New intensification policy explained

Fervent building consent issuance and an increasing effort from policymakers to boost housing supply have been tasked with reducing New Zealand’s estimated 50,000-home shortfall.

The recent Government introduction of the Streamlined Planning Process (ISPP) strengthens provisions contained in last year’s National Policy Statement on Urban Development (NPS-UD) which removed intensification restrictions in Auckland, Hamilton, Tauranga, Wellington and Christchurch.

The changes have been fast-tracked as a matter of urgency, with local authorities having until August 2022 to implement change.

As part of the ISPP, these ‘Tier 1’ councils are required to adopt Medium Density Residential Standards (MDRS) which allow landowners to build up to three homes of three storeys on most sites without the need for resource consent.

This is not to be confused with works under the Resource Management Act 1991 (RMA), which last February the Government announced would be repealed and replaced by three new pieces of legislation.

By adopting these standards, the housing supply is expected to increase by at least 48,200 new homes over the next five to eight years. However, experts say the new announcement is no silver bullet to our issues with supply.

“Planning reform in and of itself is not enough to solve the problem unless it fixes the infrastructure funding challenge,” Stuart Crosby, President of Local Government New Zealand (LGNZ) says.

The local government lobby group says the council has worked closely with the Government on urban planning reform, and through a variety of processes, it has been clear a better planning system is necessary to unleash urban development capacity.

CHALLENGES FACING THE CONSTRUCTION SECTOR

Independent economist Cameron Bagrie expects that while the rules will result in a boost to housing supply, to what degree is still uncertain given persistent challenges facing the construction sector.

Approximately 70 percent of all building materials used in New Zealand are imported from offshore, a worryingly high number given current supply chain disruption and the rising cost of shipping.

Internationally we are facing a shortage of timber and steel, while locally skilled labour is in short supply.

As border restrictions across the ditch ease, employers are increasingly concerned about the potential for tradespeople to look for opportunities beyond New Zealand, given comparatively high wages and similar labour shortages in Australia.

While we’re seeing moves from the Government to increase housing supply, the global pandemic is a problematic time to ramp up construction.

Given our border is closed to supplementary labour, and costs are rising owing to supply chain disruption and global materials shortages, the new homes forecast to satiate demand are indeed a long-term solution to a near-term problem.

CREDIT CRUNCH

When asked about the impact of tightening credit conditions on developers’ ability to borrow to produce new homes, Bagrie says inflation is having a conflicting impact.

“These material shortages pushing out delivery times means a slower supply side response, and the rising cost of goods and services through inflation will take some projects into uneconomic territory,” he says.

Smaller developers without the experience or equity behind projects may find it increasingly difficult to secure funding, with banks tightening their lending rules as they increasingly adopt a cautious approach to credit.

Bagrie says inflation will continue to boost the value of existing stock too, with land prices expected to rise following up until and beyond August next year as developers with their financial ducks in a row look to larger land sites with add-value potential.

TRUNK INFRASTRUCTURE

Despite policy changes like the Unitary Plan in Auckland encouraging intensification by rezoning fringe locations, securing the funds necessary to create new infrastructure continues to be a pain point for councils and local developers.

Commentators say new policy fails to address funding plans for the creation of foundational infrastructure like parks, roads and water systems, without which we cannot grow communities.

The LGNZ says this lack of funding for critical infrastructure remains a key impediment to boosting our housing supply.

“LGNZ recognises the funding central government has made available through the ($3.8 billion) Infrastructure Acceleration Fund but noted it is a one-time intervention. It still leaves the politically problematic rates system to pay for infrastructure long-term, which is the real constraint.”

The organisation says local government, already stressed by the pressures of the pandemic is now grappling with three waters reform, resource management reform and civil defence work, while community groups, Iwi and the private sector are tapped out.

MIGRATION SHIFTS THE DIAL

While new rules are set to add more houses to our biggest cities, the supply-demand imbalance has been acutely felt across the regions, with average prices outside Auckland rising some 25 percent year-on-year, prompting some to wonder whether we’re heading for a two-tiered marketplace.

Bagrie says internal migration between New Zealand’s cities and throughout the regions continues to be a key theme impacting housing supply, and therefore prices.

He says the City of Sails has lost some 35,000 people to other domestic areas in the last three years.

“In 2019 and 2020 this loss was more than offset by net external migration gains, but 2021 saw border closures hit external migration, with Auckland suffering a small population loss.”

“I suspect the departure trend of domestic migration from Auckland will increase over 2022 with demand for housing pushed into the regions, he says.

Affordability constraints in our biggest city, paired with an increasing pursuit of lifestyle opportunities and more flexible working conditions for professionals continue to drive urban Kiwis into the regions.

So too do extended lockdown measures and the growing cost of compliance for businesses, with areas across Northland, Gisborne and Hawke’s Bay now experiencing acute supply shortages.

The concern here is that Auckland’s housing supply may catch up to meet demand, especially while our borders remain shut to visitors and migrants, while regional areas not covered under current ISPP and MDRS provisions attempt to manage a worsening supply shortage exacerbated by internal migration.

Equally, if borders reopen and migration resumes at levels experienced during the 2019-2020 year, our main cities could quickly feel renewed pressure on supply.

While the new policy will remove some of the red tape and rigmarole associated with the resource consent process, commentators can agree our issues with housing have a long history, one to which there is no cure-all.

Where rising inflation in the current economic climate offers an opportunity for innovation, pandemic-related pressures continue to exacerbate obvious issues.

Careful management of land availability and cost, funding for vital infrastructure, supporting the construction sector as it grapples with capacity constraints, while building a legislative framework that supports manageable growth across our country remains the only way to build ourselves out of this precarious housing situation.

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