The Growing Housing Affordability Problem in New Zealand’s
Regional Towns and Cities: An Analysis of Likely Causes and
Potential Policy Solutions
Laura Hemingway
A thesis submitted in partial fulfilment of the requirements for the degree of
Master of Public Policy, the University of Auckland, 2021.
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Abstract
Housing policies of successive New Zealand governments have been designed to address
Auckland’s housing crisis and have paid scant attention to the growing housing affordability
problem in New Zealand’s regional towns and cities. This thesis undertakes a literature
review into the causes of housing affordability problems in regions before examining the Bay
of Plenty region as a case study exhibiting complex regional housing issues. Utilising
publicly available data and local council information this thesis takes a deeper look into
reports of growing housing deprivation and rising unaffordability in Rotorua, Tauranga and
the Eastern Bay of Plenty. This thesis finds that high levels of unaffordable housing in
Auckland triggered a ripple effect which resulted in increased internal migration of
ex-Aucklanders moving to Tauranga. This in turn increased migration to cheaper locations
within the wider Bay of Plenty. Tauranga is grappling with a deficit of readily developable
urban land due to population pressures, poor planning and infrastructure funding issues.
Rotorua is experiencing high rates of homelessness as a lack of new housing supply and
tourism demand for Airbnb properties has led to skyrocketing rents and vulnerable
communities being squeezed out. The Eastern Bay is struggling with population pressures,
demand for seasonal accommodation, difficulties utilising Māori land for housing and rising
housing costs relative to very low average household incomes.
These local housing issues are reflected in the wider academic literature on factors which
place pressure on regional housing markets. This thesis concludes that addressing poor
outcomes in the regional housing space will require a coordinated approach taking into
account each aspect of the wider housing ecosystem. Long-term regional spatial planning,
reducing barriers to housing supply and policy changes and funding increases to the
Progressive Home Ownership scheme are suggested as potential policy options to turn around
New Zealand’s declining rate of home ownership. Measures to reduce inflated housing
demand and mitigate negative impacts of Airbnbs on the local community in combination
with an expanded government state housing build programme are also recommended.
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Acknowledgements
I would like to thank my thesis supervisor Jennifer Curtin for offering her time, wisdom and
support in guiding me through the research process and helping me to refine my big ideas
into an achievable thesis topic. A big thanks to my friends and family for offering
unwavering support and endless cups of tea. A special thank you to my mother for always
checking in, making sure I was meeting my deadlines and for supporting me through the
entire process.
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Table of Contents
Abstract……………………………………………………………………………………..…2
Acknowledgements………………………………………………………………………...….3
Table of contents…………………………………………………………………………...….4
Chapter 1: Introduction………………………………………………………………………..5
Chapter 2: Research Approach and Methodology…………………………………………….7
Chapter 3: Defining Housing Affordability and How it Became a Policy Problem…………..9
3.1 What is housing affordability?.................................................................................9
3.2 How is housing affordability measured?................................................................10
3.3 How has housing affordability become a policy problem?....................................12
Chapter 4: What Causes Housing Affordability Problems in Regions?..................................15
4.1 Internal population and demographic changes……………………………...……15
4.2 The effect of changing international migration patterns………………………....19
4.3 The ripple effect of rising house prices………………………………………..…22
4.4 Lower average incomes in the regions…………………………………....……...24
4.5 Housing supply failing to meet demand……………………………………….…25
4.6 The impact of national housing policies and regulations…………………...……29
4.7 The Airbnb effect……………………………………………………………..….41
4.8 The impact of macroprudential tools on housing inflation…………………..…..43
4.9 The role of local government…………………………………………………….45
4.10 International influences…………………………………………………………47
Chapter 5: A Case Study of the Bay of Plenty Region………………………………….…...52
5.1 A regional overview: What the data tells us……………………………………..52
5.2 Rotorua: A homelessness hotspot………………………………………………..60
5.3 Tauranga: Bulging at the seams………………………………………...…….….68
5.4 Eastern Bay of Plenty: The poor cousin…………………………………...….…78
5.5 Comparing housing affordability problems across district boundaries ……........87
Chapter 6: Potential Policy Solutions……………………………….………………………..90
6.1 Adopting a regional spatial planning approach to urban development……..……90
6.2 Reducing barriers to housing supply………………………………..……………92
6.3 Assisting families into homeownership………………………………………….93
6.4 Growing the social housing sector…………………………………………….…95
6.5 Reviewing immigration settings……………………………………………….…96
6.6 Introducing restrictions to short-term accommodation providers……………......98
6.7 Reintroducing loan-to-value ratios for investors……………………………..…..99
6.8 Disincentivizing housing speculation………………………………………...…100
Chapter 7: An Emerging Picture of Growing Housing Unaffordability in the Regions…....101
Reference List………………………………………………………………………………104
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Chapter 1: Introduction
Housing affordability is a complex, multi-faceted, ‘wicked problem’ which requires constant
policy reinvention to find suitable solutions in an ever-changing, dynamic environment
(Adams. 2011). An emerging issue is rising housing unaffordability in New Zealand’s
regional towns, and cities. Significant research has been conducted by government officials,
academics and policy think tanks on the issue of housing affordability in New Zealand’s
major cities since a growing property bubble in the early 2000s drove up the price of
residential housing and the ‘Auckland housing crisis’ began to receive increasing media and
public attention (Broome, 2009; Greenaway-McGrevy and Phillips, 2016). Wide ranging
government inquiries into housing affordability were conducted in 2008 and 2012
(Commerce Committee, 2008; Productivity Commission 2012). As a consequence of these
findings a range of new housing policies by the fifth National government and the current
sixth Labour government were enacted. Less attention has been paid to the impact of
systemic housing market failures on regional areas. The main objective of this thesis is to
explore what is causing recent housing affordability problems in New Zealand's regional
towns and cities and how this policy problem can be addressed.
The first chapter outlines the approach this thesis takes to researching housing affordability
issues by reviewing and utilising a range of theoretical perspectives. This is followed by a
discussion as to the methodology employed in this thesis; specifically I include a wide
ranging literature review and case study analysis. In chapter two I will define the key terms
and discuss how housing affordability has come to be classified as a policy problem for
governments to solve. Chapter three will undertake a literature review on the issue of what
causes policy problems in regions. There is no single factor which determines affordability
instead the literature suggests population and demographic changes, local government
regulations, household incomes, interest rates, credit availability, central government housing
policies, the supply of urban land, house prices and rental rates all contribute to the housing
ecosystem. The potential impacts of these factors and the interaction between these factors is
discussed in detail. The focus then turns to examining the Bay of Plenty region as a case
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study exhibiting complex regional housing issues. Utilising publicly available data, statistics
and local council information this thesis takes a deeper look into reports of growing housing
deprivation and rising unaffordability in Rotorua, Tauranga and the Eastern Bay of Plenty.
The remainder of this thesis draws upon the insights gained from the literature review and
case studies to identify overall trends in New Zealand’s regional housing market and to assess
which government policy interventions could potentially be effective in improving housing
affordability outcomes. This thesis concludes that a successful intervention will require a
multi-pronged approach that incorporates long-term regional spatial planning and a reduction
of barriers to housing supply. Policy changes and funding increases to the Progressive Home
Ownership scheme are suggested to turn around New Zealand’s declining rate of home
ownership. An expanded government build programme to accommodate more families in
social housing is necessary to address acute housing need. To reduce inflated housing demand
a review of immigration settings is warranted as New Zealand’s housing ecosystem cannot
currently cope with large fluctuations in migration patterns in light of the inelastic nature of
housing supply. Introducing restrictions to the short-term rental market is also worth
consideration in light of international and local evidence of the Airbnb effect detrimentally
affecting the rental market in regional hotspots. Reintroducing loan-to-value ratios and
instituting legislative changes to disincentivize housing speculation are also recommended.
This thesis also offers some additional insights to the scholarship on housing affordability as
to the benefits of taking an ecosystems approach to examining the linkages between factors
which impact upon the overall rate of housing affordability and suggests areas for future
research based on current knowledge gaps.
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Chapter 2: Research Approach and Methodology
This thesis takes an inductive approach to analysing housing affordability issues in regional
New Zealand. Starting the project with a deep dive into publically available housing market
data it quickly became apparent that supply and demand principles of market economics were
essential to understanding the functioning of housing markets (Manser, 1994; Lund, 2011;
Reeves, 2014; Lipsey and Chrystal, 2015). The wider literature on the poor state of New
Zealand’s housing affordability also lends itself to market failure and government failure
theory to help explain why markets and government policies are not functioning in the
intended manner (Whitehead, 2003; Kates, 2014; Layton, Robinson and Tucker, 2019). The
methodology employed in conducting the Bay of Plenty case study research involved
collating data from public access downloadable excel datasets through the regional economic
activity web tool (MBIE, 2020a), the tenancy database (MBIE, 2020b) and the statistics and
research section of the Ministry of Housing and Urban Development website (HUD, 2020b,
2020c, 2020d). From these large datasets it was possible to pull out relevant data for the
districts of interest and then graph the results to compare the variation in outcomes per
district according to different measures of housing affordability over time. Most of the
datasets stretch back to the mid 1990s allowing for comparison of rental rates, house prices,
rent-to-income ratios, median household incomes and population changes to inform the
findings of this research. A broader picture of housing issues in each district was fleshed out
by consulting local government reports and applying the wider academic literature in a local
context.
The next step taken was to review the existing academic literature regarding what causes
housing affordability issues in regions. In researching how to define housing affordability the
literature was largely consistent with the underlying theme that the right of every individual
to safe, secure, adequate housing was a key objective (Stone, 1993; Human Rights
Commission, 2017, Hohmann, 2019). This became a bottom line requirement for assessing
the success of housing policy interventions. Starting this project with an examination of the
data and literature and utilising a range of theoretical perspectives rather than taking a
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singular theoretical approach in my research allowed me to develop a nuanced understanding
of the complexities and contradictions of the housing affordability question.
As the literature review extended into covering the range of factors which affect regional
housing affordability the theoretical approach shifted towards looking at how the built
environment, the natural environment, institutions and market factors interact within the
housing system. Dyson et al. (2020) posits that taking an ecosystemic approach can assist in
creating “multi-faceted, interdependent building interventions” (p. 2). The research conducted
by Dyson et al. (2020) is concentrated on the sustainable design of buildings and housing
rather than looking at the wider housing market, yet here I argue that an ecosystems approach
could also be a valuable tool in helping make sense of how different factors interact with one
another to contribute to the overall state of the housing market. This builds upon existing
research by Reichert (1990) and Meen (1999) which reveals the complexities of regional
sub-markets as distinct from a monolithic singular national housing market. Taking an
ecosystem approach to the information gathered from a review of the relevant literature and
the case study quantitative analysis of housing data sets for the Bay of Plenty it is possible to
examine the linkages between factors which impact upon the overall rate of housing
affordability in New Zealand’s regions. Drawing on these insights the final section of this
thesis considers potential policy solutions. utilising a range of theoretical perspectives to
inform this research
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Chapter 3: Defining Housing Affordability and How it Became a Policy
Problem
Before this thesis can explore housing affordability in regional New Zealand some context is
needed regarding how to define housing affordability and how to measure affordable versus
unaffordable housing. This chapter will also look at the historical context of how housing
affordability came to be framed as a policy problem requiring government intervention.
3.1 What is housing affordability?
Shelter is a fundamental human need and as such the right of every individual to adequate
housing has been enshrined in article 25 of the Universal Declaration of Human Rights
(UDHR). Five human rights treaties signed and ratified by the New Zealand government in
the years since the UDHR was first signed in 1948 recognise the right of all peoples to
adequate housing. The most influential of which, the 1966 International Covenant on
Economic, Social and Cultural Rights, recognises the importance of “the right to live
somewhere in security, peace and dignity” and places a binding obligation both legally and
morally on the state to ensure the right to adequate housing is realised for all New Zealanders
(Human Rights Commission, 2017, p. 1). Housing is important not just to protect us from the
elements but to provide us with a space to meet our psychological needs, a place to connect
us with friends and family, and to live our lives with privacy, safety and comfort (Hohmann,
2019). Adequate housing is essential for individual, family and community wellbeing. The
United Nations has set seven standards to assess whether housing is ‘adequate’ to meet
people’s basic human rights. Housing must be habitable, provide secure tenure, be accessible
to all, culturally adequate, be built in a suitable location, with access to essential services and
facilities and importantly, be affordable to all (Human Rights Commission, 2017).
The conundrum of housing is that there is both a fundamental human need for shelter and
housing is also a commodity to be purchased on the marketplace (Stone, 1993). Housing
affordability can thus be measured as the ratio of housing cost to household income (Stone,
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1993). If decent housing is too expensive there is a risk that households may have to
compromise with either inadequate housing that is mouldy, damp, crowded or in poor repair
or by cutting back on other essential living expenses (Ndubueze, 2007). In this way
“affordability considers not just housing but also the quality of housing that is consumed and
whether the household has enough income remaining for other necessities of life after
offsetting their housing cost” (Ndubueze, 2007, p. 3). Thus, for housing to be considered
affordable a household needs to be able to pay the rent or the mortgage without difficulty and
have enough money left over to cover remaining expenses.
The cost of housing is generally the most expensive item in any household's weekly budget
(Hohmann, 2019). Insufficient household income to rent or purchase adequate housing is a
major problem for many low income families and has been the subject of much policy debate
in New Zealand as home ownership levels have fallen to the lowest levels seen in the last 60
years and rents have been rising faster than wages since 2014 (Johnson, Howden-Chapman
and Eaqub, 2018). A society with adequate, affordable housing should be a core policy
objective of every government. Therefore, for the purposes of this thesis, I am defining
‘housing affordability’ as the access to safe, secure, adequate housing at a price point that
allows households to meet all their essential living expenses after housing costs.
3.2 How is housing affordability measured?
Housing affordability is subject to academic debate as to which measures properly capture
when housing shifts from ‘affordable’ to ‘unaffordable’ (Hulchanski, 1995; Bogdon and Can,
1997; Stone, 2004). In terms of rental affordability the rent-to-income ratio and the residual
income approach are the two main measures used in academic and government analysis of
housing affordability, with critics on both sides touting the advantages of the respective
measures in producing greater insights (Centre for Housing Research, 2004). The
rent-to-income ratio which measures the percentage of household income spent on housing
costs has been used since the 19th century when Engel and Schwabe’s examination of
household budgets revealed a ratio of “one week's pay for one month's rent” as a ‘rule of
thumb’ commonly being used by money lenders and landlords to set an acceptable rental rate
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for tenants (Hulchanski, 1995, p. 472). As Hulchanski (1995) discusses this roughly 20
percent rule was used in Canada until the 1950s. This crept up to 25 percent during the 60s
and 70s until the 1980s where a 30 percent of household income to housing cost ratio came
into prominence.
The New Zealand Ministry of Housing and Urban Development (HUD) also uses this 30
percent measure as part of the housing affordability experimental statistics series to assess the
affordability of housing in areas around New Zealand (HUD, 2020c). Renters more so than
homeowners in New Zealand tend to have housing unaffordability problems using this 30
percent ‘rule of thumb’. Nationally, 31% of renters spend over 30% of their total household
income on housing costs in 2018 (HUD, 2020c). The benefit of this measure is that it is
relatively easy to calculate, is very useful in assessing changes to housing affordability within
a region over time and as it is widely used internationally it allows for comparisons between
countries despite significant differences in average incomes, housing prices and rental rates
(Grady, 2019).
Other academics have criticised the 30 percent ‘rule of thumb’ as being a crude tool to assess
which households need assistance with housing (Hulchanski, 1995; Bogdon and Can, 1997;
Stone, 2004). Stone (2004) argues that for many low income families paying 30 percent of
their limited income towards housing costs doesn’t allow enough residual income for other
daily necessities. But for wealthier households there is no real material hardship in paying
considerably more than 30 percent for housing costs. The prescribed 30 percent ratio is
entirely subjective, does not consider the adequacy of housing in terms of quality of housing
or level of crowding and does not take into account the individual household ability to meet
all essential needs after adequate housing is paid from the household budget (Centre for
Housing Research, 2004).
Stone (2004) advocates for a modified residual income measure, the shelter poverty approach
based upon “the difference between their disposable income (that is, after taxes) and the cost
of meeting their non-housing needs at a basic level of adequacy” (p. 109). This creates a
‘sliding scale’ in relation to how much each household can afford to spend on housing.
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Families spending more than they can reasonably afford on housing are deemed shelter poor.
The main problem with this approach is that it is more difficult to assess than the
rent-to-income ratio. This method changes the distribution of household types that fit within
the definition of shelter poor. Stone (2004) found that many high income households and
middle income smaller households (including many elderly singles or couples) can afford to
spend more than 30 percent of total household income on housing costs while low income
households and larger households do not have sufficient residual income after housing costs
to meet their daily necessities. Research by Grady (2019) supports Stone’s shelter poverty
approach over the rent-to-income ratio. In particular, Grady (2019) found that the
rent-to-income ratio underestimated the burden of housing costs in low income
neighbourhoods while overestimating the burden in high income neighbourhoods.
The shelter poverty approach is not currently used in New Zealand to assess housing
affordability. However, the Household Income Report (Perry, 2017) and the newly formed
Child Poverty Monitor (Duncanson et al., 2019) both take an after housing cost approach to
assess the extent of poverty in New Zealand to look at which households after housing have
insufficient income to meet essential needs. Further research in this area may yield a more
nuanced analysis as to which types of households in New Zealand suffer from shelter poverty.
Overall, the usefulness of each housing affordability measure is largely dependent on context,
whether the measure is being used to analyse general trends in affordability over time or
whether the measure is being used to determine the eligibility of a household for housing
allowances in the private market or the need for state housing (Centre for Housing Research,
2004). This thesis will use multiple measures to assess the available data in order to form a
broad picture of the overall affordability of housing in New Zealand’s regions.
3.3 How has housing affordability become a policy problem?
Up until the industrial revolution housing was predominantly viewed as a commodity to be
exchanged on the open market, with the market price of housing determined by the laws of
supply and demand (Lund, 2011). This laissez-faire approach to housing policy was based on
the economic premises set out by Adam Smith in treatise An Inquiry into the Nature and
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Causes of the Wealth of Nations (Smith, cited in Lund, 2011). A key principle of Smith’s
treatise is that an equilibrium price for goods is established where supply meets demand and
this is subject to changeable market conditions. Reform issues were largely seen as the
prerogative of philanthropists and do-gooders rather than the state up until the 19th century
(Oxley and Dunmore, 2004). However, the rise of city slums during the industrial revolution
as workers flooded into the cities drew the attention of reformers and legislators in Europe.
The health aspects of poor quality housing was considered a policy problem overdue for
intervention. After the advent of WWI there was a growing acceptance amongst policy
makers in Europe that the state had a more direct role to play in the construction of new
housing developments (Oxley and Dunmore, 2004). This turning point in history is where
housing policy really came to the forefront of public attention and housing affordability for
the average man came to be defined as a policy problem for legislators. Housing policy has
taken on many forms in the decades since, and overall can be defined as government
strategies and actions which attempt to modify housing markets in order to address societal
concerns such as unaffordability, overcrowding, homelessness, poor housing quality and
home ownership aspirations (Lund, 2011).
Housing quality and affordability issues came to be framed as a policy problem in New
Zealand in the wake of the Great Depression where many families found themselves
unemployed or on reduced incomes (Kāinga Ora, 2019b). These tough economic times
brought about a radical reshaping of New Zealand’s welfare state with the election of the first
Labour government in 1935. Prime Minister Savage initiated the largest state housing
construction scheme in New Zealand, building 5000 state houses by 1939 (Kāinga Ora,
2019b). As well as state rental housing the first Labour government established the State
Advances Corporation in 1936 which advanced cheap credit at below market mortgage rates
to first home buyers (Broome, 2009). This helped to ensure a steady supply of new housing
for middle income families. In the aftermath of WWII the government escalated its state
house building scheme to reach a peak of 10,000 new houses per year, building whole
suburbs and new planned communities (Kāinga Ora, 2019b). This direct provision approach
of providing affordable state rentals for families unable to afford a mortgage and cheap
13
mortgage credit to modest income working families proved to be a popular and effective
solution to New Zealand’s housing problems during the postwar period (Broome, 2009).
In the decades since the issue has been reframed and reimagined with each successive
generation. Western governments have approached housing affordability from different
perspectives ranging from a laissez-faire perspective up until the late 19th century, a social
welfare direct provision approach in the aftermath of WWI and the Great Depression and the
re-emergence of market supremacy with neoliberalism and the rise of privatisation and
subsidies in the 1980s (Davis, 2013; Oxley and Dunmore, 2004). A third-way approach
combining social welfare and market-based strategies has emerged in the current economic
climate. Housing affordability is a difficult problem with definitional challenges, shifting
goalposts and a constant imperative of reinvention of new solutions to an adapting and
evolving problem. By viewing housing affordability as a ‘wicked problem’ characterised by
“elusiveness, subjectivity, uniqueness and complexity” it is possible to open the door to a
range of new housing solutions (Adams, 2011, p. 952). Policy solutions to housing issues are
subjective and reflect value judgements made by policy makers. The ‘wicked’ nature of New
Zealand’s housing affordability problem makes this a complex area of research. This thesis
will be guided by the overarching aspiration to find the right mix of policy solutions which
will ensure that every New Zealand household at a bare minimum has access to safe, secure,
adequate housing at a price point that allows households to meet all their essential living
expenses after housing costs are paid for.
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Chapter 4: What Causes Housing Affordability Problems in Regions?
This chapter will undertake a literature review on the causes of housing affordability
problems in regional towns and cities, looking at both international and domestic scholarship.
Drawing on a breadth of literature from Australia, Canada, the US and the UK and New
Zealand commonalities can be discovered which can help to build a broader picture of factors
which may be impacting New Zealand’s regional housing markets. I then apply these factors
to the case study analysis of the Bay of Plenty’s housing issues in chapter five to understand
what is causing housing need to grow in this region. The literature review also provides
insights into successful and unsuccessful housing policies implemented overseas. These
findings have been utilised in developing recommendations for potential solutions in chapter
six.
4.1 Internal Population and Demographic Changes
Housing unaffordability has predominantly been studied in the context of big cities (Costello,
2009). The population shift from rural to urban locations over the 20th century as people
search for better paying jobs has driven up demand for housing in capital cities. The age
demographics of this shift are also skewed. The trend has predominantly been young people
migrating to the cities for education and employment opportunities and to escape small town
living (Costello, 2009). However less attention has been paid to the migration trends of
people moving into the regions away from the cities.
Gurran (2008) discusses how the ‘sea change’ phenomenon has negatively impacted housing
affordability in small coastal towns and regional cities in Australia. A growing cohort of
‘amenity migrants’ have been moving to coastal towns since the late 1970s. These amenity
migrants are a mix of retirees selling up property in the big city for a high price and moving
to coastal communities with their capital gains, lifestyle movers who are working from home,
partially commuting to the city or accepting reduced remuneration for the amenity gains of
living away from the big city and ‘welfare migrants’ who are unable to afford the high cost of
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housing in the big cities and so get pushed out to surrounding regions. Gurran (2008) found
that the rapid increase in population in coastal towns in Australia is correlated with “...older
communities aging faster; lower incomes, higher levels of unemployment and
underemployment, couples and single person households rather than couples and children”
(p. 408). Even small population changes can have a significant impact on regional
communities as local authorities often do not have the resources of the bigger cities to deal
with the increased demand for housing. Coastal communities are also subject to significant
seasonal fluctuations in population due to tourism and second-home holiday makers. Gurran
(2008) argues that this population boom has created high levels of house price inflation
putting pressure on rental prices for low income households and increasing the cost of
homeownership for would-be first home buyers.
Eaqub and Eaqub (2015) claim a similar effect is evident in New Zealand which they term
the ‘reverse mobility’ trend. For families whose income is not dependent on being physically
in one of the big cities there are major incentives in moving to the regions with cheaper
housing, less traffic and arguably a better lifestyle.
Auckland loses more people to the regions than it gains: the 2013 Census showed that
it lost just over 1,000 more people per year...to other regions than it received from
them. The main beneficiaries have been the neighbouring regions Waikato, Northland
and Bay of Plenty (Eaqub and Eaqub, 2015, p. 88).
The Productivity Commission’s (2012) inquiry into housing affordability noted that high
levels of internal migration to the Bay of Plenty, Gisborne and Tasman regions from other
regions have had a more substantial impact on population growth than external migration.
New Zealand Treasury (2018a) data shows strong growth in Aucklanders migrating to
Tauranga City, Waikato District and Whangarei from 2013 to 2016, as seen in figure 1 below.
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Internal migration trends also differ by age groups with high levels of internal migration for
20-24 year olds moving location to attend tertiary education institutes and seek better job
opportunities. Particularly relevant for the regions with high growth, “People in the mid-30s
and 60+ age groups also tend to have high internal migration rates, most likely as a result of
moving to family and retirement-friendly locations” (Productivity Commission, 2012, p. 72).
As you can see in figure 2 Auckland has been experiencing higher rates of net out migration
every year since 2012, with the high cost of housing in New Zealand’s largest city being a
major contributing factor (New Zealand Treasury, 2018b).
17
Furthermore, recent policy changes including the government's first home grant arguably
encourages families to move to the regions where they can access up to $20,000 of free
government money for a couple building a new home in the regions and lower house prices
mean they can better afford the deposit and on-going mortgage payments (Kāinga Ora,
2019a). Eaqub and Eaqub (2015) further argue that the loan-to-value restrictions
implemented by the Reserve Bank in 2013, which was intended to slow the Auckland
housing market and reduce the risk of a residential property bubble, “in fact
disproportionately affected lending in the provinces outside of Auckland” (p. 88). Requiring a
20 percent deposit for most potential home buyers and a forty percent deposit for investors
priced many potential buyers out of Auckland and encouraged potential buyers to look to the
regions where lower house prices meant lower deposit requirements. The regions surrounding
Auckland are now experiencing higher population growth than our largest city centre.
Between 2013 and 2018 Northland’s population grew by 18.1%, Bay of Plenty’s population
grew by 15.2% and Waikato was up by 13.5% compared to Auckland’s 11% growth rate
(Statistics New Zealand, 2019b). Rapid population growth puts pressure on existing housing
stock and increases demand for new housing.
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4.2 The effect of changing international migration patterns
What effect does immigration have on house prices and rental rates? At a simplistic level
basic supply and demand theory would suggest that a rising population caused by high rates
of immigration (as well as natural population growth) creates increased demand for housing.
Housing supply should grow to match demand, but in the absence of sufficient new houses
being added to market, house prices and rental rates should rise to a new equilibrium price
factoring in increased demand. Evidence from Saiz’s (2007) examination of the impact of
immigration on the United States rental housing market suggests a causal relationship
between immigration and rents whereby an increase of immigration equivalent to one percent
of a local urban area population is associated with a one percent increase in rents and house
values. Similarly, Cochrane and Poot’s (2019) analysis of housing markets in eight countries
found that on average an immigration increase of 1 percent corresponds with a 0.5 to 1
percent increase in rents with double the effect on house prices.
New Zealand research suggests a much stronger relationship between immigration and
relative housing affordability. Coleman and Landon (2007) developed a regression model to
examine the relationship between migration, construction rates and house prices in New
Zealand from 1962 to 2006. Overall, they found that “a migration flow equal to 1 percent of
the population is associated with an 8-12 percent change in house prices after a year, and a
slightly larger effect after three years” (Coleman and Landon, 2007, p. 43). Based on these
findings large changes in net-migration from year to year often termed ‘net migration shocks’
can be expected to have a very real and significant effect on house prices. Coleman and
Landon (2007) were not able to isolate why net migration shocks had such a significant
impact on the housing market but theorised that the responsiveness of the residential
construction industry to migration patterns and the responsiveness of migration flows to
expected future income based on the state of the economy may be a factor. Furthermore, as
house prices start to rise due to the short term shock of higher migration flows this creates
greater demand for housing, expectations of continuous rising house prices can become a
self-fulfilling prophecy rather than based in rational supply and demand imbalances
(Coleman and Landon, 2007, p. 44).
19
The Commerce Committee’s housing affordability inquiry (2008) found that variation in the
rate of population growth can be predominantly attributed to net migration as natural
population increases are largely stable. As shown in figure 3 population change and net
migration mirror each other closely during the period 1998 to 2018 with sharp peaks in 2003
and 2017 and troughs in 1999 - 2001 and 2012 (Statistics New Zealand, 2018b).
The Committee also found that recent immigration settings resulted in ‘pro-cyclical results’
whereby migration increases rapidly to help manage skill shortages when the economy is
performing well, while the out-migration of New Zealanders to other countries can exceed
in-migration during economic downturns (Commerce Committee, 2008, p. 24). This suggests
that changes to immigration policy or greater responsiveness from the residential construction
sector to migration flows is required.
Research by Stillman and Mare (2008) noted that New Zealand’s migration flows are
characterised by large and volatile fluctuations which affect the year-to-year demand for new
homes which the building industry has struggled to cope with. This volatility is demonstrated
in figure 4 below which shows the changes in migration flows from 2001 to 2019.
20
However, when looking at local area affects on house prices and rents the effect of
foreign-born immigrants moving into an area proved to be insignificant despite the
correlation between migration and house prices being observable at a national level (Stillman
and Mare, 2008). Of particular note a strong positive correlation was identified between New
Zealanders returning from overseas and rising local house prices, “with a one percent
increase in population resulting from higher inflows of returning Kiwis associated with a 6 to
9 percent increase in house prices” (Stillman and Mare, 2008, p. 27). Evidence suggesting
that returning New Zealanders have a more significant effect on rising house prices than new
migrants is pertinent to a post Covid-19 housing market where the borders are barred to all
except returning New Zealand citizens and permanent residents and the numbers of
foreign-born new migrants moving to New Zealand is likely to be non-existent for the
foreseeable future.
It is also particularly significant for regional New Zealand which has a higher proportion of
local in-migration from other regions compared to the big cities. Research by McDonald
(2013) also indicates that migrant arrivals have a larger impact on house prices than
21
departures. McDonald (2013) estimated that a migration increase equivalent to one percent of
New Zealand’s total population results in a seven percent rise in house prices over five years.
This affects Auckland as New Zealand’s largest city receives almost half of all incoming
skilled migrants and over 60 percent of all international students on study visas (New Zealand
Immigration, 2017). Changes to immigration policy instituted in 2015 saw more points being
given to skilled migrants towards residency applications for settling in the regions. This,
combined with significant skills shortages in some regional industries have resulted in more
skilled migrants making a permanent home outside of Auckland in the last few years (Tan,
2018). Furthermore, Auckland’s high house prices and shortage of housing stock have
resulted in a net loss of residents to the regions in terms of internal migration since the early
2000s (Productivity Commission, 2012). The evidence from research conducted by Coleman
and Landon (2007), Stillman and Mare (2008), the Commerce Committee (2008), and
McDonald (2013) demonstrates that higher migration rates are correlated with rising house
prices although studies differ in their conclusions as to the strength of this relationship. The
evidence is unclear whether the relationship is causative or simply a reflection of other
dynamics at play affecting the New Zealand housing market. This raises questions as to
whether New Zealand’s population growth management strategy and current immigration
settings are at the appropriate level for housing supply to be able to keep up with migration
fuelled demand. In chapter six I suggest possible changes to New Zealand’s immigration
settings to support housing objectives.
4.3 The ‘ripple effect’ of rising house prices
One proposed cause for rising regional house prices is the ‘ripple effect;’ which can be
defined as “the tendency for house price variation in one region and then gradually spreading
out to other neighbouring regions over time” (Nguyen et al., 2018, p. 2) This ripple effect
may be due to changes in migration patterns or due to the economic connectedness between
cities and the surrounding regions. Meen (1999) found that the UK housing market can “best
be characterised as a series of interlinked local markets rather than a single national market”
(p. 734). Meen (1999) identified ‘spatial dependence’ (the degree to which local housing
22
markets are interlinked) and ‘coefficient heterogeneity’ (the level of similarity or difference
in composition and structure between local housing markets) as two key concepts which
affect regional housing markets and lead to a ripple effect of rising house prices from one
region to another. Reichert (1990) likewise rejected the concept of a single national housing
market in favour of a model which superimposes national trends upon the regional housing
market taking into account unique local factors. Lean and Smyth (2012) examined the ripple
effect in Malaysia and came to the conclusion that house prices in the highly developed
regions of Johor, Penang and Kuala Lumpur ripple out to surrounding areas to affect house
prices across the country. In summary, research in the United Kingdom, the United States,
Malaysia and China all confirm the existence of the ‘ripple effect’ in regional markets (Meen,
1999; Holmes and Grimes, 2008; Lean and Smyth, 2012; Tsai 2014).
Nguyen et al. (2018) found that the main city centres of Auckland, Wellington and
Christchurch acted as ‘shock transmitters’ to the surrounding regions. House price increases
or decreases in the city centres impacted on house prices in the surrounding regions.
Furthermore this level of connectedness increases during extreme economic events such as
recession or financial crises. Of the major cities Auckland has the greatest effect as a shock
transmitter to the rest of the Upper North Island regions. The Ministry of Business,
Innovation and Employment (MBIE) records monthly house price data from which I have
calculated that the Bay of Plenty has seen a 69.6% increase from 2009 to 2019, Northland
house prices have increased 50.3% and Waikato prices have increased 65.0% (MBIE, 2020a).
This is of particular importance as household incomes have not kept pace with house price
rises. The median household income in the Bay of Plenty only increased 49.1% from 2008 to
2018. Northland household incomes increased 47.5% while Waikato household incomes
increased 40.7% over the same period (MBIE, 2020a). High house prices particularly affect
low income families and those who are not already on the property ladder seeking to break
into the housing market as higher prices have correspondingly high deposit requirements.
Based on QV June 2019 mean house value data, a 20 percent deposit for an average Bay of
Plenty house is $129,083, $109,178 in Northland and $120,763 in Waikato which is well out
of reach of many New Zealand families (HUD, 2020d).
23
Media have often cited the Auckland ‘halo effect’ on rising house prices in the regions.
Hickey (2016) reports that real estate agents and mortgage brokers have noted that investors
and first home buyers are now looking outside Auckland for houses as the Auckland market
has become unaffordable and the regions offer higher rental yields for prospective investors.
House prices in Auckland started to flatten off around 2016 while the regions continued to
rise. Falling rental yields in Auckland to below 3 percent coupled with the Reserve Bank's
2015 planned changes to loan-to-value ratios for Auckland investors saw attention shift to the
regions surrounding Auckland. While Aucklanders moving to or investing in surrounding
regions may find housing more affordable than Auckland this is not the case for existing
residents. In the latest Demographia housing affordability report Tauranga surpassed
Auckland in terms of unaffordability with a median multiple of 9.3 compared to Auckland’s
8.6 to become the 5th most unaffordable city in the world. Napier-Hastings (7.4), Hamilton
(7.0) and Dunedin (6.9) all had higher median multiples than New Zealand’s other main cities
of Wellington (6.8) and Christchurch (5.4) (Harris, 2020b).
4.4 Lower average incomes in the regions
Beer (1998) argues that non-metropolitan housing problems have often been neglected in
favour of the big cities. It is frequently erroneously assumed that because house prices are
generally cheaper in the regions, housing is therefore more affordable. This assumption fails
to factor household income into the equation. Considering rental data from Australian
housing surveys Beer (1998) found that household incomes on average tend to be lower in
smaller towns and regional cities compared to large population centres and the advantage of
lower house prices in non-metropolitan areas was essentially cancelled out by lower incomes.
This trend of lower average incomes in the regions compared to the major cities is well
established, as greater opportunities for jobs in the cities and higher living costs push up
wages. Glaeser and Mare (2001) discovered a 33 percent wage gap between workers in large
metropolitan areas and non-urban areas in the United States. Similarly, Yankow (2006) found
an overall wage premium of 21 percent for urban workers residing in large cities compared to
non-urban workers. The positive association between larger labour markets found in bigger
cities and larger average earnings was also confirmed by research by Combes, Duranton and
24
Gobillon (2008) based on income and employment data from France. Beckstead et al. (2010)
argued that cities create ‘agglomeration economies,’ an effective cost saving to business and
enterprise of having workers and firms closely located to each other. Cities also attract and
educate a skilled workforce better than non-urban regions which helps to explain the 25
percent wage premium of urban compared to rural workers in Canada. In New Zealand the
gap between Auckland median household incomes and regional household incomes is
significant. The median household income in 2018 in Auckland was $100,500 and the highest
of all the regions, compared to only $85,600 in the Bay of Plenty and a low of $69,600 in
Northland (MBIE, 2020a).
4.5 Housing supply failing to meet demand
In a perfectly functioning market the law of price adjustment dictates that, when demand
exceeds supply prices will rise, when supply exceeds demand prices will fall (Lipsey and
Chrystal, 2015). In response to increased demand for housing an efficient market should
supply a sufficient number of new houses of a suitable size, quality and in desired locations at
a competitive price point to prospective homeowners. “If demand met the total quantum in
relation to number, location, household size and personal resources, there would be no
housing need” (Reeves, 2014, p. 29). Reeves (2014) notes that population growth tends to
grow faster than new houses can be built. There will always be a lag between a sudden
growth in population numbers, attributable to either increased immigration or a baby boom,
and the time taken to produce sufficient new homes. But beyond the initial lag is the market
failing to supply enough houses?
As discussed by Lipsey and Chrystal (2015) supply elasticity measures the responsiveness of
supply to changes in the level of demand and rising or falling prices. If the market is inelastic
then supply is unresponsive to demand pressures. Demand also tends to be more inelastic for
essential goods which the consumer cannot do without (Manser, 1994). One of the issues that
arises with housing compared to other market goods such as new cars or household
appliances is that housing is an essential need and a basic human right. Albouy, Ehrlich and
Liu (2016) found that inelasticity of demand in housing resulted in American households
25
spending more on housing costs as a percentage of total income. It is this inelasticity related
to rising rents which has increased income inequality and detrimentally affected the
wellbeing of low income households, particularly in expensive cities (Albouy, Ehrlich and
Liu 2016). Caldera and Johansson (2013) investigated housing supply elasticities in 21
OECD countries and found that countries with cumbersome land use and planning
regulations have lower supply responsiveness. Streamlining the consenting process,
reforming housing regulations and taxation policies can help avoid house price distortions
(Caldera and Johansson, 2013).
The inelasticity of housing supply has been listed as a concern in New Zealand’s housing
market. The Productivity Commission’s (2012) wide ranging inquiry into housing
affordability found that house prices started to rise sharply from the early 2000s which
reflected rising demand-side pressures being met with ‘stickiness’ in the supply of new
housing. The reason for this stickiness has been attributed to a range of factors including
insufficient building sector capacity and an overreliance on cottage style building practices
translating to higher new build costs (Productivity Commission, 2012). The high price of
urban land due to zoning and regulatory constraints and high costs of development and urban
planning problems with a slow and prescriptive consenting process for new builds and
infrastructure funding difficulties for local authorities all impact on housing supply
responsiveness (Productivity Commission, 2012; Johnson, Howden-Chapman and Eaqub,
2018; Barker, 2019). Rising residential land prices due to regulatory constraints and
restrictive covenants in subdivisions have been found by Grimes and Aitken (2005) to stifle
residential construction activity in New Zealand. There is also a snowball effect, as land
becomes more expensive it is uneconomic to build cheap housing on expensive land so new
houses are constructed to meet the needs of up-sizers rather than potential first home buyers
on modest incomes (Productivity Commission, 2015). The result is that New Zealand is not
building enough new houses for a population which is aging and growing (Johnson,
Howden-Chapman and Eaqub, 2018). It is estimated that from 2012-2017 population growth
outstripped new housing supply by 2.1 percent (Johnson, Howden-Chapman and Eaqub,
2018). Overall officials estimate that the shortage of housing nationwide sits at around 70,000
homes as of 1 June 2017 (HUD, 2019c).
26
Market failure analysis helps to explain why the New Zealand housing market is failing to
build enough houses. A market failure can be defined as “a situation in which the price
system fails to operate efficiently creating a problem for society” (Layton, Robinson and
Tucker, 2019, p. 95). Whitehead (2003) posits that housing is a ‘merit good.’ Housing is not
simply about meeting the shelter needs of the individual consumer, good quality, affordable
housing provides positive externalities to wider society in terms of public health, social
welfare and social cohesion. Even the most efficient market only responds to customer
demand, which does not equate to the needs of the population (Manser, 1994). Poor
households ability to pay is not a concern of the market, however, poor quality, unaffordable
housing has detrimental effects on society. New Zealand’s shameful position of rheumatic
fever rates 14 times the average in other OECD countries is strongly linked to overcrowding
due to housing unaffordability (Smith, 2014). Concentrations of poor quality, low income
housing can lead to the rise of ‘bad neighbourhoods’ where crime is of increased concern and
at the extreme end of housing unaffordability homelessness is closely linked with poor health
outcomes (Whitehead, 2003). The market tends to undersupply merit goods as it does not
take into account the positive externalities of affordable housing in price settings (Whitehead,
2003). The negative externalities of an inefficient housing market incentivises governments
to intervene with regulations and public policy initiatives.
Market failure in the housing sector is of particular concern to policy makers not only
because of the human impact on low income families struggling to afford housing but
because of the high opportunity cost of an unresponsive housing market. Research by Nunns
(2019) found that distortions in the cost of housing have a significant effect on the New
Zealand economy by redirecting labour away from regions with high levels of productivity
and pushing more people to move overseas where the cost of living is cheaper and wages are
higher. Conversely, fixing housing market distortions could increase New Zealand’s total
economic output by up to 7.7 percent and reduce the brain drain to Australia and other
countries (Nunns, 2019).
27
Addressing inefficiencies in the Auckland housing market has been a focus of policy makers
since the Productivity Commission (2012) inquiry found that poor supply responsiveness,
land restrictions, city planning ordinances and the metropolitan-urban limit had resulted in
skyrocketing house prices and rising unaffordability. Auckland has made progress on
addressing some of the supply constraints with the new Auckland unitary plan resulting in the
number of annual new homes consented in Auckland reaching their highest level in 30 years
as of September 2020 (Statistics New Zealand, 2020a). Kāinga Ora (2020) are working with
the local council on large scale new housing developments in Northcote, Roskill, Owairaka
and Hobsonville to deliver approximately 18,000 new homes within the next 10 years.
However, regional centres have not benefited from the same level of investment in housing
supply solutions afforded to the main cities. The government’s large scale projects are
currently only in progress for the Auckland and Wellington region despite unaffordability on
the rise in other regions (Kainga Ora, 2020). Local authorities in regional centres have
witnessed housing issues emerge in their towns and cities in recent years which the
community has never had to face before. High rates of homelessness in places like Rotorua,
Northland, Napier/Hastings and Hamilton has resulted in these towns being labelled by HUD
as homelessness ‘hotspots,’ which was unheard of only five years ago (HUD, 2019b). The
suddenness of the changing landscape of housing issues in the regions has meant that there is
a lack of expertise and little existing institutional infrastructure with capacity to respond to
these emerging regional housing supply problems. Identifiable problems include insufficient
resources and few existing community organisations to support the homeless, a lack of
emergency accommodation and an insufficient supply of new social housing units being built.
In terms of construction capacity, authorities also have to contend with a limited pool of
construction industry professionals and this problem is exacerbated in areas where there has
previously been little demand for new housing (Murphy, 2021).
Research by Grimes and Aitken (2005) found that house prices and housing supply
responsiveness in New Zealand’s regions are correlated. In regional markets where increased
demand is met by new housing supply there is ‘little effect’ on house prices. However, slow
supply responsiveness is reflected in rising house prices. Modelling suggests that increasing
28
house supply by 10 percent in a region results in an 8 percent drop in house prices (Grimes
and Aitken, 2005). Increasing the supply responsiveness of the housing market in regional
centres therefore needs to be a key priority for New Zealand policy makers in addressing
rising housing affordability concerns. However, government interventions to address market
failure come with many pitfalls and attempts to fix the housing market can have unintended
consequences making the situation worse or creating new problems to solve. This next
chapter will address the impact of government policy interventions on affordability in New
Zealand’s regions.
4.6 The impact of national housing policies and regulations
Kates (2014) discusses how the government acts as a mediator in the free market to prevent
poor social outcomes from occurring which would likely eventuate in a true laissez-faire
environment. Forrest (2010) puts forward the argument that government housing intervenes
in the relationship between income and housing opportunities for families. Left to its own
devices the market will produce housing that is unaffordable for lower-income families
unless they accept substandard conditions (overcrowding, damp, poor quality, far from
amenities). Direct provision of government housing therefore can improve the quality of life
of citizens rapidly in a way that other subsidies cannot (Forrest, 2010). State housing also
provides opportunities for “social and spatial mobility” as the stability of a permanent,
quality, affordable home encourages economic advancement and careful placement of state
houses in every community prevents spatial concentration of poverty and the formation of
slums (Forrest, 2010, p. 56). But Kates (2014) posits that governments frequently introduce
market interventions which cause more harm than good. The unintended consequences of
poor decision-making can be disastrous for economic and social well-being. Governments
must be aware of the limits of their abilities. At the heart of the debate is the question whether
the government should intervene in the housing market and if the government chooses to
intervene what measures should be taken?
In the 1950s and 1960s government housing policy was geared towards expanding
homeownership as the preferred form of tenure for the majority of the population (Thorns,
29
2007). Housing policies of this era were supported by an underlying ethos that “a
home-owning society was a more stable and prosperous one” (Thorns, 2007, p. 39). During
this period of high population growth the government actively developed land to increase
housing supply and provided housing products to assist families with children to buy a new
first home. Families were able to capitalise their family benefit towards a house deposit and
the state provided low interest loans to modest income families through the aforementioned
State Advances Corporation (Thorns, 2007). This period was marked by suburban expansion
of greenfield sites on the outskirts of towns and cities to meet the needs of the population for
affordable housing. The government considered homeownership a “welfare good” (Murphy,
2011, p. 340). Significant supply side state intervention in the housing market made the home
ownership dream affordable for successive generations and resulted in homeownership rates
climbing from 50.5 percent in the 1930s to 68 percent by the early 1970s (Broome, 2009).
These loan making powers were transferred to the Housing Corporation of New Zealand in
1974 which operated the low-interest loan scheme as well as managing the state housing
stock.
The mid-to-late 1970s marked a turning point in New Zealand’s approach to housing policy.
Economic turmoil from the oil price shock in 1973 and the advent of Great Britain entering
the European Economic Community, leaving New Zealand behind as a major trading partner
put pressure on the government to tighten the purse strings (Thorns, 2007). Large government
expenditure on housing was firmly in the sights of Treasury officials for cost-cutting (Thorns,
2007). With unemployment on the increase and a flood of outward migration to contend with
by the late 70s politicians and policy makers focused their attention on growing the economy.
As a consequence housing affordability dropped off the radar as a key concern.
The fourth Labour government elected in 1984 ushered in new neoliberal free-market ideas
nicknamed ‘Rogernomics’ designed to counter New Zealand’s economic woes and put the
country back on the path towards prosperity. Housing policy was focused on limiting the
availability of housing products, both state houses and mortgage assistance to those in
housing need (Centre for Housing Research, 2004). Income related targeted interest rates
ranging from 5-17 percent were introduced to the low-interest loan scheme managed by
30
Housing Corp (Thorns, 2007). GST was also introduced which covered building materials
and labour costs and increased the cost for new home building by 10 percent. The
government also abolished the popular family benefit capitalisation scheme.
In the wake of the 1987 market crash and ongoing banking crisis the fourth National
government elected in 1990 brought in radical reforms. The ‘mother of all budgets’ in 1991
slashed government expenditure on social welfare, moved state rentals to market rates,
initiated the sell-off of state backed mortgages and in 1992 the Housing Restructuring Act
shifted housing policy towards “demand-side income supplementation” in the form of the
Accommodation Supplement (Thorns, 2007, p. 44). The rationale behind the shift put
forward by Treasury was that the Accommodation Supplement would more efficiently target
households in needs of housing and allow for greater consumer choice. But faced with the
impact of benefit cuts in 1991 and rising rents in the private and state sector housing costs as
a proportion of household income have grown and greater levels of housing-related poverty
have been reported for accommodation supplement recipients (Thorns, 2007). Costs for the
accommodation supplement housing subsidy have also far exceeded early estimates of
$20-50 million per year, this figure ballooned to $852 million per annum in the space of only
five years post implementation (Thorns, 2007).
As part of the neoliberal reforms the government increasingly restricted its role as the
preferential mortgagor of first home buyers with HCNZ’s share of total mortgage lending
dropping by more than half between 1978 and 1990 (Broome, 2009). With banks taking a
larger portion of the mortgage market share this created housing financing difficulties for
lower income households that failed to qualify for a HCNZ loan and did not meet the strict
lending criteria of the commercial banks. Commercial banks in the late 1990s also allowed
higher loan-to-value ratios for childless couples (33 percent) compared to families with
children (25 percent) (Broome, 2009). This was in direct contrast to HCNZ loans which had
prioritised families with children. In the aftermath of the 1987 market crash residential
housing was seen as a low risk investment, giving rise to a new cohort of residential property
investors. “The number of household dwellings owned by private landlords...increased by
more than 50% from 1996 to 2006” (Broome, 2009, p. 86). Lower income households were
31
largely shut out of the wealth accumulated through property investment, not able to access
bank finance and facing higher rental costs. Investment in rental property also proved an
attractive proposition as capital gains are not taxed in New Zealand and until recently rental
losses were able to be offset against income tax. With the decline of HCNZ mortgage lending
and freed of restrictive government regulations on accessing overseas capital the commercial
banks shifted their lending practices accordingly, increasing the proportion of bank loans for
residential housing from 13.6 percent of total lending in 1984 to 42.8 percent of total lending
by 1999 (Broome, 2009). This helped fuel a new wave of housing speculation driving up
residential property prices and a growing property bubble in the early 2000s with New
Zealand house prices increasing 16.2 percent in 2003 alone.
The 1990s reforms in housing policy represented a shift in thinking from a “long held
tradition of government intervention to overcome market failures” through direct supply side
provision of housing to a new ideology placing faith in the market to provide sufficient
housing as long as the issue of inadequate income was addressed through government
financial assistance (Centre for Housing Research, 2004, p. 46). However, the neoliberal
experiment relies upon an efficient, functioning housing market. In reality market failure due
to ‘stickiness’ of housing supply response is evident in the New Zealand housing landscape
(Productivity Commission, 2012). Murphy (2004) argues that the 1990s housing reforms
ignored the underlying inelasticity of housing supply, social discrimination in the rental
market and the major transaction costs involved in purchasing or renting housing. The
withdrawal of HCNZ from the mortgage market, neoliberal reforms of bank financing and the
introduction of the Accommodation Supplement over direct provision of housing proved to
be costly examples of government failure. The shift to demand-side subsidies failed to deliver
affordable housing for the population.
Recognising the failure of market rates for state housing tenants the fifth Labour government
reintroduced income related rents (IRR) in 2000 and brought in the working for families
package (WFF) to try and help alleviate the material hardship of low-income families with
children (Johnson, 2013). While these measures did improve housing affordability somewhat,
the policy successes were short lived. In 2003 a major housing bubble developed in the
32
Auckland real estate market fuelled in part by a sharp increase in net migration and a growing
economic boom (Greenaway-McGrevy and Phillips, 2016). Easy access to international
finance created by the neoliberal reforms allowed the banks to offer cheap-fixed rate
mortgages which helped to sustain the housing boom (Murphy, 2011). By the mid-2000s this
housing bubble had spread to other major metropolitan centres resulting in rapidly rising
house prices in comparison to rents (Greenaway-McGrevy and Phillips, 2016). High house
prices coupled with high immigration rates placed pressure on low income families who
found themselves in need of state housing yet Housing New Zealand did not receive a
significant increase in capital funding for new builds from either the Labour or National
governments during the 2000s (Johnson, 2013).
In terms of improving access to home ownership opportunities the Kiwisaver first home
withdrawal scheme established in 2007 by the fifth Labour government has proved to be a
popular policy with over 220,000 individuals using their kiwisaver balance towards a first
home deposit as of June 2020 (Statistics New Zealand, 2020c). Access to kiwisaver funds in
combination with the first home buyers grant has been credited with helping stabilise New
Zealand’s home ownership rate after years of decline (Statistics New Zealand, 2020c).
Statistics from the Inland Revenue Department (2020) show that $1.14 billion in Kiwisaver
funds for the year to June 2020 has been put towards first home deposits. The cumulative
effect of employer, employee, government contributions and investment returns over a
number of years can add up to quite a substantial deposit for a young household looking to
purchase a first home.
It is unsurprising that homeownership is an important part of the New Zealand psyche and
part of the ‘kiwi dream’ as ownership of housing is the primary vehicle of wealth creation for
most New Zealand households. Statistics New Zealand (2020c) reports that New Zealand
homeowners are on average “14 times wealthier than non-home owners” (p. 47). The home is
typically a household’s primary asset as well as a place to live. This policy has helped
hundreds of thousands of New Zealanders to access the security, stability and financial
independence associated with homeownership although criticisms have been raised by
33
Johnson (2013) that homeownership products direct government funds towards the already
well off instead of addressing serious housing needs suffered by low-income families.
In terms of raising homeownership rates questions have been raised in policy advice to the
government as to whether the related first home grant scheme is as effective (HUD, 2020f).
Established by the fifth Labour government the scheme has two key policy aims. The first is
to help modest income first home buyers into homes (HUD, 2020f). The second is to
incentivise the residential construction sector to build more affordable homes and increase
overall supply. The scheme offers grants of up to $5000 for an existing home, $10,000 for a
new home per applicant who meets the qualifying criteria. Treasury advised the government
in 2014 that “homestart could create additional demand pressures in many current regional
housing markets” (New Zealand Treasury 2015, p. 16). Treasury advises that homestart
grants (formerly named first home grants) tend to merely bring forward the purchase of first
homes by households which can afford a mortgage and do not address serious housing needs
(New Zealand Treasury, 2015). Cabinet was also warned back in 2016 that “homestart could
create additional demand pressures in many current regional housing markets” (HUD, 2020f,
p. 9). Treasury instead suggested the government should prioritise increasing housing supply
and assisting low income households experiencing severe housing stress ((New Zealand
Treasury, 2015).
Policy documents submitted to Cabinet suggest that the first home grant scheme is failing to
achieve either of its stated aims (HUD, 2020f). The regional house price caps are too low for
the current overheated market where prices are high. The government faces a Catch-22
situation. If they increase the regional house price caps this could stimulate further demand
and cause house prices to rise further, negating affordability gains (HUD, 2020f). Raising the
caps also places a larger debt burden on first-home buyers and this increases their financial
vulnerability if the market experienced a significant downturn. Raising the caps without
raising the income limits reaches a natural plateau whereby households are unable to finance
additional debt based on their income. But if the government were to increase the income
limits then the policy would be targeting higher income earners raising allegations of welfare
for the rich as this policy is intended to support modest income families into modest homes.
34
If they keep house price caps and income limits the same, the pool of available houses to first
home buyers under this scheme shrinks with rising house prices, placing the majority of
houses over the price cap. REINZ figures for 2019 show that 60 percent of nationwide house
sales were above the house price caps (Nicol-Williams, 2020). Regional hotspots Tauranga
(88 percent), Queenstown (91 percent) and Tasman District (83 percent) faced similar
shortages of properties available under the house price caps as Auckland (86 percent) and
Wellington (90 percent). The result of the current stalemate is less take-up of the grant as less
people qualify and an underspend in the first home grant scheme.
The homestart grant has also had a disproportionate effect on New Zealand’s regions as first
home buyers in regional areas have been taking up the homestart grant in significant
numbers. “Half of HomeStart grants paid in 2018 were in regional areas, even though these
areas only have a third of New Zealand’s population,” in order to purchase a first home with
the average price of $281,000 (HUD, 2019e, p. 2). Conversely, only 9 percent of HomeStart
grants were given to Auckland first home buyers, attributed in part to the lack of available
houses below the house price caps and the unaffordable cost of Auckland house prices
despite high demand for housing and a large population base (HUD, 2019e). I argue that the
government's homestart grant encourages families to move to the regions where they can
access free government money towards the dream of homeownership and lower house prices
mean they can better afford the deposit and on-going mortgage payments. But despite the
incentive of a larger grant only 13 percent of homestart grants are being used towards
building new homes (HUD, 2019e). In many regional areas the cost of building is simply too
high compared to the cost of existing houses. This adds to existing population pressures
which smaller regional centres are ill-equipped to deal with and it increases housing demand
placing pressure on house prices. At a cost of $80-100 million per year I suggest that
homestart grants deserve reconsideration in light of policy advice that the scheme is not
meeting its intended aims and is producing unintended consequences in regional areas (HUD,
2019e).
The election of the fifth National government in 2008 marked a move towards a
market-oriented response to housing issues. The goal of the government was explicitly to
35
change regulations to help the private market provide more housing (Vella, 2019). Changing
building regulations, setting up housing accords and special housing areas, creating the
national policy statement on urban development capacity require significantly less capital
than direct market interventions in terms of financing the building of new housing supply. I
argue that these approaches are also significantly less effective than bricks and mortar supply
responses. This change was framed within the context of financial austerity in the wake of the
global financial crisis. The national government made explicit limitations that no further
funding would be provided to Housing New Zealand to build new state rental houses for
families in need (Johnson, 2013). The aim was to reconfigure the state housing sector to be
more responsive to the market. The Glen Innes regeneration project was a prime example of
reconfiguration of a state housing neighbourhood which ended as a very expensive exercise
in uprooting communities to deliver a net loss of 39 state houses while gentrifying the
neighbourhood (Johnson, 2013). Overall, National’s focus on reconfiguring the state housing
stock failed to take into account the needs of a growing population. At a time of declining
housing affordability the fifth National government reduced the overall state housing stock.
Despite building 2670 state houses during three terms in office, National sold 2728 state
homes for an overall loss of 58 state houses (HUD, 2020e). Likewise efforts to open up the
social housing sector to non-state actors was token at best without sufficient long-term
financing to achieve any real scale in new affordable housing supply despite being talked up
as a game changing solution (Johnson, 2013). The sell off of state houses in regional areas
such as Hastings by the previous government has proven to be a serious error in light of
emerging regional housing affordability problems. Hastings, now a ‘homelessness hotspot’
would have coped much better with the current affordability crisis if the local stock of state
housing had not been reduced by the previous government (HUD, 2019d).
The lack of investment in state housing has been compounded by the decision not to raise
Accommodation Supplement maximum rates in line with rent increases. The accommodation
supplement was kept at the same rate for almost a decade from 2007-2017, and this value was
based on 2005 rental rates (Johnson, 2016). Described by Johnson (2016) as a policy of
‘cynical neglect’ he argued that “the Accommodation Supplement can be seen as a fiscal and
social disaster” (p. 15). A fiscal disaster because landlords and tenants become dependent on
36
the subsidy and lower-quartile rental rates factor in the additional government financial
support. A social disaster because the subsidy isn’t high enough to ensure access to affordable
housing for its recipients and it has failed to increase the supply of affordable housing.
Nicknamed a landlords subsidy there are serious concerns that the Accommodation
Supplement artificially inflates rents. Hyslop and Rhea (2018) found that an increase in
accommodation supplement maximum rates in 2005 resulted in around a third of the increase
being swallowed up by increased rents. Over half of all tenants receiving the accommodation
supplement are on the maximum rate suggesting housing costs in excess of affordable levels
(Johnson, 2016). I raise the concern that Accommodation Supplement maximum rates may be
pushing low-income households to move to regions with cheaper housing, creating additional
housing strain on non-metropolitan centres. Australia has experienced a wave of ‘welfare
migrants’ moving from large cities to coastal towns to escape high rents in urban centres over
the last 30 years (Gurran, 2008). The similarity of our housing markets suggests New Zealand
may be witnessing the same phenomenon in light of high rents and low Accommodation
supplement maximum rates. More research would be required to assess the validity of this
theory to local conditions. In summary, the accommodation supplement is horrendously
expensive budgeted at $2.6 billion for the 2020-2021 year, yet the rate is too low for many
recipients to achieve affordable accommodation (HUD, 2020a). Alternatives to the
Accommodation Supplement should be explored in more detail.
In contrast to National’s focus on market-based responses the sixth Labour government
elected in 2017 promised to deliver large scale housing supply to fix New Zealand’s housing
affordability problems. The ‘Kiwibuild’ flagship housing policy of the sixth Labour
government promised 100,000 new homes in 10 years. However, this ambitious plan far
exceeded the government’s capability to deliver. Wilkinson (2019) argues that the primary
problem is that Kiwibuild homes are too expensive for an average household to afford to buy.
At a cost of $579,000 for a 99 sqm 3 bedroom home in city-fringe Papakura or $580,000 for a
65 sqm apartment in Otahuhu none but the most well off families could afford a new
Kiwibuild home (Wilkinson, 2019). Kiwibuild does not deliver housing outcomes for
households that could otherwise not afford to purchase a home of their own. Moreover, the
government also ran into problems with the beleaguered consenting process and slow
37
delivery times. Wilkinson (2019) claims that without reducing land and building costs or
increasing the capacity of the building sector Kiwibuild was always destined to be a ‘tar
baby’ which would place the government in an impossible-to-win situation. Within two years
the government announced a ‘Kiwibuild reset’ releasing unsold houses in Wanaka,
Christchurch and Te Kauwhata to the open market and dropping the 100,000 homes target
(Woods, 2019). The focus on pure housing supply response without an understanding of what
prospective first home buyers wanted and the price they were willing and able to pay for a
home proved to be a costly and embarrassing government policy failure.
The Kiwibuild debacle resulted in the government pivoting to a ‘place based approach’ with
the aim to be “building the right home, in the right place, for the right price” (HUD, 2019c,
p. 11). This new approach acknowledges that a one size fits all nationwide approach to
housing policy is not working well in addressing the housing problems in differing locations
across New Zealand. HUD is still in the early stages of adopting a place based approach.
Initial partnerships have been established with local government and stakeholders in Hastings
and Rotorua to look at local housing market problems in these areas and to work on place
based solutions to addressing housing needs (HUD, 2020a). This new focus on housing issues
in regions other than Auckland is vital work in a climate where rising regional house prices
and rental rates are placing increased housing stress on households nationwide. By studying
housing market conditions in a range of places the Ministry’s intent is to better understand the
drivers of housing unaffordability and to develop national policy settings which will work for
all communities (HUD, 2020a). The newly announced Progressive Homeownership scheme
is the proposed new alternative to Kiwibuild to help more low-to-middle income families into
homes by reducing the initial mortgage and deposit requirements for households through
shared equity. Despite the $400 million price tag this is in reality a pilot scheme with only
1500-4000 households expected to be assisted into homeownership (Woods, 2020). The scale
and scope of this programme therefore limits the potential impact on wider housing
affordability.
The sixth Labour government also brought in significant changes to New Zealand's rental
laws with the Residential Tenancies (Healthy Homes Standards) Regulations (2019) and the
38
Residential Tenancies Amendment Act (2020) to improve the living standards of renters. This
thesis puts forward the argument that insufficient attention has been given to the likely impact
of these new regulations on housing affordability for low-income families in regional New
Zealand, particularly in popular tourist towns with tight rental markets such as Queenstown
and Rotorua. The New Zealand Institute of Economic Research (NZIER) conducted a cost
benefit analysis of the Healthy Homes Standards which estimated the cost of retrofitting at
$7500-10000 excluding GST per rental property assuming none of the five standards are
currently met (NZIER, 2018). While the benefits in terms of tenant health, wellbeing and
energy savings clearly outweigh the costs to landlords pockets this analysis does not assess
the impact of the new legislation on rental rates or the supply of properties to the rental
market. This is despite noting that there is a risk that improvements will be passed on to
tenants in terms of higher rents if the rental supply is tight relative to demand. The rental
market across New Zealand is currently dealing with unprecedented levels of demand and
short supply which has led to rents rising 17.2 percent over the last five years (HUD, 2020a).
Furthermore, “Tight supply is most likely in main cities or smaller centres experiencing
significant growth, such as tourist centres where short-term holiday lets may be more
lucrative than long-term tenancies” (NZIER, 2018, p. 41).
I put forward the argument that the rental law changes introduced by the current government
encourage landlords to shift from the long-term to the short-term rental market which is
problematic in terms of housing affordability. Short-term rentals are not covered by these new
regulations which impose an additional cost and administrative burden in maintaining a rental
property as well as restricting landlord property rights. The rental returns from short-term
letting arrangements in popular tourist locations can potentially exceed the expected return
from a long-term rental arrangement which has contributed to the rise of Airbnb as a popular
holiday accommodation choice. 2017 figures provided by Airbnb show a $660 million
contribution to New Zealand’s economy with the platform accommodating guests for
approximately 1.5 million nights (Deloitte Access Economics, 2018). The attractiveness of
potentially higher rental returns is compounded by the cost burden associated with meeting
the Healthy Homes Standards.
39
In addition, the removal of landlords rights to end tenancies without cause with 90 days
notice has led to landlord advocacy groups claiming the reforms are ‘shortsighted’ as many
landlords facing increased risk to their investments may remove their properties from the
rental market (New Zealand Herald, 2020).While landlords selling to other landlords or to
owner-occupiers creates no cause for concern, the prospect of landlords moving properties to
the short-term rental market is an issue which warrants further attention. The closing of
borders due to the Covid-19 outbreak has reduced the profitability of Airbnb investment in
the short term however this will pose a greater problem once borders reopen and international
visitors return. For tourist towns such as Rotorua which have experienced an over 50 percent
increase in average rents over the last five years and become a ‘homelessness hotspot’ a
reduction in the rental pool would have catastrophic consequences for low-income renters
already struggling with the high cost of housing (HUD, 2020h).
Labour’s state housing build programme has proved to be a much more effective bricks and
mortar supply response. The current government has built 4579 new state homes as of
January 2021 with a further 8000 planned to be built within the next four years (Ardern and
Woods, 2021). The current Labour government is attempting to reorient its housing responses
to increase housing supply through measures such as the Urban Growth Agenda and the
Infrastructure Funding and Financing Act which aim to address barriers to the supply of
Urban Land (HUD, 2018). The Construction Sector Accord, Construction Skills Action plan
and the fees free trades training scheme are intended to increase the capacity of the building
sector to hire more apprentices and build more affordable homes (Salesa, 2020). These new
and yet to be fully implemented initiatives recognise the failure of the market-based approach
to deliver affordable housing outcomes. “The Government’s focus remains on intervening in
a broken housing market in order to get more New Zealanders into homes” (HUD, 2019c, p.
1). The question that remains is whether the proposed plan goes far enough to fix the wicked
problem of New Zealand’s long standing high rates of unaffordable housing?
This thesis argues that few government policies have looked at housing affordability in the
whole since liberalisation of the housing market. None have assessed the effects of policy
decisions on housing affordability in diverse regions. Vella (2019) claims that the housing
40
crisis has been framed differently by each government in office with the focus on problems
which the government of the day has a ready to implement policy solution for. The framing
of housing as a problem of unavailable land supply or housing as a problem of immigration
and foreign buyers provides an easily digestible narrative for the public so that the
government can be seen to be doing something to fix it. The unintended consequences of
poor policy decisions have had significant effects on New Zealand’s housing landscape. The
challenge for the current government is to provide the right mix of policy incentives and
legislation to ensure that every New Zealander has access to secure, adequate and affordable
housing regardless of whether they live in the rural heartland, small-town New Zealand or in
the main cities.
4.7 The Airbnb effect
Another factor to be considered is whether the short-term rental market is having an impact
on housing affordability in the regions. A number of studies have found that short-term
rentals can have a negative impact on local neighbourhoods in terms of amenity and
affordability issues (Sheppard and Udell, 2016; Gurran and Phibbs, 2017; Barron et al.,
2018). A recent study on the Airbnb effect in the United States found that “a 1% increase in
Airbnb listings leads to a 0.018% increase in rents and a 0.026% increase in house prices at
the median owner-occupancy rate zipcode” (Barron et al., 2018, p. 1). This effect was more
pronounced in ‘touristy’ areas where there is a higher concentration of airbnbs. Sheppard and
Udell (2016) likewise found that “a doubling of Airbnb listings is associated with increases of
6% to 11% in house values” in the New York metropolitan area (p. 39). These studies suggest
that increases in the house sharing economy can affect house prices and rental rates by
enabling homeowners to make money from their spare bedrooms and by inducing landlords
to move from the long-term to the short-term rental market. It is this latter scenario which has
increasingly concerned policy makers.
I suggest that for the New Zealand regions which have high levels of tourism such as
Queenstown, Rotorua-Taupo and the Coromandel the Airbnb effect may have an impact on
the affordability of housing for locals. Campbell et al. (2019) notes that the airbnb effect has
41
disrupted local housing markets. For investors to transition from the long-term rental market
to the short-term rental market only requires household furniture, a cleaner and a short-term
letting manager with big potential returns in tourist-oriented regional towns. Campbell et al.
(2019) found that in ‘traditional’ tourism hotspots such as Queenstown, Wanaka, Waiheke
and the Coromandel the proportion of Airbnbs in the housing market was significant. At the
top of the table the Queenstown hill area had 204 airbnb properties listed on its website in
November 2018 per 1000 residents. Auckland Council, Queenstown-Lakes District Council
and Rotorua City Council have all introduced higher commercial rates and stricter regulations
regarding short-term accommodation on letting sites such as Airbnb in the last few years in
an effort to combat perceived injustices in treatment compared to formal accommodation
providers such as hotels and motels.
The impact of Covid 19 and the closing of borders to international tourists has demonstrated
the effect short-term rentals on platforms such as Airbnb have had on the availability and
affordability of housing in New Zealand’s regional tourist centres. Stuff reports that rental
supply has increased 90% in the Lakes District in May 2020 compared to 2019 based on
Trademe data and rental prices in Queenstown have fallen 10% in the period from April to
June based on MBIE bond data (Harris, 2020a). Available rentals in Rotorua have also
increased 39 percent in May 2020 from the previous year and rental rate growth has stalled
(Harris, 2020a). Early indications suggest that the demise of the short term rental market
coupled with job losses due to Covid 19 will mainly affect regions which depend on
international tourists such as Rotorua, Kaikoura, Mackenzie District, Queenstown and the
West Coast (Harris, 2020a). Covid 19 has acted as a circuit breaker in an overheated regional
housing market and provided an unexpected boon to regions which have struggled with
housing shortages and unaffordable rental prices for locals. While the loss of jobs and local
revenue is of serious concern it does raise the question of whether when borders reopen and
tourists return should whole house residential rentals for short term letting be banned or
significantly curtailed in the name of addressing declining levels of housing affordability? Do
the benefits afforded to individuals and local economies from short term rentals in tourist
towns outweigh its negative effects on housing affordability? Chapter six will look at these
questions in greater detail.
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4.8 The impact of macroprudential tools on housing inflation
In response to rising house prices and concerns that a growing housing bubble could
detrimentally affect New Zealand’s financial stability the Reserve Bank of New Zealand
(RBNZ) introduced loan-to-value ratio (LVR) restrictions in 2013 limiting new mortgage
lending at over 80 percent LVR to a 10 percent ‘speed limit’ (RBNZ, 2015). The Reserve
Bank increased the LVR restrictions for Auckland property investors to 70 percent LVR over
concerns of rapidly rising house prices in Auckland (RBNZ, 2015). One of the reasons cited
for the change in policy was that more investors were chasing capital gains and higher rental
yield in the Auckland housing market over other classes of assets, business investments,
stocks, bonds etc due to the low interest rates on offer from banks. This speculative behaviour
of investing in low deposit loans was considered a serious risk to the overall economy and
New Zealand’s financial stability if a downturn were to occur. However this policy proved to
have negative consequences for housing affordability in surrounding regions as Auckland
property investors looked for rental properties outside of Auckland in light of new LVR
restrictions. These Auckland investors were named as a ‘significant factor’ in rapidly rising
house prices in regional centres Tauranga and Hamilton (RBNZ, 2016, p.6). In response to
the distortionary effect of the policy the Reserve Bank introduced a 60 percent LVR
restriction with a 5 percent speed limit for investors nationwide and a 80 percent LVR
restriction with a 20 percent speed limit for lending to owner-occupier households (RBNZ,
2016).
A recent study assessed the impact of RBNZ’s LVR restrictions on house price inflation and
found that “the estimated LVR effect is both statistically and economically significant...the
LVR policy has eased house price pressures by almost 50 percent” (Armstrong, Skilling and
Yao, 2018, p. 17). Despite the significant impact of LVRs in mitigating rising house price
inflation, in April this year the Reserve Bank temporarily removed the LVR restrictions in the
wake of the Covid-19 pandemic citing the need to signal to banks that they should continue
lending throughout the Covid recovery period and to maintain the flow of credit in the
economy (RBNZ, 2020). These changes were implemented at the peak of the Covid crisis
43
during the level 4 lockdown with only a one-week window for consultation. This decision
was based on advice from the Treasury, who at the time were estimating GDP to fall to
between 0.5 and 23.5 percent and unemployment to rise to between 5.5 and 22 percent in the
year to June 2021 (RBNZ, 2020). The upper ranges of these estimates would have been truly
catastrophic for the New Zealand economy. Fortunately these predictions did not come true in
succeeding months, resulting in estimates later being revised down by a significant margin.
The impact of removing LVR’s in the housing market was expected to be ‘relatively small’
(RBNZ, 2020, p. 2).
Falling interest rates, cuts to the official cash rate, better than expected economic conditions
combined with the removal of LVR restrictions resulted in REINZ reporting double digit
growth in house prices in the year to August 2020 with house prices nationwide up an
average of 16.4 percent (Satherley and Reymer, 2020). This result confounds economic
orthodoxy which predicts falling house prices as a consequence of widespread economic
crisis. However, this outcome should have been predicted. The Covid-19 crisis
disproportionately affected workers in retail, hospitality, tourism and aviation industries due
to lockdown effects and border closures. Apart from aviation the remaining industries are
notoriously low pay, precarious positions filled predominantly by women and under 30s,
Eaqub (2020) argues that “rising unemployment for these people will not have much of an
impact on house prices.” Households dependent on incomes from these low wage industries
are unlikely to be existing or prospective homeowners considering the high financial barrier
to homeownership in 2020.
Removal of LVR restrictions instead increased demand for housing from both first home
buyers and investors who suddenly found that with a lower deposit requirement, historic low
interest rates and current high rental rates purchasing property made financial sense. Scoop
(2020) reports that 36 percent of investor lending in September 2020 was above the former
RBNZ limit of 70 percent LVR. This is up from 22 percent the previous year creating concern
that the rapid increase in investor activity is fuelling recent house price rises. In November
multiple banks announced they were done waiting for the Reserve Bank to make a move and
were restoring higher deposit requirements for investors effectively immediately (Parker,
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2020). RBNZ (2021) has since announced plans to reinstate LVR restrictions at previous
settings by 1 March 2021 in light of an emerging ‘speculative dynamic’ with highly
leveraged investors increasing the risk of market instability.
4.9 The role of local government
Local councils are responsible for planning provisions and providing the necessary
infrastructure for new housing developments. Urban growth management and smart growth
policies have became popular tools for local government to manage urban sprawl but some
academics have raised concerns that these tools artificially restrict land and result in
increasing housing unaffordability (Carlson and Mathur, 2004; Cox, 2005; Beer, Kearins and
Pieters, 2006). Nelson et al. (2004) defines growth management as “the deliberate and
integrated use of the planning, regulatory, and fiscal authority of state and local governments
to influence patterns of growth and development in order to meet projected needs” (p. 119).
Growth management is meant to ensure the city is growing in a sustainable way where
ecological outcomes are prioritised and housing growth is clustered around transport
networks and the city centre. However a study on the impact of zoning and building
restrictions on the affordability of housing in major American cities by Glaeser and Gyourko
(2003) found that the strictness of zoning policies in metropolitan areas is highly correlated
with increased house prices and a lack of available affordable housing for low
socio-economic households. Similarly, Beer, Kearins and Pieters (2006) in an analysis of city
planning and housing affordability problems in Australia found that smart growth and urban
containment policies raise the price of developable land and constrict the supply of affordable
housing.
There is a tension between the aims of city regulatory authorities to achieve ecologically
sustainable development of new housing close to transport networks and the city centre and
the provision of affordable housing on greenfield sites on the city fringe. High and medium
density housing is also generally more expensive to build than traditional stand-alone housing
(Beer, Kearins and Pieters, 2006). Cox (2005) notes that urban areas in the United States
which have significant land rationing policies have seen house costs rise fourfold compared
45
to urban areas without such policies. This affects more than just house prices as there is
evidence that land rationing results in lower economic growth and rising house prices can
squeeze out younger generations from being able to afford their own homes. Cox (2005)
argues that the supposed benefits of growth management policies which restrict the supply of
land are outweighed by the impacts of high house prices reducing opportunity for home
ownership and the financial security the transition from renting to homeownership brings to
households.
Despite local government’s responsibilities for planning and infrastructure research by James
et al. (2007) found that the majority of New Zealand local councils believed that their core
activities had little impact on housing affordability in New Zealand. 71.4 percent of councils
reported that land use and transport policies have no known or little impact on affordable
housing (James et al., 2007, p. 27). This is compounded by a common perception that
housing is a central government responsibility and little to no monitoring by local council’s of
local housing needs despite a perception that housing affordability is of concern to residents
(James et al., 2007). A recent report by Infrastructure New Zealand (2019) has argued that
local government is faced with ‘financial misincentives’ whereby rates which form the bulk
of council income are “delinked from economic, social or environmental performance” (p.
15).There is little incentive for councils to free up greenfield land for new housing
development as the costs are significant and require increased debt or increased rates to pay
for the investment in infrastructure which does not benefit existing homeowners, who vote in
local body elections and traditionally lobby council to keep rates increases to a minimum
(Infrastructure New Zealand, 2019).
This is part of a broader issue of how local government services and infrastructure are funded
compared to central government. Whilst central government can raise taxes and has a range
of revenue sources, income taxes, GST, corporate taxes etc. local councils cannot impose new
local property taxes or fuel taxes without central government approval. Infrastructure New
Zealand (2019) notes that “councils will fund around half of all infrastructure investment
over the next decade with just seven per cent of New Zealand’s total tax take” (p. 27). As
identified by Johnson, Howden-Chapman and Eaqub (2018) the benefits of new infrastructure
46
do not accrue to the council but they carry the burden of the large upfront costs which are
generally paid for with increased council debt. Local government debt has increased
significantly in the last two decades and the Productivity Commission (2019) reports that the
greatest increases in per capita debt generally occurred in council wards experiencing high
growth. “Between 2000 and 2017, total local authority debt increased from a low base of $2.7
billion to $15.2 billion” (Productivity Commission, 2019, p. 24). Some high-growth councils
in regional New Zealand including Hamilton, Queenstown and Tauranga are now pushing up
against their debt ceilings imposed by the Local Government Funding Agency with limited
ability to borrow more capital for future infrastructure investments (New Zealand Treasury,
2019). Smaller regional councils with high levels of tourist activity and an associated need
for new tourism related infrastructure as well as infrastructure for housing face funding issues
from having a very small ratings base compared to the number of annual visitors.
The funding issues facing large cities like Auckland with a growing population are very
different to that faced by Queenstown which has to fund infrastructure for 38,300 visitors at
times of peak demand off of the rates revenue generated from only 21,300 ratepayers
(Productivity Commission, 2019). Funding constraints faced by local councils in building
sufficient infrastructure to support greenfield development incentivises councils to support
growth management initiatives and to maintain tight control of planning rules and zoning
restrictions despite the potential for looser restrictions to enable more affordable housing
development on the city fringe. Smart growth in the urban centres is meant to be coupled
with incentives for developers to build sufficient affordable housing units in all new
construction but without strong measures to promote affordable housing the expected result is
more expensive land prices and rising housing costs.
4.10 International influences
The cost of housing in New Zealand’s regions is not solely determined by domestic factors,
international influences can play a major role. Shocks to global gross domestic product
(GDP) and trading conditions were found to have a substantial impact on New Zealand’s
GDP growth in a time series analysis conducted by Bordo, Hargreaves and Kida (2011).
47
Following the 1984 currency crisis the New Zealand government initiated measures to
deregulate the financial sector and open up our economy to the global market. New Zealand’s
current status as a small open economy has meant that the ‘global business cycle’ can have
significant effects on our domestic economy, including the cost and availability of finance for
housing (Bordo, Hargreaves and Kida, 2011). When interest rates are high and credit is
difficult to obtain demand for housing is lower due to higher cost and availability of finance
(Barker, 2019). Whereas when interest rates are low and credit is easily obtainable housing
consumption increases significantly. Therefore, international interest rates, the availability of
credit in the global market and the state of the world economy impact on housing
affordability here in New Zealand. Figure 5 is based on RBNZ monthly data on housing
mortgage interest rates stretching back to 1964 which I have graphed in the below chart
(RBNZ, 2020b).
In this graph we can see the impact of global financial shocks on the floating mortgage
interest rate available to first home buyers, with major volatility during the 1980s and interest
rates peaking at over 20 percent in 1987 before the market crash and banking crisis. By the
48
early to mid 1990s interest rates plummeted below 10 percent. The 2008 financial crisis
resulted in interest rates falling sharply again, settling near 6 percent with minor fluctuations
until the global pandemic in 2020 saw interest rates drop to their lowest recorded levels since
measurements began.
This effect is compounded by marginal returns in term deposits and other investments due to
the ultra-low interest rates. Using RBNZ six-month deposit rate data I have graphed the
results below as figure 6 (RBNZ, 2020b). It should be noted that data for this graph was
reported quarterly from March 1965 until March 1987 then monthly data was reported
thereafter. As you can see in this graph the six-month term deposit rate mirrors the floating
mortgage rate with significant volatility in the 1980s and early 1990s peaking at 18 percent in
July 1987 before collapsing to 6.1 percent in January 1993. In the wake of the global
financial crisis deposit rates dropped 4.5 percent within the span of a year. The ongoing
global pandemic has seen deposit rates fall to a historic low of 0.85 percent. At this rate of
return the benefit to investors of putting their money into term deposits is almost negligible.
This is important in a housing affordability context as minimal returns on term deposits
encourage people to invest their savings in other asset classes, including housing.
49
In the current environment of historic low mortgage rates easy access to credit fuels demand
from investors and owner-occupiers (Barker, 2019). New Zealand’s major banks all currently
issue loans for housing “up to 90-95% Loan-to-Value Ratio (LVR) on standalone homes,” as
advised in an Aide Memoire to the Minister for Housing (HUD, 2019a, p. 3). As discussed by
Springier and Wagner (2010) “a widening in credit supply lowers interest rates and therefore
increases demand” (p. 65). This is of particular pertinence in a post-Covid environment. In
March this year the RBNZ dramatically increased credit supply through the large scale asset
purchase programme which will buy up to $100 billion in government bonds by July 2022
(RBNZ, 2020a). This quantitative easing programme combined with cutting the OCR to 25
basis points is designed to counter the economic shock of the pandemic and maintain the flow
of credit to businesses and households. Yet this also supports bank interest rates at ultra-low
levels and increases demand for property. High rents, rising house prices, historic low
mortgage rates, negligible returns on term deposit investments and easily available mortgage
credit fuelled by a Reserve Bank quantitative easing programme are all fuelling the current
housing boom which has seen house prices rise 11 percent in the last 12 months (HUD,
2020a). While policy makers in New Zealand do not have international interest rates or bank
deposit rates under their direct control it is clearly important that these factors are considered
when looking at current housing market conditions and potential solutions to New Zealand’s
regional housing affordability woes. How mortgage rates and access to credit are affecting
regions differently depending on local market conditions is a potential useful area for future
research.
The ten factors discussed in this chapter all have an impact on New Zealand’s housing
ecosystem as described by Dyson et al. (2020). I argue that the interactions between these
factors are responsible for the growing housing affordability problem in New Zealand’s
regional towns and cities. Internal population and demographic changes in combination with
changing international migration patterns are placing pressure on the existing housing stock
in a number of regions. The current economic climate of low interest rates and easily
obtainable credit boosts demand for housing in an already overheated market. As regions in
proximity to main city centres experience the ripple effect of rising house prices the low
average incomes of local residents contributes to vulnerable populations struggling with the
50
rising cost of renting or purchasing a home in the community they have grown up in. Slow
housing supply responsiveness, local government infrastructure funding woes and poor
planning processes add to the difficulties of meeting the housing needs of a rapidly growing
population. Uniquely regional housing issues like the rise of the short-term rental market
responding to a growing tourism industry and the housing needs of an expanding seasonal
horticulture/viticulture workforce have not been given the attention they deserve. National
housing policy and Reserve Bank settings have not responded effectively to the housing
needs and concerns of diverse regions, instead policy has been directed at solving Auckland’s
housing crisis. How these factors interact within a particular regional housing market will be
explored in the following chapter.
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Chapter 5: A Case Study of the Bay of Plenty Region
Due to limited time and scope I will focus on one region as a case study, looking at housing
affordability issues in the Bay of Plenty. This region has been chosen for its mix of housing
affordability problems; high housing costs, rental availability shortages, strong population
growth, significant council debt issues, tourism and seasonal labour short term rental effects,
need for Māori housing solutions and high rates of homelessness. The breadth of these
different concerns give an overview of the housing issues faced by New Zealand’s regions.
The aim is to utilise the findings from this case study analysis to inform the broader research
question of this thesis. The first section of this chapter will look at a range of housing
affordability statistical measures in each Bay of Plenty district to build a better picture of
what may be causing shifts in affordability in different places over time. The second section
will take a deep dive into the housing markets in Rotorua, Tauranga and the Eastern Bay to
see where the problems lie at a local level. The final section of this chapter will compare the
findings from each district with the wider literature from chapter four to reach conclusions
about what is driving affordability issues in the Bay of Plenty.
5.1 A regional overview - what the data tells us
To assess housing affordability in the Bay of Plenty over time there are three key things to
look at, rents, house prices and household incomes. Rental data is published every month on
the average weekly rents per district and region from MBIE’s tenancy bond database (MBIE
2020b). In order to assess average rents in the Bay I pulled out the data for each district for
each year on the 1st of January from when records began in 1993 until June 2020 as well as
Auckland region’s data to act as a comparator and graphed the results below. Data was
missing for Opotiki district for 1994 and 1996 so I have started Opotiki’s data from 1997. As
seen in figure 7 rents have risen the most in Auckland, reaching a high of $569 per week in
2020 with Tauranga following a similar trajectory at a lower price point (MBIE, 2020b).
Taupo, Rotorua and Whakatane average rents are also clustered together while Taupo and
Rotorua has pulled ahead slightly in the last few years to start 2020 with average rents of
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$399 and $406 respectively while Whakatane lags slightly on $365. Kawerau and Opotiki are
behind the pack with average rents of $225 and $316 in 2020 respectively.
From HUD quarterly data on the average sales prices for residential dwellings per territorial
authority I have selected out data for each district from the larger data tables and graphed as
below in figure 8 (HUD, 2020d). Please note that data for Tauranga district is a combined
dataset from the ‘Tauranga city’ and ‘Greater Tauranga’ columns of data to keep results
consistent with other categorisations in this series of data. Compared to average rents the
average sales price is much more volatile with periods of high price rises followed by periods
of flat market activity. Auckland appears to be at the front of the curve, the first to enter
periods of higher growth or periods of flat activity with the Bay of Plenty districts following
slightly behind albeit at lower sales prices than the Auckland market. House prices climbed
substantially in Tauranga and Western Bay from 2014 to 2018. Rotorua, Whakatane,
Kawerau and Opotiki have experienced a period of sustained growth at a lower rate than
Auckland and Tauranga from 2015 to 2019.
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Household incomes meanwhile have not matched rising accommodation costs. From 2008 to
2018 average household income increased 41% while average annual housing costs grew
43% (Statistics New Zealand, 2018a). Income rises have benefitted the richest households the
most while the tenth percentile of households only saw income rises of 29% over the same
period. I have extracted the data for each district and graphed the results in figure 9 (MBIE,
2020a). The overall trajectory of the data is a slow curve upwards with Auckland sitting on
the highest median income in 2018 of $100,500. Tauranga, Western Bay of Plenty, Rotorua,
Taupo and Whakatane have been sitting on a median income of between $83,000 to $88,000
while Kawerau and Opotiki only have a median annual household income of $58,600 and
$63,400 in 2018 respectively.
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HUD has also developed an experimental statistics series that uses household income data
from Stats NZ’s Integrated Data Infrastructure (IDI) to measure housing affordability in a
number of ways (HUD, 2020c). Utilising available data I compare the districts in terms of the
percentage of renter households spending more than 30% of their total income on housing
costs in figure 10 (HUD, 2020d). These results indicate that Tauranga city has the highest
percentage of renters spending over 30% of their household income on housing costs at
36.8% in 2018 down from an all time high hovering around 40% from 2011 to 2014. The
Western Bay of Plenty, Rotorua and Whakatane all hover around the 30% mark by the end of
2018. The data from Kawerau and Opotiki demonstrates high volatility with changes of up to
five percent between quarters which can likely be attributed to the small sample size of
renters in these areas affecting the reliability of the data and of the conclusions which can be
drawn from it.
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In order to assess the ability of potential first home owners to afford to buy a home in their
local area HUD also calculates how many renters would spend more than 30% of their total
household income on housing costs (mortgage, rates, insurance) if they were able to purchase
a lower quartile home of the same size as their current rental in the same geographic area
(HUD, 2020d). Again I have selected out the data for each district and graphed the results in
figure 11. What is startling from the below graph is how many more households would be
spending more than 30% of their income on housing if they bought their first house rather
than continued renting. Auckland and Tauranga city follow a similar pattern with 61-62% in
2003 rising to a peak of 85-88% just before the 2008 financial crisis followed by a sharp dip
in 2009 to around 75%, rising again to 85% in 2018. Most other districts follow the same
pattern but at lower percentage points. Kawerau district experienced the largest volatility
which may be attributable again to a small sample size. All districts except for Opotiki ended
2018 at above 50%. The fact that 85% of renter households in Auckland and Tauranga would
have to spend more than 30% of their income on mortgage, rates and insurance to climb on
the housing ladder demonstrates the unaffordability of these local housing markets.
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Especially since this doesn’t take into account households' ability to come up with tens of
thousands of dollars for a deposit.
HUD also assesses housing affordability through comparing the equivalised income of renter
households after covering housing costs in each district or region against the national median
equivalised income after accounting for housing costs for all households (homeowners and
renters) named the ‘HAM median rent’ (HUD, 2020d). Figure 12 depicts the percentage of
renters in each district who have below average incomes after housing costs. Kawerau and
Opotiki have the highest proportion, ending 2018 at 80% and 74% respectively. This reflects
the fact that households in these districts on average have very low incomes compared to the
national median. MBIE (2020a) estimates based on the latest Census and NZ Income Survey
show that in 2018 Kawerau and Opotiki had a median annual household income of $58,600
and $63,400 respectively, almost half the Auckland median annual household income of
$100,500. Rotorua and Whakatane have a similar HAM median rent of 67% and 71%
respectively in 2018 while Tauranga City, Western Bay of Plenty and Taupo are clustered
around 59-63% in 2018. Auckland surprisingly, despite high rents, consistently has the lowest
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HAM median rent from 2003 to 2018 ending on 51%. HAM median rents for all districts
have been trending slightly downwards over the last five years.
Figure 13 measures the proportion of current renters in a district whose annual household
equivalised income after housing costs, if they were able to purchase a similar-sized lower
quartile first home in their district, would be below the estimated national median income
after housing costs for all households (including both renters and homeowners) (HUD,
2020d). This measure can best be imagined as a theoretical exercise attempting to replicate
the choice faced by potential first home buyers in assessing whether their household would be
able to afford the ongoing mortgage, rates and insurance costs of a lower quartile home in
their neighbourhood of the same size as their current rental and still have a sufficient income
for their remaining household costs. HUD (2020b) offers a disclaimer that this data “does not
set a level at which housing is or is not affordable.” Definitions of affordability will differ
from household to household depending on their individual circumstances but this measure
does allow for comparisons to be made as to relative affordability over time and between
different geographical areas. The results are fairly consistent for all districts over the
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measured time period ranging from a low of 70% for Auckland to a high of around 90% for
Kawerau and Opotiki with a small dip in 2009 for most districts following the 2008 financial
crisis. Overall, housing affordability for potential first home buyers is remarkably low with
between 70-90% of households facing below average incomes after housing costs for the
entire period of 2003 to 2018 based on this measure.
It should be kept in mind that these housing affordability measures are an experimental
statistic series not a tier one official statistic endorsed by Statistics New Zealand and this
series has been created by HUD for research purposes only. What these measures do offer is a
new way of looking at housing affordability from the perspective of renters and first home
buyers where tier one official statistics have traditionally looked at home affordability for all
households (homeowners and renters) grouped together. Based on Census data Statistics New
Zealand (2018a) estimated that “...households spent an average of $16.30 of every $100 of
their household income on housing costs”. This figure has barely shifted over the last decade.
Focusing on the national average hides the fact that renters are disproportionately burdened
by unaffordable housing costs. Furthermore, the average or median figure for renters in each
district hides the even higher unaffordability burden of housing for low income households
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and vulnerable populations including Māori and Pasifika communities, people with
disabilities and single parent families. One fifth of households who rent spend 40 percent or
more of their total household income on housing (Statistics New Zealand, 2018a).
This financial disadvantage is reflected in data from the 2019 Child Poverty Monitor which
shows that housing costs accounted for a large proportion of the household budget for low
income families. “The impact of housing costs meant that an additional 71,000 children lived
in households with equivalised disposable income below 50% of the contemporary median”
(Duncanson et al., 2019, p. 8). Based on these findings it is evident that housing affordability
issues in the Bay are likely to be greatest for renters, low income households and vulnerable
populations as high rents result in families spending an increasingly large proportion of their
income on essential housing costs. Moreover, high house prices have meant that the shift
from renting to first home ownership is outside of the financial capabilities of many
households.
5.2 Rotorua: A homelessness hotspot
Housing affordability issues in terms of rental rates and house prices have worsened
significantly in Rotorua in the last five years (MBIE, 2020;. HUD, 2020d). The greatest
impact has been experienced by lower income renters, who on average pay the highest
percentage of their total household income on housing costs (HUD, 2020h). As seen in figure
14, rents have increased 53 percent between January 2015 and January 2020 (MBIE, 2020b).
Whereas in the previous ten years from January 2005 to January 2015 rents only increased 36
percent.
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As seen in figure 15, from 1994 to 2005 house prices increased steadily and gradually (HUD,
2020d). 2005 to 2009 saw rapid increases in house prices with an average growth in dwelling
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sales prices of 82 percent over this short four year period. This boom was halted by the 2008
financial crisis. A period of relatively flat growth followed, before picking up pace again in
early 2016. From March 2016 until the latest available data in March 2019 house prices
increased 44 percent.
Median annual household incomes in Rotorua increased 32 percent from 2013 to 2018, as
seen in figure 16. Despite steady annual household income growth rates over the last five
years, median household incomes have been outpaced by rapidly rising rents and house
prices. The widening gap between incomes and housing costs puts pressure on household
budgets.
While rising rents and house prices in Rotorua have increased housing costs on average it is
the poorest households which have suffered the most with increased housing stress. HUD’s
assessment of housing need in Rotorua (2020h) found that 20th percentile income households
living in a lower quartile Rotorua rental property are spending on average 48 percent of their
total household income on rent based on 2018 figures. This is far higher than the 30 percent
rent-to-income ratio discussed by Hulchanski (1995) as a baseline of housing affordability.
As seen in figure 17, high levels of housing stress in Rotorua are reflected in the number of
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applicants currently waiting on the Ministry of Social Development’s (MSD) housing register
which has increased over 2000 percent from June 2015 to June 2020 (MSD, 2020). Five
years ago severe housing stress in Rotorua was almost non-existent based on housing register
data with only 23 applicants on the waitlist. This has since ballooned to 540 applicants as of
second quarter data from this year. Homelessness in Rotorua has become a flashpoint issue,
with the government spending $11.4 million in 2019 on motels for homeless people in the
district (HUD, 2020h). Te Arawa have noted concern that high housing stress and
homelessness disproportionately affect Māori, with council figures reporting that 83-89
percent of homeless people in Rotorua accessing emergency housing special needs grants are
Māori (Rotorua Lakes Council, 2020). The Rotorua housing register is also 85-90 percent
Māori applicants (Rotorua Lakes Council, 2020). This raises equity concerns and begs the
question whether the government is meeting its treaty obligations and providing sufficient
social welfare support for Māori in Rotorua.
A population boom in Rotorua over the last few years has placed pressure on the local
housing market, while demand for properties has not been met by new supply (HUD, 2020h).
As seen in figure 19, Rotorua’s estimated population growth was minimal between 1996 and
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2014, with only a 2.9 percent population increase over the 19 year period (MBIE, 2020a).
This is compared to a much faster growth rate averaging 1.4 percent per year between 2015
and 2018. This population growth is the result of more New Zealanders moving to Rotorua
from other parts of the country, more international migrants settling in Rotorua, more New
Zealanders returning to Rotorua from overseas and less people leaving Rotorua for greener
pastures overseas (HUD, 2020h). A growing economy, wage and job growth and a booming
tourism industry have attracted people from overseas and encouraged locals to remain in
Rotorua. A slowing Australian economy in 2018-2019 due to the housing slump, job losses in
the construction industry, weak household spending and weak economic growth has reduced
the attractiveness of moving to Australia for better job prospects (Letts, 2019).
The Auckland ripple effect is also a factor in increased demand for housing in Rotorua as
rising house prices in Auckland and the economic interconnectedness of housing markets as
discussed by Nguyen et al. (2018) results in Rotorua house prices rising. The reverse mobility
trend discussed by Eaqub and Eaqub (2015) is also evident in more New Zealanders moving
to Rotoura due to Rotorua’s better ‘relative affordability’ compared to Auckland and other
parts of the country. Rotorua house sales volumes rose sharply from 2015 with a quarterly
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average of over 500 sales compared to a quarterly average of 300 in the preceding four years
(HUD, 2020h). Cheaper house prices in Rotorua compared to Auckland or nearby Tauranga
encourages ‘amenity migrants,’ as discussed by Gurran (2008), to move to the city. High
house prices and low rental yields in Auckland combined with the Reserve Bank’s LVR
restrictions also encourages investors to look for investment properties outside of Auckland,
including in the Rotorua rental market.
First home buyers in Rotorua have increased their share as a proportion of total buyers in
recent years as demand for housing from that buyer sector heats up (HUD, 2020h).
Government policy in terms of the housing cap of $400,000 for first home grants and the
government ‘first home loan’ policy with a requirement for only a 5 percent deposit (recently
changed from 10 percent) makes Rotorua attractive to potential first home buyers who fit
Gurran’s (2008) definition of amenity migrants. For a middle income family seeking a
lifestyle change from the major cities and looking to get on the property ladder Rotorua offers
houses with average prices under the price cap of $400,000 and a correspondingly low
deposit requirement due to the government’s first home loan policy.
As well as first home buyers Rotorua is attractive to movers from other regions as average
house prices are still cheaper than other major cities despite recent rises. With a 2019 average
house price of $375,000 compared to $810,000 for Auckland, a homeowner in Auckland
moving to Rotorua with some equity could pay off the mortgage or buy two houses in
Rotorua for the price of one property in Auckland (HUD, 2020d). Or an Auckland retiree
could move to Rotorua, buy a considerably cheaper property and free up cash to support a
more comfortable retirement. Rotorua also likely has an unmeasured number of ‘welfare
migrants’ as discussed by Gurran (2008) who have been pushed out of more expensive
surrounding housing markets like Auckland. More research on why households are moving to
Rotorua whether it is first home buyers seeking affordable housing, lifestyle movers, retirees
or welfare migrants would help assess what types of new housing is needed in Rotorua and in
what quantities.
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High demand for housing in Rotorua has not been met with sufficient housing supply. After
the global financial crisis (GFC) building consent numbers dropped to 130 per year from an
average of 200-300 per year, as seen in figure 20. Consenting numbers have not recovered to
pre-2008 levels despite stagnant population growth prior to the GFC and a rapidly growing
population from 2014. In Rotorua “new consents by population is one of the lowest in the
country” (HUD, 2020g, p. 1). Simply put, not enough new houses are being built in Rotorua.
Census figures show that in order to maintain the same occupancy rate from 2013 to 2018 a
further 1500-1750 additional new builds would have been required (HUD, 2020h).
Non-responsive housing supply to increased demand in Rotorua can be viewed as a failure of
the market. The low cost of existing housing compared to the relative cost of building means
it is not economically viable in many cases to build. High building costs and weak
profitability provides low incentives to subdivide with only 18 consents for subdivision
issued in the 2018/19 year (HUD, 2020h). Concerns have also been raised about the cost to
developers of meeting infrastructure costs for stormwater and flood protection requirements.
Furthermore, local government investment in infrastructure for residential growth areas is an
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issue identified that needs further attention and investment from Rotorua Lakes Council
(HUD, 2020h).
This places pressure on rental rates as more households compete for an ever dwindling
number of properties. Rising rents due to population pressures and lack of new supply also
encourages property investors to buy property in Rotorua in the search for higher returns. The
Landlords for Kiwi Property Investors Association (2018) encourages investors to look at the
Rotorua market due to low prices, good cash flow and high potential capital gains and advises
that the region “attracts significant numbers of out-of-town investors, especially from
Auckland.” Due to Rotorua’s tourism boom the number of houses in short term rental
management has seen ninefold growth in the last five years (Bathgate, 2019). Airbnb
numbers in Rotorua were below 100 in 2016 and rose to almost 900 by 2019 as it can be
more profitable to earn hundreds of dollars per night for a short term rental compared to a
long term rental where properties are subject to the Residential Tenancies Act restrictions and
Healthy Homes standards (Bathgate, 2019). In 2019 around 400 Rotorua properties exited the
long-term rental market but were not sold to another party suggesting either a return to owner
occupation or a shift to the short-term rental market (HUD, 2020h). The rise of whole house
holiday homes on sites like Airbnb taking long term rentals off the market and reducing
housing supply is a growing concern for local authorities. Rotorua Lakes Council (2019)
instituted new district plan rules in 2018 restricting occupancy numbers and applying
business rates to holiday homes rented out more than 100 days per year. However their
‘honesty box’ approach to monitoring compliance with the district plan rules has been
criticised as ineffective and unfair to traditional commercial accommodation providers
(Bathgate, 2019).
Due to increased numbers of first home buyers, movers and investors (who aren’t placing the
property back in the long term rental market) the rental pool is shrinking (HUD, 2020h). This
places pressure on rental rates as more households compete for an ever dwindling number of
properties. The affordability issue in Rotorua is therefore primarily a problem for renters
(particularly low income renters) and families on low incomes trying to buy a first home.
Middle to upper income households can afford to buy houses in Rotorua when the ratio of
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average house sales prices to average household income in 2018 was 4.2 compared to 8.5 in
Auckland (MBIE, 2020a; HUD, 2020d). This relative affordability of average house prices in
Rotorua compared to other main cities hides the seriousness of a housing crisis in Rotorua
which has impacted low income, predominantly Māori households who are struggling to pay
sky high rents on benefit rates or low wages amongst fierce competition for rentals. 20th
percentile low income Rotorua households are now spending 48 percent of their income on
rent (HUD, 2020h). This figure is unsustainably high and rents at unaffordable levels can
push families into severe material hardship and homelessness as demonstrated by the
increasing number of applicants for the housing register. Solutions to addressing housing
unaffordability problems in Rotorua will need to meet the needs of Māori whanau, hapu and
iwi as Māori comprise the vast majority of applicants in need of housing based on emergency
housing grant and housing register figures.
An effective strategy will also need to factor in the impact of Covid 19. In a post-covid
environment Rotorua’s economy is expected to be particularly badly hit as 17.2 percent of
Rotorua’s GDP is generated from tourism activity and the border restrictions in 2020 have
resulted in international visitor numbers falling off a cliff (Rotorua Economic Development,
2019). Jobs and household incomes will be impacted with expected higher unemployment
despite wage subsidy support as 23.4 percent of total jobs in Rotorua are in the tourism sector
(Rotorua Economic Development, 2019). Job losses will create further housing stress for
affected households and likely increase the need for additional government support for
housing costs. Later chapters in this thesis will assess potential policy options for addressing
the housing supply and demand pressures in Rotorua’s housing market discussed in this
chapter and will evaluate how these policy options can increase the affordability of housing
for low income households living in regional New Zealand.
5.3 Tauranga: Bulging at the seams
Rising rents and house prices have become an increasing problem for low and middle income
families in Tauranga. As seen in figure 21 rents have gone up 57 percent over the last decade
and 30 percent over the last five years (MBIE, 2020b). Tauranga has a 30 percent
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rent-to-income ratio as at 2018, one of the highest rent-to-income ratios of all New Zealand
territorial authorities (Statistics New Zealand, 2020c). This rental unaffordability hits some
segments of the population hardest, including beneficiaries, single parents, Māori, Pasifika
and low income families. As seen in figure 10 these rental rises have hit renters hard, between
2003 and 2018 on average 38 percent of Tauranga renters have been paying more than the 30
percent of their household income on rent. Such high rent also leaves little money left over
for low to middle income renters to save towards a deposit.
For renters trying to move towards home ownership the deposit requirement is a significant
barrier in Tauranga. House prices have risen 59 percent in the last five years, as seen in figure
22, placing the dream of homeownership increasingly out of reach. The median house price
in 2019 was $640,250 (HUD, 2020d). A standard 20 percent deposit so a first time buyer
could be eligible for the cheapest home loan rates is $128,050.
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This sum is an unrealistic amount of money to save for many Tauranga residents based on an
average household income in 2018 of $87,500 as seen in figure 23 (MBIE, 2020a). While
median household incomes have risen by 32 percent over the last 5 years to 2018, this is not
keeping up with house price rises which are growing at almost double the rate. Even if a first
home buyer was able to get finance for a property at the median Tauranga house price they
would not qualify for the government’s welcome home loan or be eligible for the first home
grant as the median house price is over the $500,000 cap on the scheme.
As seen in figure 24 the proportion of renters who would be paying more than 30 percent of
their income on housing if they bought a first home similar to what they currently rent rose
from 62 percent in 2003 to 84 percent by 2018 (HUD, 2020d). This ratio is very stable and
does not fall below 74 percent at any point from 2004 onwards. Even if an average Tauranga
first home buyer could somehow get the deposit together the ongoing housing costs would
place a severe strain on the household budget.
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This rising housing affordability problem in Tauranga is reflected in the number of applicants
on the housing register growing 366 percent from June 2015 to June 2020, as seen in figure
25.
Tauranga is a city bulging at the seams with a rapidly growing population and insufficient
supply of new housing to meet burgeoning population demands. Over the last twenty years
Tauranga’s population has grown at an average rate of 2.3 percent per year compared to a
national average of 1.3 percent (Statistics New Zealand, 2020d). As seen in figure 26, in the
last five years to 2018 an additional 15,200 people have been added to the population of
Tauranga (Statistics New Zealand, 2020d). Tauranga City Council reports that it is the “sixth
fastest growing local authority area,” with a population increase of 19.1 percent between the
2013 and 2018 censuses (2020, p. 7). Furthermore, population projections do not predict a
slowdown anytime soon. Tauranga’s population hit 135,000 in 2018 but based on current
modelling Tauranga’s population is expected to grow to over 200,000 by 2048 (Tauranga City
Council, 2020).
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So where are all these new Tauranga residents coming from? Natural population increase
plays a role as does migration from overseas and from other regions in New Zealand. As seen
in figure 27, Tauranga experienced a significant net gain of new residents from Auckland
from 2012 to 2016 (New Zealand Treasury, 2018). Tauranga City Council (2020) reports that
6,210 new residents moved into the city from Auckland in the last five years to 2018. This is
more than fifteen times the net increase in residents from Hamilton; the next largest source of
internal migrants to Tauranga.
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The ‘sea change’ phenomenon evident in Australia’s smaller coastal towns and cities is
applicable in the context of Tauranga (Gurran, 2008). Drawn to the beach lifestyle, better
weather and cheaper house prices Tauranga attracts ‘amenity migrants,’ which Gurran (2008)
describes as a mix of lifestyle movers, retirees selling up expensive property in the city and
moving to coastal communities with their capital gains and ‘welfare migrants’ pushed out of
bigger nearby cities by the high costs of housing. Tauranga has long been a popular place to
retire with the consequence that Tauranga residents have a higher median age compared to
the national average (Statistics New Zealand, 2020d). But recent years have seen the
migration of mainly Aucklanders to Tauranga which is consistent with the ‘reverse mobility
trend’ discussed by Eaqub and Eaqub (2015). For Auckland families struggling to get on the
housing ladder or unable to afford the high cost of living in our biggest city moving to the
regions has proved an attractive option.
The ‘ripple effect’ whereby high house prices in the city centre impacts on house prices in
surrounding regions can also be considered a factor (Meen, 1999; Holmes and Grimes, 2008;
Lean and Smyth, 2012; Tsai 2014). Nguyen et al. (2018) argues that Auckland’s sky high
house prices have served as a ‘shock transmitter’ to the surrounding Upper North Island
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regions. Tauranga’s position as a mid-sized coastal city in close proximity to Auckland with
strong financial and economic ties between the regions has borne the brunt of house price
rises in recent years. As seen in figure 22, Tauranga’s house prices increased 69 percent in the
ten years from 2009 to 2019 (HUD, 2020d). Yet from 2008 to 2018 incomes increased only
51 percent, as seen in figure 23 (MBIE, 2020a). The mismatch between house prices and
incomes has contributed to Demographia (2020) labelling Tauranga-Western Bay of Plenty
the fifth most unaffordable housing market in the world, worse than London, San Francisco,
Toronto and all other New Zealand cities based on the median multiple measure.
How can a comparatively small regional market like Tauranga have become so drastically
unaffordable? Supply issues failing to meet population demands clearly play a key role. As
seen in figure 28 the annual number of new residential building consents issued in Tauranga
has seen high volatility over the last three decades with a significant drop off in consenting
activity following the global financial crisis in 2008. It took until 2016 for consenting activity
to recover to similar levels seen in the mid 1990s. Sustaining mid-1990s level of consenting
in light of consistently high population growth is simply insufficient. The biggest challenge
for Tauranga going forward is how is the city going to cope with the expected population
influx and where can Tauranga fit an extra 65,000 residents over the next 30 years? (Tauranga
City Council, 2020). The available supply of new housing in Tauranga is only expected to
worsen in the near future. A study commissioned by Tauranga City Council estimates “an
under-supply of dwellings approaching 1,000 units in the 1-3 year period. An under-supply
of dwellings close to 5,000 dwellings in the 4-10 year period (if new supply is not enabled)”
(Veros, 2019, p. 51). The lack of new greenfield housing subdivisions in the pipeline and a
lack of little appetite for multi storey housing developments in the city is largely driving this
undersupply. There is also little capacity in the wider Western Bay due to infrastructure
limitations and land in outlying areas already being used for agricultural and horticultural
purposes, the Western Bay’s booming kiwifruit industry in particular (Veros, 2019).
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Tauranga’s affordability woes are affecting the wider Western Bay with first home buyers
looking towards Te Puke, Te Puna and rural Tauranga for affordable properties (Nunns et al.,
2019). Te Puke as a major hub for kiwifruit production has faced severe shortages of
accommodation for foreign RSE workers, working-holiday visa holders and out-of-town
seasonal workers for years which combined with an influx of first home buyers has placed
severe stress on local families living in low-cost rentals with homelessness problems
emerging in Te Puke as a result (Nunns et al., 2019).
Tauranga City council’s failure to open up sufficient land for residential redevelopment is part
of a wider issue with council’s (particularly high growth councils) being unable to fund the
necessary infrastructure for new housing on greenfield sites. In 2019 a committee of local
land developers advised the Tauranga council that they estimated that there was less than 18
months of greenfield development capacity remaining within Tauranga City limits (Veros,
2019). Major infrastructure upgrades including partial funding from NZTA for new roading is
needed for the Tauriko West development to commence. The proposed Te Tumu subdivision
is dependent on unlocking the development potential of multiple-owner Māori land (Veros,
2019). Considering the difficulties of arranging financing, getting shareholder agreement and
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working within the confines of the Te Ture Whenua Māori Act there are significant barriers
for this proposed housing subdivision. Future development capacity in Omokoroa, Western
Bay of Plenty relies on the State Highway Tauranga Northern Link project being completed
(Veros, 2019). In short, none of these new subdivisions are expected to have new houses built
ready for families to move into in the short to medium term, leaving Tauranga and the wider
Western Bay with a shrinking pipeline of new housing development. This in turn is likely to
fuel rising rental rates and house prices as population growth outstrips supply.
The difficulties in developing new greenfield sites in the short to medium term leaves only
the prospect of increased intensification of existing residential areas to meet the gap in
housing supply. Intensification efforts in Tauranga through the Council’s smart growth policy
have largely been ineffective to date. Plans for residential intensification in suburban
Tauranga through the Smart Living Places project “received a strong negative community
reaction” as residents objected to the increased density, more traffic and changes to
neighbourhood character (Ralph, 2011, p.101). Existing and well established homeowners in
Tauranga value the suburban character of their neighbourhoods and associate intensification
and high density suburbs with slums. City councillors are constantly facing re-election, if
local voters are opposed to intensification then a wise political strategy is to halt plans for
increased suburban density. Ultimately, in the face of overwhelming public disapproval the
suburban intensification plans for the Smart Living Places project were placed on hold
(Ralph, 2011). Even if local authorities were willing to press ahead with changing density
controls in Tauranga the economic realities of intensification projects still pose a problem.
Banks are less willing to lend for intensification projects and traditional developers often
have little expertise in such large projects and consider it a risky proposition compared to
greenfield development; plus there is less demand from potential buyers for apartments and
townhouses compared to stand-alone homes (Ralph, 2011).
Tauranga City Council is also plagued by governance problems. Infighting between
councillors and the resignation of the mayor led to a Commission being appointed to run
Tauranga City Council in lieu of its elected representatives in December last year (Mahuta,
2020). Strong leadership is essential in light of the significant issues the local Council is
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facing in terms of infrastructure funding, financing and delivery. I argue that infrastructure
funding solutions have been piecemeal in their approach and don’t address the fundamental
issue of council’s having insufficient revenue to meet their core obligations for delivering
housing infrastructure. The provincial growth fund, money from the NZLTA, the housing
infrastructure fund are all ad hoc one-off payments which councils have to bid for. This
uncertainty of infrastructure funding is disadvantageous to small and poorly resourced
councils, it is time consuming for local councils to put in bids for a share of the fund and
these funding streams do not allow councils to incorporate expected funding into long-term
City planning. Tauranga and the wider Western Bay’s strong population growth, poor supply
responsiveness and serious housing affordability problems require immediate action from
policy makers and housing stakeholders to stave off a growing housing crisis in the city.
5.4 Eastern Bay of Plenty: The poor cousin
Small town and rural New Zealand housing issues are a neglected sector in terms of data
availability and the breadth of existing housing research. Despite documented issues with
poor quality housing, overcrowding and families living in makeshift accommodation in
caravans and sheds in the Eastern Bay of Plenty the region has attracted scant attention from
policymakers in light of low rents and house prices compared to the national average. But
housing affordability is a reflection of whether households can afford an adequately sized,
safe, warm, dry home and by that measure a look below the surface reveals a deeper housing
problem in the region. As seen in figure 29, average rents in Opotiki increased 50 percent,
Whakatane rents grew 31 percent and Kawerau experienced an 18 percent growth in rental
rates over the last five years (MBIE, 2020b). Although average rents in the Eastern Bay
remain below $400 per week which is comparatively cheap when compared to the national
average the Eastern Bay’s low average incomes and high unemployment and deprivation
rates have made rising rents unsustainable for vulnerable households already facing a range
of economic pressures.
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House prices in the Eastern Bay have experienced significant volatility over the last quarter
century. The relatively small populations in Kawerau and Opotiki can skew the data with
only a few sales per quarter at outlier prices. However, taking long run averages yields some
interesting differences in the housing markets of the three towns. Kawerau experienced
negative house price growth between 1994 and 2005 during a period of economic contraction
of the mill industry in the forestry town (HUD, 2020d). A revitalised industrial sector, falling
unemployment and a growing population after years of decline resulted in Kawerau house
prices rising a whopping 98 percent in the five years from 2014 to 2019. The extreme
volatility of Opotiki’s average house prices between 2007 and 2014 delivers no reliable
insights but the last five years demonstrate a steady upwards trend with house prices growing
85 percent in this period which can be explained with renewed population growth and
increased employment from a booming kiwifruit sector (HUD, 2020d). The data out of
Whakatane is more reliable coming from a district with a stable population numbering over
30,000. Steady house price increases from 1994 to 2005 saw average prices rise 106 percent.
House prices then skyrocketed 87 percent in the three years to 2008 until the Global Financial
Crisis hit and flattened out the market. Whakatane house price growth over the last five years
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has been more subdued than its neighbouring districts at 41 percent, yet this increase is still
significant relative to local household incomes (HUD, 2020d).
Median annual household incomes in the Eastern Bay are significantly below the national
average. This reflects high rates of deprivation in the Eastern Bay and in Kawerau and
Opotiki Districts in particular. As of 2018 the population of Kawerau has a weighted index
deprivation score of 9.4 compared to the national score of 5.6 (MBIE, 2020a). Opotiki fares
not much better with a score of 8.9. Both towns have scored worse on the deprivation index
every census since 1996, reflecting the deep-seated social problems of gangs, drug
dependency and unemployment and entrenched poverty within these communities. As seen in
figure 31, median household incomes in Kawerau have grown 80 percent in the 20 years from
1998 to 2018 yet house prices have risen 152 percent over the same period (MBIE, 2020a).
Likewise in Opotiki, incomes have increased 130 percent from 1998 to 2018 while house
prices grew 254 percent. In Whakatane the story is the same with incomes rising 131 percent
compared to a 182 percent rise in house prices. The gap between rising incomes and rising
house prices is therefore of serious concern for Eastern Bay residents.
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The number of Eastern Bay of Plenty households in severe housing need awaiting a state
rental have also ballooned in the last five years with strong population growth in Whakatane
fuelling demand for affordable homes. As seen in figure 32, the number of applicants on the
waitlist for a Kāinga Ora home in Whakatane increased 384 percent in the last 3 years (MSD,
2020). While housing register numbers in Opotiki and Kawerau have increased the growth
has been subdued likely because there is existing housing capacity within the area. Kawerau’s
population in 2020 is still below its population peak and Opotiki’s population took over 20
years to recover to its former high.
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Kawerau
The town of Kawerau was established in the 1950s as a purpose built industry town to house
workers for the Tasman pulp and paper mill (McClintock, 1998). Geographically isolated
from other settlements and almost wholly dependent on the timber processing industry the
economic turmoil of the 1980s sparked restructuring and job losses in Kawerau. As families
left the town after restructuring at the mill Kawerau was left with a depressed economy, rising
unemployment and empty houses. The empty houses attracted welfare beneficiaries from
nearby cities due to the cheap rental prices and the relatively affordable cost of living
(McClintock, 1998). High unemployment, crime, drug dependency, lack of opportunities for
youth and wider social problems have plagued Kawerau ever since with Māori
disproportionately being impacted. Health effects stemming from poor housing quality as
families could not afford necessary renovations and increased overcrowding became a
concern for local authorities.
Yet by 2013 high housing costs elsewhere and the affordable cost of Kawerau property
sparked a demographic shift as out-of-towners, particularly retirees moved to Kawerau
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seeking affordable homeownership. Retirees are reportedly cashing up property in Auckland
or Tauranga to live mortgage free possibly with one or two rental properties in Kawerau for
the same price as a mortgaged property in the city (Braae, 2021). As you can see in figure 33
Kawerau’s estimated population has grown 17 percent in the last 7 years.
This population growth and low entry cost to purchase property has resulted in Kawerau
house prices experiencing the largest growth of any district nationwide as reported by media
up 132 percent between 2010 and 2020 (Braae, 2021). This can be attributed to high house
prices in nearby towns and cities having a ripple effect on Kawerau’s housing market. While
higher house prices have reportedly caused some issues with affordable housing shortages
and overcrowding due to higher rents overall the picture for Kawerau’s economic and social
wellbeing is currently looking better than it has since the 1980s. The government has invested
$19.9 million in infrastructure for the Putauaki Trust Industrial Hub in Kawerau to attract
new jobs and industry and grow the regional economy (Jones, 2020). Once named a ‘zombie
town’ the economic opportunities brought about due to housing affordability problems in
other parts of New Zealand have prompted a reversal in Kawerau’s fortunes (Braae, 2021).
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Opotiki
Opotiki District has been struggling with a lack of affordable housing in the area as high rents
and seasonal population pressures force low-income households into undesirable housing
situations and rising house prices and very low average incomes make it difficult for local
families to move to homeownership. There are only 115 state rentals in the district with the
previous government having sold off housing units due to perceived low demand despite
higher than average unemployment rates (Porter, 2017).
Each year between April to June the kiwifruit industry in the Eastern Bay requires 600
percent more staff to pick and pack kiwifruit during peak season (Porter, 2017). The housing
demand from seasonal workers has significantly impacted on housing affordability in Opotiki
District. Although three large packhouses are situated in the district there are only 46 beds
available in on-site housing to accommodate RSE workers and backpackers in Opotiki; the
remainder of workers are lodged in holiday parks and local shared accommodation. Opotiki
locals risk being displaced from their rental accommodation each kiwifruit season as some
private landlords are accommodating large groups of seasonal workers (Porter, 2017).
Increased housing stock for seasonal workers and a growing resident population is sorely
needed in Opotiki. As seen in figure 34, 2013 marked the end of Opotiki’s population decline
with the estimated resident population having grown by over a 1000 in the last 7 years.
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Opotiki is also in desperate need of Māori housing solutions. Over 60 percent of the
population identify as Māori and with an abundance of Māori freehold land in the region it is
concerning that less than half of local Māori households are homeowners (Porter, 2017).
Local whanau with an interest in Māori land report difficulties in “navigating Māori Land
Court processes,” obtaining finance and setting up a lands trust management structure to
pursue their housing aspirations (Porter, 2017, p. 27). The Kāinga Whenua loan scheme
which intended to overcome the financing barriers to building homes on multiple-owner
Māori land has been an abysmal policy failure with only 25 housing loans issued nationally
from 2010-2017 and no loans issued for the Opotiki District (Porter, 2017). There are
concerns that the existing stock of housing in Opotiki is old and of poor quality yet the high
cost of new housing relative to existing properties provides no incentives to developers for
new greenfield development for housing. With little new stock, even small increases in
population can detrimentally affect already marginalised communities.
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Whakatane
Whakatane is in the midst of a population boom after decades of stagnant growth with the
district’s population increasing by 4000 residents since 2013 as seen in figure 35 below.
Whakatane is experiencing ‘coastal drift’ as people move to Whakatane district from the
Western Bay, Waikato and overseas locations (Whakatane District Council, 2010).
Whakatane’s great weather, climate and beautiful beaches make the town a popular
destination for retirees and lifestyle movers looking for a ‘sea change’ as described by Gurran
(2008). “Increasing numbers of people are moving east from Tauranga and the Western Bay”
(Whakatane District Council, 2010, p. 15). Tauranga’s severe unaffordability problems are
prompting a demographic shift of well-off retiring baby boomers towards Whakatane. On
average Whakatane’s population is aging and there is an increasing need for affordable
pensioner housing and the local council has undertaken a review of its pensioner housing
with the intention of transferring ownership to a community housing provider to develop
better quality and more affordable housing (Whakatane District Council, 2014).
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Strong population growth, rising rents and high house prices are creating increased need for
affordable housing in a community with low average incomes and pockets of severe
deprivation. This is reflected in the growing waitlist for state housing in Whakatane as lower
income households are priced out of the market, as seen in figure 32 (MSD, 2020).
Whakatane has not attracted government investment in additional state rental housing units
arguably due to competing priorities from surrounding regions with pressing need. Yet
something will need to change in Whakatane’s housing market to avoid the emergence of a
new homelessness hotspot.
5.5 Comparing housing affordability problems across district boundaries
Having examined the affordability problems in Rotorua, Tauranga and Eastern Bay it is now
possible to compare and contrast the similarities and differences in these three housing
markets. In the below table I consider each of the factors which impact regional housing
affordability (discussed in chapter four) against what the data and local sources of
information tell us about housing problems in each district.
Factors
affecting
housing
affordability
Rotorua
Tauranga
Eastern Bay of Plenty
Population
pressures
New Zealanders
returning from
overseas,
international
migrants, internal
migration from other
regions and less
out-migration are
contributing to a
population boom.
High levels of internal
migration particularly
from Auckland is
impacting demand for
housing as Tauranga
struggles to house a
rapidly growing
population.
Population growth is
starting to recover after
decades of decline in
Kawerau and Opotiki
and Whakatane is
struggling to manage
increasing coastal drift
from the Western Bay.
Rising house
prices
Ripple effect from
rising prices in
surrounding regions
has led to sustained
price growth from
Ripple effect of high
Auckland house prices
led to rapid house
price increases from
2014 to 2018.
The relative cheapness
of housing in the
Eastern Bay compared
to surrounding districts
has led to sustained
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2015.
price growth from
2015.
Low average
incomes
Household incomes
are growing but not
fast enough to keep
up with large rent
increases. Pockets of
high deprivation.
Average incomes are
increasing but this is
outpaced by rising
housing costs both to
rent and buy housing.
Incomes are very low
on average and
deprivation rates are
high in Kawerau,
Opotiki and some
areas of Whakatane.
Slow supply
responsiveness
Consenting levels in
Rotorua district are
amongst the lowest in
the country. Cost of
new homes versus
existing is not
economically viable
for developers.
Demand is highest for
lower-quartile rentals.
New houses are being
built in Tauranga at
pace but this is not
keeping up with
demand and there is a
shortage of
developable new
greenfield sites.
Cost of new homes
versus existing is not
economically viable
for developers in many
parts of the Eastern
Bay. Difficulties in
building housing on
Māori land.
Airbnb effect
Large increase in
short-term rental
numbers in the last 4
years impacting on
local rental
availability.
The Airbnb effect is
not a significant factor
in Tauranga’s housing
affordability issues.
Low numbers of
traditional Airbnbs but
short-term housing
demand for seasonal
workers is impacting
Opotiki.
Reserve bank
settings
Higher LVR ratios
have encouraged
investors to look at
cheaper housing
markets including
Rotorua.
LVR rules for the
Auckland market in
2015-16 named a
significant factor in
rapidly rising house
prices in Tauranga as
investors looked to
other regions.
Higher LVR ratios
have encouraged
investors to look at
cheaper housing
markets including the
Eastern Bay.
Central
government
housing
policies
Homestart grants,
accommodation
supplement maximum
rates and immigration
settings encourage
population shifts
towards the regions.
Homestart grants,
accommodation
supplement maximum
rates and immigration
settings encourage
population shifts
towards the regions.
Homestart grants,
accommodation
supplement maximum
rates and immigration
settings encourage
population shifts
towards the regions.
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Local
government
issues
Rotorua Council
investment in
infrastructure for
residential growth
areas is an issue
identified that
deserves further
attention.
High levels of
Tauranga council debt,
governance issues and
poor planning and
insufficient funding
for future housing
development have
contributed to housing
issues in Tauranga.
Districts in the Eastern
Bay with small
populations and low
average incomes in the
community raise issues
with funding streams
for any proposed
future developments.
Interest rates
and credit
availability
Low interest rates,
easily available credit
and a strong local
economy have added
fuel to the housing
market.
Low interest rates,
easily available credit
and a strong local
economy have added
fuel to the housing
market.
Low interest rates,
easily available credit
and a growing local
economy after years of
decline have added
fuel to the housing
market.
From this table it is evident that some of these factors can have very localised effects that are
not apparent in each district. This includes the Airbnb effect which predominantly impacts
upon tourist towns and seasonal worker issues which affects districts which have a strong
horticulture/viticulture industry. Whereas, interest rates, credit availability and national policy
settings can have a similar effect across all regional housing markets. Each of these factors
are worth considering when analysing what is causing housing affordability issues in a
particular region. This matrix offers a means of testing how these factors interrelate with one
another to form a pattern or typology of housing issues in New Zealand’s diverse regions.
Overall, the housing issues in the Bay of Plenty region are complex and multi-faceted
requiring a range of different solutions to address different aspects of the housing ecosystem
which are leading to poor housing outcomes.
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Chapter 6: Potential Policy Solutions
This chapter will draw on the insights gained from the literature review and case study
analysis in chapters four and five to reach conclusions regarding which policy solutions could
potentially address the housing issues facing New Zealand’s regional towns and cities.
Current knowledge gaps and solutions which require consideration and additional research
before prospective implementation are also discussed in this section.
6.1 Adopting a regional spatial planning approach to urban development
In order to increase affordable housing supply in New Zealand’s regions it is critical to know
how many houses are needed, where they are needed, what type of houses are needed and
what is an affordable rental rate and purchase price for the local population. A national level
one size fits all approach to housing is no longer working. What is needed in Auckland is not
the same as what is needed in Kawerau or Tauranga. I recommend local councils and central
government should invest time and resources in gathering data, measuring existing supply
and demand pressures and consulting stakeholders in order to develop regional spatial plans.
Long-term regional spatial planning can help officials reach consensus on the strategic
direction for a regional area (Gallent and Twedwr-Jones, 2007). Where should new housing
development be placed? How does that align with existing and future transport corridors?
What are the plans for industrial growth and long-term prospects for expansion of
horticulture/viticulture sites? How can the growth of neighbouring towns contribute towards
regional economic growth rather than increase competition for labour and resources between
towns? Regional spatial planning can help address these questions and help map out a plan
for the future to accommodate population growth within the wider region in order to make
the most of the area’s human capital and natural resources to grow the regional economy and
increase population wellbeing.
Building a long-term spatial plan requires developing an accurate model of current housing
need and expected future demand for housing relative to expected delivery capacity. Bramley
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(2003) suggests that housing models that include a “cross-section dimension,” a “time
dimension” and incorporate “spatial interaction perspectives'' may be more effective in
measuring long-run demand for housing in a given area (p. 216). New Zealand has had little
success with undertaking a full assessment of local or regional housing markets in the past.
Local councils in Taupo, Wellington and Queenstown have commissioned housing market
studies but these were limited in scope to specific housing needs and are now well out of step
with current trends in the housing market (Centre for Housing Research, 2009). HUD's new
“place based approach” currently being utilised in Hastings and Rotorua could be rolled out
to the rest of the country to build up a picture of housing need and local market conditions in
each region (HUD, 2020a). As a result of the Rotorua place based assessment the council in
partnership with iwi groups and central government are now attempting to address Rotorua’s
housing woes with their draft housing strategy (HUD, 2020h). This is intended to “enable the
development of up to 2000 homes'' to address the current shortfall of housing supply
(Desmarais, 2020). One limitation of the place based approach is that housing markets
operate in ‘competing jurisdictions’ (Bramley, 2003, p. 200). When one housing market
becomes too expensive or less desirable households move to procure housing outside of their
local market. For example it’s not enough for policy makers to simply measure the housing
demand in the Bay of Plenty region currently. Policy makers should also consider what are
the current shortages in available housing likely to do to house prices in the future and what
effect this is likely to have on different subsections of the local housing market and potential
population shifts in response to supply and demand changes.
This is where spatial planning can offer guidance. Gallent and Twedwr-Jones (2007) define
spatial planning as “critical thinking about space and place as a basis for action or
intervention” (p. 240). Regional spatial planning involves thinking about what are the future
needs of the community and how should our towns and cities be designed to ensure the
availability of efficient public transport, well-paying jobs, beautiful green spaces, accessible
public facilities and affordable homes? Apart from urban planning at the district level which
accounts for expected population changes as part of council’s long term plans integrated
spatial planning in New Zealand is currently limited to Auckland and the Auckland-Hamilton
corridor under the new Urban Growth Agenda (HUD, 2020a). I suggest that each region
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should be developing its own regional spatial plan taking into account supply and demand
factors including; land availability, building costs, population growth, regional economic
data, labour market forces and community input. This spatial planning exercise should set
targets for new affordable housing supply in each region based on current and future
predictors of supply and demand. A plan of action to meet housing supply targets should be
agreed upon in consultation with stakeholders, iwi and local and central government. Regular
reviews should be conducted to monitor progress and update the plan based on the evolving
picture of housing, transport, infrastructure and economic development needs in the region.
6.2 Reducing barriers to housing supply
For regional spatial planning to be effective local government changes are required to reduce
barriers to housing supply. Increasing the supply pipeline of new affordable houses requires a
multi pronged approach. Looking at overseas examples the Barker review of housing supply
issues in the UK recommended releasing more land for residential development, an overhaul
of cumbersome planning processes and greater provision of infrastructure in order to improve
supply responsiveness (Williams, 2010). Similarly research by Bramley (2003) found that
increasing the availability of urban land through planning processes drives new housing
construction in the UK and an increase in new house supply reduces house prices.
Government policy has attempted to increase land availability through Special Housing Areas
and the Urban Growth Agenda with limited success so far. Central government has demanded
that local authorities reduce the time and cost of planning processes and release more land for
urban development yet this mandate is largely unfunded and the much-maligned Resource
Management Act has had a part to play in long planning processes which is outside of council
control. The proposed reforms to the RMA this term should assist with the time taken for
consenting processes.
The heart of the problem is that high growth councils with high debt levels do not have
sufficient capital to make the up-front infrastructure investments needed to enable large scale
releases of ready to build urban land (Twyford, 2020). The vested interests of ratepayers,
many of whom are home owning pensioners on fixed incomes, are to keep rates as low as
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possible as this is a large lump sum cost every year. To win re-election councillors are
incentivised to strictly control planning rules and zoning restrictions to maintain existing
house prices and to release new urban land ‘just-in time’ due to the high up-front
infrastructure costs (HUD, 2021). The newly created Infrastructure Funding and Financing
Act (2020) relies upon debt finance being raised from private investors and then ring-fenced
through a special-purpose vehicle entity so that the debt does not show up on council balance
sheets (Twyford, 2020). Homeowners pay off the levied infrastructure charge over a period of
years. The problem with this model is two-fold, one: it relies on willing private investors
being found, two: ultimately homeowners are paying more than the actual cost of the
infrastructure built as investors are owed a return for their capital. Instead local and central
government should be working together to reduce planning and zoning costs and restrictions.
Taking a regional spatial planning approach stakeholders can identify suitable tracts of land
for large scale urban development to work in with existing and future planned infrastructure.
It is recommended that Council’s switch to using bare land value for setting rates as this
discourages land banking and encourages a more efficient use of land (Productivity
Commission, 2015). If the central government wishes to accelerate new housing development
they should raise council debt ceilings and share the tax take from local economic growth
with councils or allow local authorities to levy their own taxes and service charges to
incentivise local councils to invest in infrastructure and services which will increase the
supply of affordable housing (Infrastructure New Zealand, 2019).
6.3 Assisting families into homeownership
The government’s role in homeownership prior to the rise of neoliberalism in the 1980s was
to support the homeownership aspirations of New Zealanders on modest incomes into
modestly priced houses (Thorns, 2007). The government should return to these roots and
work on policy options which will assist in this endeavour. The cost of raising a deposit and
financing a mortgage through the Kiwibuild scheme was simply too expensive for low to
middle income New Zealanders (Wilkinson, 2019). Unaffordable house prices in most of the
country suggests that intermediate housing tenure schemes may be a more successful option
in assisting families into home ownership. Intermediate tenure offers a housing support
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product for families not able to access social housing due to either high demand or lack of
qualifying factors and not able to finance purchasing a home through the bank without
government support (Clarke, 2010). Intermediate tenure can take the form of “discounted
home ownership, shared ownership, shared appreciation ownership, discounted renting [or]
cost renting” (Regan and Patrick, 2001, p. 46). Shared ownership in a property allows
households to pay a reduced deposit and reduced mortgage repayments on their half of the
house while paying a minimal rental cost to the government (or community housing provider)
for the other half of the house (Clarke, 2010). Staircasing provisions allow households to buy
out the other half of the house slowly over time as households can afford it. The value of this
scheme is that it creates a lower entry point for homeownership and provides more families
secure tenure and the financial benefits of homeownership. Shared equity is also more cost
effective than state housing as the subsidy is less per household than social housing (Clarke,
2010).
The Progressive Home Ownership Scheme is an example of an intermediate tenure
homeownership product. Yet this new policy is only intended to house between 1500-4000
households (Woods, 2020). This small scale project will barely make a dent in New Zealand’s
deep-seated affordability problems. I suggest the Progressive Home Ownership scheme be
reserved for low to middle income families with children under 18 for the purchase of a first
home with the requirement that only newly built or contracted to be built houses qualify. The
funds allocated for the Homestart Grant should be redirected to providing deposit assistance
for the Progressive Home Ownership Scheme. House price caps and income limits should be
set to the median regional income and house price. With access to withdraw kiwisaver funds
towards a deposit and a government grant top up to assist families to raise a 10 percent
deposit on half the cost of a newly built home many more families will be able to find a safe,
secure house to call a home. This would have the effect of getting many households stuck in
generation rent out of expensive, insecure rental housing. It has benefits in terms of providing
more children with adequate housing and therefore assists with government child poverty
targets. Directing the policy towards new builds has the effect of targeting the increase of
much needed housing supply. Removing the homestart grant for the purchase of existing
homes reduces incentives to move to cheaper regions and crowd out local families. The high
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cost of housing in major cities, combined with income and price caps will encourage more
households to consider accessing this scheme in regional areas across the country which
sorely need new housing construction to meet population demand pressures and the cost of
land is cheaper. This policy would (along with other proposed measures) shift market
incentives towards building new factory built prefabricated homes which are easily
transportable onto site. Economies of scale could lower the cost of entry level homes and
supply the new houses that our regional towns and cities need. An increase in the supply in
housing would reduce the pressure on the overheated rental market and help bring down the
price of existing houses. This scheme should be supplemented by support for whanau, hapu
and iwi to build progressive home ownership housing on Māori land with government
funding to pay for infrastructure needs, to set up governance structures for management of
land and expert advisors to assist families to navigate Māori land court processes to obtain
occupation rights. It is essential that Māori be able to access government homeownership
products as historical injustices have created a situation of disadvantage in the housing
market and low rates of Māori home ownership. Māori land is severely underutilised with
research from the Ministry of Primary Industries (2014) estimating up to 80 percent of Māori
land is not reaching its full potential use. Further kaupapa Māori led research into potential
policy or legislation changes which could assist whanau to achieve their aspirations for
residential occupation of whenua Māori is needed. To have any real effect on housing need,
housing supply and home ownership rates this scheme will need substantially more funding
to reach more kiwi families who are currently priced out of the market. Further research on
potential costs of this scheme is needed.
6.4 Growing the social housing sector
Incentivising the market towards building affordable homes through homeownership
products can only go so far. The social housing sector desperately needs to grow to
accommodate the existing demand from the housing register. The register is currently sitting
at 21,415 applicants on the waitlist and growing (MSD, 2020). The Labour government has
plans to build 8000 additional social houses within the next four years yet this is not enough
to meet even half of current demand (Ardern and Woods, 2021). I suggest the government
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should consider entering into long-term contracts with housing construction companies to
build factories to mass produce prefabricated, affordable housing to achieve the economies of
scale and cost reductions that are needed to build tens of thousands of social housing units
over the next decade. The government is in catch-up mode and needs to address
long-standing deficiencies in the supply of social housing. This will come with a hefty price
tag yet the cost of inaction in lost productivity from poor housing outcomes is also
significant. Efforts to partner up with social agencies and iwi organisations to grow the third
party social housing sector will require significant capital grants and long-term contracts to
make a real difference as Johnson (2013) reports that some efforts to grow the sector have
been token at best with little funding or financing to get projects off the ground. A revitalised
social housing sector could reduce the rates of housing related poverty, free up the supply of
private rental housing and by adding to the total supply of housing bring down rents and
house prices. Increasing the number of state houses should also reduce the dependence of
low-income households on the Accommodation Supplement as families move to income
related rents. New Zealand’s experiment with demand side subsidies since 1991 has proven
ineffective in addressing community housing needs and is very expensive (Johnson, 2013). In
contrast, the building of state housing provides the government with an appreciating asset that
can be utilised for dozens of families over the decades. The current government is in the
process of building more state houses but plans need to be put in place to increase the budget
and speed up the building process.
6.5 Reviewing immigration settings
Inward migration is essential to bringing in new talent and ideas, driving economic growth
and building vibrant, diverse communities. Yet New Zealand’s housing ecosystem cannot
cope with large fluctuations in migration patterns year to year as the inelastic nature of the
housing market serves only to drive up house prices and rents during periods of rapid
population growth (Productivity Commission, 2012). I suggest the government develop a
national population strategy to set a target for the number of migrants New Zealand wants to
receive per year which should be based on (among other factors) the available supply of
housing to meet immigration population increases. The points system which allocates
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migrants 10 additional visa points for moving to a region outside of Auckland should be
reviewed in light of housing supply shortages in other regions to direct migrants to areas
where their skills are needed and accommodation is more readily available.
It is also recommended that changes to immigration settings for RSE workers are considered.
The RSE scheme was originally devised as a supplemental scheme to assist with peak
demand for seasonal labour (Nunns et al., 2019). However, the popularity of the scheme and
rising quotas of RSE workers over successive years has meant that RSE workers has now
become an essential part of the horticulture/viticulture (h/v) business model. This has placed
significant pressure on housing markets in regions dominated by the h/v industry including
the Bay of Plenty, Hawkes Bay and Tasman districts. This can become a negative cycle as
RSE workers boost productivity, in turn encouraging RSE employers to expand h/v
production and seek more RSE workers under the cap, thereby creating more demand for
accommodation services and squeezing out locals in low-cost rentals (Nunns et al., 2019). It
is fundamentally unfair that the cost of h/v industry expansion is borne by low-income local
renters rather than by the industry who receives the profit from the low-cost labour supplied
by the RSE scheme. To address this issue it is suggested that RSE visas are only issued for
employers that can demonstrate suitable seasonal worker accommodation that does not
impinge on the local housing supply. This will require more purpose built accommodation in
high demand regions. A regional approach in which industry leaders, accommodation
providers and local government work together to plan a strategy for housing seasonal workers
is suggested (Nunns et al., 2019). Sharing the cost burden of investing in new housing
provision between multiple employers in regional h/v industries is a possible path forward.
Policy makers cannot (and should not) restrict internal migration but more information
gathering on who is buying property, where and why would provide a better understanding of
internal migration patterns and how housing demand is changing at a local level. The
government tracks demand for housing through census data including household crowding
rates, birth and death rates, migration rates however this does not provide a clear picture of
whether households are moving regions to downsize to a cheaper location for retirement, or
moving for work purposes or moving to afford a first mortgage. An anonymous survey
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during the process of purchasing a property would greatly assist in measuring changes in
housing demand over time. Further research is needed on the impact of internal migration
patterns on housing affordability in New Zealand.
6.6 Introducing restrictions to short-term accommodation providers in urban areas
Short-term rental accommodation is clearly impacting upon local long-term rental markets,
this effect is particularly pronounced in regional tourism centres including Queenstown,
Mackenzie District, Rotorua-Taupo and the Coromandel (Campbell et al., 2019). It also
demonstrably affects regions with strong horticulture/viticulture industries including
Northland, Bay of Plenty, Hawkes Bay and Central Otago during periods of peak demand for
seasonal workers (Nunns et al., 2019). The advent of Covid-19 and the loss of international
tourists has demonstrated how short-term letting platforms such as Airbnb which allow the
letting of entire properties have been reducing the local rental pool with rental supply
increasing 90% in the Lakes District in May 2020 compared to May 2019 (Harris, 2020a).
Returning existing Airbnb whole houses short-term lets to the long-term rental market would
increase local housing supply without significant additional cost to the government. However,
further research is needed to assess how potential changes to short-term letting arrangements
would affect business revenue, jobs and the wider economy and to quantify how significantly
Airbnb short term letting platforms are impacting upon local housing affordability. A
reduction in short-term accommodation providers may also provide a boost for struggling
traditional accommodation providers. Local councils have been struggling to manage and
enforce local bylaws regarding Airbnbs in their districts and central government intervention
is now warranted. Establishing a national register of Airbnb/holiday home providers and
making registration mandatory for accessing short-term rental websites with fines for
non-compliant users and sites would be an effective first step in assessing the extent of the
problem and allow councils to easily identify local Airbnb businesses operating in their
districts (Productivity Commission, 2019).
Local communities should decide whether they want Airbnbs in their neighbourhoods or not.
Some districts receive few tourists and Airbnb poses few problems, in other regions
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over-tourism and rental shortages are creating more difficulties than economic benefits. This
is particularly pertinent in light of recent changes to tenancy laws which increase the
attractiveness of short-term rental accommodation as an alternative, hassle-free investment.
Options to curtail airbnb proliferation range from total bans, to requiring resource consent
and limiting numbers in a given area, to imposing increased rates costs. All of these solutions
offer a market intervention approach to shift the economic incentives towards long-term
rentals. Since Covid is keeping borders closed for the interim this issue has not received
much attention, but with a vaccine programme being rolled out in 2021, it would be wise to
signal any changes to short-term rental legislation well in advance to allow the tourism
industry time to adapt before international tourists return in significant numbers. It is also
worth noting that the figures coming out are preliminary and wider analysis in six months to a
year's time will provide a much fuller picture of how the absence of short term rentals affects
regional housing affordability.
6.7 Reintroducing loan-to-value ratios for investors
The Reserve Bank occupies a unique position in New Zealand’s political landscape as an
independent entity which has control over the macroprudential tools which significantly
impact upon the affordability of housing (Armstrong, Skilling and Yao, 2018). RBNZs
mandate currently only extends to maintaining New Zealand’s financial stability, and does
not extend to implementing measures which increase housing affordability or advantage
homeowners over investors. This means that RBNZ policy is not always aligned with
government policy. While the government is trying to increase the supply of affordable
housing, the removal of LVR restrictions on investors increased housing demand and
encouraged a speculative frenzy particularly in cheaper regional areas which offer better
investment returns resulting in the highest house price inflation seen for years despite
underlying economic uncertainty due to Covid-19 (Eaqub, 2020). More research is needed
on the impact of LVRs and other macroprudential tools on housing affordability for low to
middle income households. LVRs were previously most effective in dampening speculation
and house price rises at a 40 percent LVR rate for investors (Armstrong, Skilling and Yao,
2018). Given the current state of the housing market and better than expected performance of
99
the New Zealand economy I recommend reintroducing this policy at the 40 percent rate to
avoid a further decline in housing affordability for New Zealand households.
6.8 Disincentivizing housing speculation
The banking sector reforms of the 1980s which removed restrictions on accessing overseas
capital coupled with the decline of HCNZ mortgage lending and a growing public aversion to
investing in the stock market in the wake of the 1987 crash led to increased investment in
residential housing (Broome, 2009). This fuelled a wave of housing speculation, rising
property prices and an asset bubble in the early 2000s which moved the prospect of
affordable home ownership out of reach for many in the next generation. New Zealand’s love
affair with housing and the dependence of the wider economy on the state of the housing
market is an unhealthy dynamic which restricts productivity growth and leaves families
unable to access affordable housing. House price speculation can be brought under control by
using the stick or the carrot method. The stick approach of introducing a capital gains tax or
another form of taxation on non-owner occupied property could dampen investment interest
in housing and would create a level playing field with other asset classes such as stocks,
bonds etc. It would reduce the economic distortions which currently incentivise housing over
other forms of investments (Evans and Krever, 2017). Equity considerations also support the
neutral treatment of all sources of income. New Zealand is currently the only OECD country
not to have some form of capital gains tax (Evans and Krever, 2017). It would also generate
revenue which could be put towards much needed investment in the state housing stock. A
capital gains tax however has proven politically unpopular with the public. An extension of
the brightline test to 10 years instead of the current 5 year period may prove more politically
palatable and have some of the same effects of increasing revenue and dampening housing
speculation. On the other hand the carrot approach of giving other investment options more
favourable tax treatment could direct investment away from New Zealand’s overheated
housing market. I suggest that preferential tax treatment for Kiwisaver investments is worth
further research and analysis as a policy option not just to reduce housing speculation but to
also encourage investment in productive assets and New Zealand businesses to allow them to
grow more rapidly.
100
Chapter 7: An Emerging Picture of Growing Housing Unaffordability in
the Regions
This thesis posits that central government policies of successive governments have taken little
notice of housing affordability problems in the regions while focusing on Auckland’s
affordability problems. The downside of this approach is that it fails to consider that the
housing market acts like an ecosystem. Affecting one part of the housing market inevitably
affects the rest of the market and this can result in unintended policy consequences for New
Zealand’s regions. Taking an ecosystem approach to analysing housing issues it is possible to
examine the linkages between factors which impact upon the overall rate of housing
affordability.
By undertaking this approach in the context of the Bay of Plenty it is evident that high levels
of unaffordable housing in Auckland triggered a ripple effect which resulted in increased
internal migration of ex-Aucklanders moving to Tauranga. This in turn encouraged some
locals to move to cheaper locations within the wider Bay of Plenty. Tauranga is grappling
with a deficit of readily developable urban land as population pressures, poor planning and
infrastructure funding woes collide. Rotorua is experiencing high rates of homelessness as a
lack of new housing supply to meet growing population demand and tourism demand for
Airbnb properties has led to skyrocketing rents and vulnerable communities being squeezed
out. The Eastern Bay is struggling with population pressures, demand for seasonal
accommodation, difficulties utilising Māori land for housing and rising housing costs relative
to very low average household incomes. These factors are interconnected and intersect with
wider pressures from national housing and immigration settings, credit and mortgage
financing availability and macroeconomic conditions. Addressing poor outcomes in the
regional housing space will require a coordinated approach taking into account each aspect of
the wider housing ecosystem.
It is evident that new policies should be stress tested for divergent effects on New Zealand’s
diverse regions before the implementation phase. Homestart grants, loan-to-value restrictions,
101
accommodation supplement maximum rates and immigration settings all have an impact.
Rising house prices in Auckland have had a halo effect on the surrounding regions.
Unaffordability in New Zealand’s largest city has increasingly pushed people out to the
regions where cheaper housing is available. Investors are attracted to higher rental yields.
Retirees are attracted by affordable prices and lifestyle considerations. Low income
households are attracted by cheaper rents. First home owners are attracted by government
policies which incentivise home buying in the regions, combined with more affordable prices
and lifestyle considerations. Overseas migrants are attracted by immigration settings which
allocate more points to the regions and a growing regional economy. However many regions
have struggled to cope with the recent influx of migrants. Population and demographic
change place significant pressure on smaller cities and regions and rapid change over a short
space of time has meant that housing supply has been unable to match demand. Other small
regional towns and rural villages suffering long-term population decline have benefitted from
rising housing costs elsewhere with an influx of new residents attracted by a cheaper cost of
living bringing life back to dying small towns.
These fundamental market dynamics are also affected by land supply shortages, exacerbated
by council smart growth policies and an unwillingness or inability on the part of council to
invest in significant new infrastructure for greenfield development. Stickiness in housing
supply and difficulties scaling up the cottage construction industry and a shortage of skilled
tradespeople has limited the supply of new housing to match rising populations. The
increasing prevalence of short term rentals to meet the housing needs of seasonal workers and
the growing tourism sector reduces housing supply in many regions in an already tight
market. Low average incomes in the regions also compound issues of affordability,
particularly affecting Māori, beneficiaries and other marginalised populations and increasing
rates of regional homelessness. Overall, this creates a perfect storm for housing
unaffordability problems in New Zealand’s regions. The question is, how can this be fixed?
Drawing on insights gained through a literature review and targeted cases studies on regional
housing issues this thesis offers a range of potential policy options to increase housing
affordability in the regions. Options include adopting a regional spatial planning approach to
102
urban development to ensure a joined-up response from stakeholders to regional housing
problems and the building of more state houses to meet current demand and free up the
supply of rental properties. Reducing zoning restrictions, cumbersome planning processes
and increasing funding for the infrastructure needed to unlock land supply at the local
government level could also have a significant impact. Funding a new-build shared home
ownership product targeted at families with children should also assist more young families
into homeownership. Adding to overall supply and assisting with child poverty reduction
targets. Introducing restrictions on short-term accommodation providers should increase
housing supply in regional tourism hotspots and towns reliant on seasonal labour. Options to
reduce demand for housing include reintroducing loan-to-value ratios, reviewing immigration
settings and disincentivizing housing speculation through instituting capital gains tax,
extending the brightline test or incentivising other investment types through more favourable
tax treatment.
Access to safe, secure, adequate, affordable housing is a fundamental human right protected
under New Zealand and international law (Human Rights Commission, 2017). Housing is
important not just to provide protection from the elements but to provide us with a place to
call home, a place to connect us with friends, family and the wider community (Hohmann,
2019). Poor housing outcomes have an economic, societal and human cost. As well as
providing shelter housing is an intergenerational asset and important to quality of life for
current and future generations. It is therefore essential that the policy problem of growing
housing unaffordability in New Zealand’s regional towns and cities is addressed by policy
makers. This thesis utilises the available data and existing literature to outline the extent of
the problem, identify its causes and suggest potential policy solutions in the hope of
furthering progress on this important societal problem.
103
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