South China Morning Post
Advertisement
Advertisement
Houses in the Remuera area of Auckland on June 13. The bold reforms in New Zealand’s largest city that led to a housing construction boom are a template for other cities and countries where a lack of supply is driving up housing prices. Photo: Bloomberg
Opinion
The View
by Nicholas Spiro
The View
by Nicholas Spiro

Auckland’s bold housing reforms an example for Australia’s unaffordable market

  • While Australia’s housing market has proved resilient, the rebound in prices has only served to heighten concerns about the fall in affordability
  • Bold zoning reforms by Auckland’s government that aimed to encourage the development of medium-density housing offer a way forward for Australian cities
Nicholas Spiro
Nicholas Spiro
Why you can trust SCMP
At first glance, Australia’s housing market is performing significantly better than New Zealand’s. Both countries’ central banks have been among the most hawkish in advanced economies, raising interest rates aggressively to tame inflation at the cost of inducing a recession.
This makes the sudden recovery in Australian house prices this year all the more striking. Since bottoming out in February, home values have risen 3.4 per cent, reducing the peak-to-trough decline to just 5.7 per cent. In Sydney, the largest and most expensive market, prices have shot up 6.7 per cent, according to CoreLogic data.

In New Zealand, by contrast, house prices have yet to find a floor, having fallen for 15 straight months. Last month, they fell at their sharpest pace in eight months, taking the decline in the past year to 10.6 per cent. In Auckland, the country’s largest city, prices have plunged 16.8 per cent since their peak, more than twice the peak-to-trough decline in Sydney, according to CoreLogic.

Yet, while Australia’s housing market has proved more resilient, the rebound in prices has only served to heighten concerns about the deterioration in affordability.

One of the main reasons for the short downturn is the lack of supply. Last month, new listings in the capital cities were 10 per cent below their previous five-year average while inventory levels were more than a quarter below the average for this time of year, according to CoreLogic data.

Supply constraints are particularly acute in the rental market, where the steep rise in interest rates has dampened demand for purchases of properties for investment purposes. In April, there were just under 92,000 rental listings nationwide, down from more than 180,000 at the start of the pandemic and 38 per cent below the average level for the previous decade.

The rapid pace at which demand – which is being fuelled by the surge in net overseas migration – has outstripped supply has driven up rents sharply, especially for flats. Rents in the capital cities increased 16.2 per cent in the past year, and by as much as 18.8 per cent in Sydney. The upwards pressure on rental prices is mainly attributable to the persistent undersupply of medium-to-high-density housing, a key factor behind the decline in the stock of social housing.

Unfortunately, the deterioration in rental affordability, particularly for lower income households, has become deeply politicised. Last month, opposition parties delayed legislative approval of the ruling Labor Party’s signature A$10 billion (US$6.7 billion) social and affordable housing fund, mainly because of the Green Party’s insistence on the imposition of a two-year nationwide freeze on rents.

Rent controls would only make matters worse by disincentivising investment, thereby reducing the supply of rental accommodation even further. Yet, the political divisions over Australian housing policy have sharpened the focus on delays and inefficiencies in the planning system, which are at the root of the country’s housing crisis.

In this context, the bold zoning reforms introduced by Auckland’s government, designed to encourage the development of medium-density housing, is eye-catching. A uniform set of land use rules known as the Auckland Unitary Plan (AUP) in 2016 led to the upzoning of much of the city’s residential land, ushering in a residential construction boom that spared the city from the dramatic rise in rents and prices in the rest of the country.

A house under construction in Auckland on June 13, 2022. A uniform set of land use rules known as the Auckland Unitary Plan in 2016 led to the upzoning of much of the city’s residential land, ushering in a residential construction boom that spared the city from the dramatic rise in rents and prices in the rest of the country. Photo: Bloomberg
Research undertaken by Ryan Greenaway-McGrevy of the University of Auckland revealed that the liberalisation of the city’s zoning laws not only led to a surge in building in upzoned areas, it shifted the focus of construction to attached multifamily housing – as opposed to single-family detached homes – in established suburbs well-served by public infrastructure.

The findings of a paper published by Greenaway-McGrevy in May also showed that the reforms improved rental affordability, with rents for two- and three-bedroom dwellings currently 14 to 35 per cent lower than they would have been in the absence of changes to the planning system.

The AUP helped lay the groundwork for a cross-party consensus in New Zealand on housing reform. In October 2021, the Labour government and the opposition National Party joined forces to pass legislation on overhauling planning laws to encourage medium-density housing in all major cities.

Although New Zealand’s rental market remains tight, rents are growing at an annual pace of roughly 4 per cent, a much slower rate than in Australia. Nick Goodall, head of research at CoreLogic New Zealand, said rental gains were more in line with “household incomes rather than landlords’ costs”. Still, despite the progress made in boosting supply, particularly in Auckland, it has been “very difficult to undo the damage stemming from years of undersupply,” Goodall said.

This is all the more reason for Australia to embrace Auckland-style planning reforms as soon as possible. The Grattan Institute in Melbourne notes that Australia is one of only a handful of countries among advanced economies in which housing stock per capita has stagnated during the past two decades.

In a submission to the upper house of parliament in the state of Victoria this month on ways to tackle the housing crisis, the Grattan Institute urged Victoria’s government to liberalise its planning laws by permitting more medium-density housing in existing suburbs. “No state government in Australia has been as bold as Auckland has,” said Joey Moloney, senior associate at the Grattan Institute.

This requires a major shift in urban planning and development and, crucially, the political will to take on the nimby crowd who have so far succeeded in stymieing medium-to-high-density housing schemes in popular suburbs.

Even in New Zealand, the cross-party consensus on housing is crumbling ahead of a parliamentary election in October. This makes Auckland’s planning reforms look even bolder. Australian cities would do well to follow suit.

Nicholas Spiro is a partner at Lauressa Advisory

2