoning restrictions, community opposition, unwieldy and slow consent processes, lack of available sites and the costs of infrastructure.

The Motu work, led by Arthur Grimes, is based on statistical analysis and interviews with developers, architects and local body officials.

The researchers found that more than three-quarters of the rise in house prices can be explained by higher land costs.

Construction costs are much less of a factor. Between 2000 and 2005 construction costs rose 12 per cent. Over the same period prices for vacant sections rose by 139 per cent in Auckland City, 119 per cent in Waitakere and 99 per cent in Franklin.

They found the metropolitan urban limit boundary has been acting as a constraint. Greenfields land prices within the metropolitan urban limit are a lot higher than outside it.


Blogger Fergus said...

But Auckland's councils do have a strategy of intensification ? Its been a bit slow to develop but ask any plannig student and they'll tell you all about it.

I don't think that urban limits are a bad idea, one can contrast the example of London with its intensification and its strict greenbelt with those of any number of cities such as LA, the Bay Area Mess, Seattle, Paris or Madrid.

Another alternative is the planting of new towns with their own infrastructure and local jobs or mass transit to urban centres but there seems to be no will for this in NZ.

9:06 AM  
Blogger Trevor Loudon said...

Yes Fergus, we could do all that. Then again we could just let free market forces do their work to the benefit of all.

Which is simpler?

9:40 AM  
Anonymous Anonymous said...

Thankyou Lord for Capital Gain.

5:36 PM  

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