Cities facing strong upward pressure on house prices usually look to land supply for a solution. The reasoning is that a sensible increase in residential land will boost new housing supply, narrow the gap between supply and demand, and bring a modest easing in house prices.
That sounds logical. In practice, however, resources and demand may be mismatched: new homes may not be built where most people want to live. China’s second- and third-tier cities, for example, currently have substantial housing inventories, while people are flocking to first-tier cities where homes are scarce. Similarly, a property development on the urban fringe, without transport links such as a metro or motorway, has limited appeal to daily commuters, however cheap it may be.
Increasing supply in the wrong places will not curb house prices.
Fortunately, New Zealand clearly recognises that demand is concentrated in its largest city. Half of the 100,000 affordable homes proposed by the new government are planned for Auckland.
In a television interview on 4 November, new Housing Minister Phil Twyford outlined a detailed roadmap: complete 16000 homes in the first three years, followed by 84,000 over the next 7 years. But Auckland is vast. Where should these homes be built to truly ease house price pressure in the central urban area?
Breaking through urban boundaries as satellite towns take shape
With the construction industry facing labour shortages, Phil Twyford said the government would meet these targets by purchasing projects already being developed by private developers and builders that qualify as affordable housing. The government has also become involved in existing or planned projects receiving government funding, such as Housing New Zealand developments, seeking to expand their original scope.
A third approach deserves investors’ attention: the government plans to establish 10–15 large-scale urban developments around Auckland, particularly along the rail network, with new infrastructure, local amenities and public spaces for residents. In some respects, this resembles the new districts proposed in China’s first-tier cities to ease housing pressure in central areas, such as Tongzhou in Beijing and Panyu in Guangzhou. Phil Twyford said he was very interested in Infrastructure NZ’s proposal for a large development in southern Auckland.
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The Housing Minister believes housing problems remain difficult to resolve because infrastructure construction has long lacked effective funding channels, constraining urban development. Urban planning rules, such as the urban growth boundary, are another major constraint. An urban growth boundary is one of the most effective tools for managing urban growth. From a government administration perspective, some scholars define it as “an important boundary adopted by government and marked on maps to distinguish urbanised areas from surrounding open ecological spaces”.
Infrastructure is a key factor in house prices
To truly break through urban boundaries and extend the area where people can live, infrastructure funding must first be addressed.
Auckland still faces a NZ$6,000,000,000 funding shortfall in delivering its first ten-year transport plan. This is why the government is considering legislation allowing Auckland Council to levy a fuel tax. Phil Twyford hopes it will generate NZ$1,500,000,000 in tax revenue over more than a decade.
To some extent, the controversial fuel tax will determine how quickly Auckland’s infrastructure develops, which in turn will affect whether the city can genuinely increase residential land supply beyond its central urban area.
Auckland Mayor Phil Goff supports the new Housing Minister’s proposals and intentions. But he believes Auckland does not lack land. Removing the urban boundary will not eliminate price differences between parcels of land. “What we want to start doing is building more high-density housing, particularly along transport routes.” In his view, inadequate infrastructure is the more serious problem.
Auckland Council has already announced substantial new infrastructure investment in Paerata and Pukekohe to support housing developments. But the Mayor wants most developments to be within the urban boundary. “Unless we have raised enough money to build infrastructure, we will not solve rising housing costs, no matter how much residential land we have.”
So, to help contain house prices, please pay the regional fuel tax willingly.