Tuesday, 26 June 2018

Getting to 5

The NZ government might be targeting housing affordability, with a median house price to income multiple measure of 5. From Hickey's Newsroom Pro newsletter:
Acting Prime Minister Winston Peters effectively committed the Government to targeting a house price to income multiple for first home buyers of five times income, which is well below current levels in the biggest cities.

However, he stopped short of calling for lower house prices or suggesting it would happen within the next six years. He said the Government aimed to significantly increase wages.

Peters told his post-cabinet news conference he looked forward to the day when a young couple can “prospect no higher than five times their annual income.”

"This is the Government’s “long-term objective,” he said, adding he did not expect it in the Government's first or second terms.
It's not a bad target. I talk about some of the infrastructure financing lessons on how to get there in my column at Interest.co.nz:
Think about a council like Auckland or Hamilton, where debt-to-revenue limits of 250% are close to binding. Under those limits, a Council wanting to fund a new infrastructure project cannot borrow more than 2.5 times the annual revenue expected from the project. But Infrastructure lasts for decades.

Revenue bonds and special tax districts enable borrowing that is not guaranteed by the general ratings base and can then fall outside of the Council’s debt limit. American revenue bonds enable borrowing of five or six times the annual revenue associated with an infrastructure project.

When a developer wants to build a new subdivision or co-fund a mass transit project to service a new brownfield terraced housing development, the trunk infrastructure can be funded through levies on the future residents of the development to repay the revenue bond.
But if we really want to get to 5, here's a way of committing to it:
  • Set annual median multiple targets providing a path to 5
  • Set automatic policy levers that trigger for being too far from the path. These triggers can include:
    • Overriding some or all of the city's plan, providing for increased density and abolition of rural-urban boundaries until the city is back onto the path. National Default Urban Plans that could apply during the emergency period could do things like:
      • Abolish minimum apartment sizes;
      • Abolish apartment balcony requirements;
      • Abolish viewshed restrictions;
      • Impose a land tax on property owned by local government, rated as though it were in appropriately dense residential use. So Auckland's peppercorn-rental golf courses would start costing Council a lot of money every year directly, rather than just as opportunity cost;
      • Automatic upzonings of everything to next next higher allowed density;
      • Abolishing heritage overlays, or capping the proportion of potential dwellings covered under heritage overlays. So if a neighbourhood, absent the heritage overlay, would be likely to have a hundred dwellings and currently has 10 heritage-listed houses, that would count as a hundred houses towards a new  Council quota;
      • Abolishing any mandatory parking provision;
      • Central government overriding Council viewshafts and heritage restrictions to allow increased density;
      • Abolishing any rural-urban boundary
      • Switch Council's rating base from land plus capital value to land value only, to encourage more efficient land use. 
  • Provide Councils with positive incentives to pursue growth. That includes enabling innovative infrastructure financing options to remove a disincentive to allow growth. But why not also allow Council to share in some of the benefits of enabled growth?
Update - we'd covered some of these kinds of ideas when we'd punted the idea of trialing urban-friendly policy reform in Auckland. See section 4.5 here

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