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Who’s to blame for our housing bubble?

  • May 31st, 2008

The Economist picked the Anglo world housing bubble years ago. They’ve been tracking it, and the latest report identifies Australia and New Zealand as still dangerously overpriced (though the data seems to predate the recent downturn).

“Two other markets at risk are Australia and New Zealand. Since 1997 house prices have risen faster in Australia than New Zealand, but Goldman reckons that the latter is more vulnerable. Real house prices are 82% higher than they were in the last quarter of 1999, and have risen by 70% relative to household income, the biggest increase in all the countries Goldman has surveyed.”

The Economist does not point the finger of responsibility. Owen McShane is in no doubt – local government.

 “… local councils, here and around the world, that adopted Smart Growth or other policies which constrain the supply of land and promote high compliance costs, are largely (indeed almost entirely) responsible for the housing bubbles which have afflicted so many markets in the UK, the US, Canada, Australia and New Zealand. Consequently, those local governments and their agencies are equally responsible for the bursting of the bubble and the consequent damage to the financial sector, and of course to the dreams of millions of families who risk of losing their homes or their life savings.

“. An economy in recession depends on a flexible and responsive economy to allow people to begin to re-invest in their future as soon as they recover from their loss of confidence. Consequently, Councils here and elsewhere must reverse their policies and do everything they can to increase the supply of land and reduce compliance costs so that people do not need to take out a mortgage just to pay the costs of “manufacturing” a new lot, or of getting a new building consent. In cities and districts throughout New Zealand the costs of application, of consultants reports, of peer reviews, of reserve contributions, of roading and development contributions, and of testing and monitoring, typically add up to over $50,000 a residential lot. Many Councils want these fees, charges and contributions paid up-front, either on granting of consent, or prior to issuing any title, rather than out of sales.”

Our personal experience backs Owen.

We recently gained resource consent to replace our falling down garage with a new one, and a granny flat over, similar to one our neighbours built a few years ago. It has taken four years from the first approach to the Council, and $35k in fees, largely to experts we’ve been obliged to consult. Our neighbours have consented to each plan submitted. As well as the architects we’ve had a specialist traffic engineer, street designer, urban planner, and a consent consultant. That includes no lawyer costs, as I stayed out of the fray to reduce the chance that the objections came from ”politics” within the Council.

That was simply to get the resource consent – only now is the architect doing the plans for the next stage, building consent.

Comments

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  • jcuknz
  • June 1st, 2008
  • 10:14 am

Though it seemed to frustrate trade builders trying to cut corners the old building code that I used to guide me when I built ‘the family home’ back around 1970 helped me to learn what I had to do since all I had done previously was make a dovetail joint in school carpentry. The current system is a nightmare of controls. Particularly since the curfuffle over leaking homes.

The major problem with the industry is the specialisation, likely needed with new materials, which means there are few left in the industry with the over-all knowledge to appreciate when things have been done wrong.

In trying to fix this basic problem all sorts of beaurocratic paperwork, resulting in extra cost, have been introduced.

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  • jcuknz
  • June 1st, 2008
  • 10:31 am

While Sir Roger Douglas got the country out of the mess it was in in the 1980’s one of the results which plagues us today are the number of consultants who need to be consulted at great cost .. in your case $35k … who instead of being paid a regular salary by the council are paid on contract at an hourly rate far in excess. The other problem is the number of accountants and their assistants counting all the beans when a far more efficient system is to permit a small amount of waste to exist in the system.
A third major problem is the number of lawyers in the system as a result of making the rules flexible and letting the courts sort things out. The flexibility helps a few but the rest of us bear the burden.

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  • George
  • June 1st, 2008
  • 4:31 pm

Half the country is making a living placing difficulties in front of the other half

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