Tuesday, 10 September 2019

Don't hate the council, hate the game

Labour's talked a good game around solving the housing crisis. But unless they manage to have councils see growth as being in councils' interest, it's all a bit hopeless. There are always margins on which councils can stymie growth, if they want to. 

I'd covered the problem in my fortnightly column over at Newsroom.
Fundamentally, the housing crisis emerged because not enough houses were being built. Not enough houses were being built because council zoning rules prevented sufficient building. This had systematic effects across the whole building industry. Because building vast new subdivisions, or substantial new dense and intensive brownfield developments, was effectively impossible, the construction sector geared up for the task it was allowed to undertake: bespoke small-scale construction and renovation.

Why do many councils facing growth pressures set rules that make it tough to build? Because growth is costly for councils. Councillors face persistent NIMBY opposition to new development. Density advocates work to block surburban expansion while downtown residents opposed to development next door blocked density. The outcome in too many cities was that no one was allowed to build anything anywhere.

But it is worse than that. When an urban council at its debt limit has to accommodate growth, the costs simply outweigh the benefits. Central government gets more income tax revenue when a city’s population expands; local government gets an infrastructure bill. Central government gets more GST and company tax revenue when it allows more commercial and industrial development; local government gets the complaints about tall buildings blocking views and faces the bill for trunk infrastructure upgrades downtown. More rates revenue simply is not enough for councils to make growth viable for them.

It gets even worse. Construction costs are higher than they need to be because of a nest of regulations, liability rules, and incentives. There are, in theory, ways of importing a containerload of gib board from places whose standards we trust and whose challenges are comparable – like Vancouver, Seattle and Tokyo – places that face earthquake risk and wet weather issues.

But council has to sign off on the final building certificate. If council signs off on a building certificate and something goes wrong a decade from now, when every one of the construction companies has flipped from Bill’s Construction (2019) Ltd to Bill’s Construction (2025) Ltd, council is the one left holding the bag under joint-and-several liability. So councils try to limit risk by being highly risk averse about allowable building methods. Standard ways of fixing walls to frames are defined in terms of standard materials. And good luck getting your new build signed off if you haven’t used those standard methods.

Once you recognise the incentives at play, you start recognising the difficulty of the problem – and start seeing the ways of unwinding the mess.

Fundamentally, growth has to be in councils’ interest. If it is not, everything else is futile.
Today, the Dom reports on one of the standard ways that councils can block growth: go-slows on consenting. I don't know how many times I've heard pious central government officials at MBIE assure me that because councils have to issue consents within a deadline, there can't be any problem. They utterly fail to think about incentives.

The Dom's Bonnie Flaws is sharper, going through the ways councils can extend deadlines, and why they do it.
However, Ministry of Business, Innovation and Employment (MBIE) building system assurance manager, Simon Thomas said that it did not currently collect information on RFIs [Requests for Information: the way of dragging out a consenting process by asking the builder or architect for more information on the deadline day - kinda like dragging out an OIA at the ministries, but no Ombudsman] as a matter of course, and nor did International Accreditation New Zealand, the body appointed by MBIE to carry out accreditation assessments of Building Consent Authorities.

Hunter said that the "poor plans" excuse was unfair.

"I've done thousands of houses, you know. You'd think that after a while with all the RFIs we'd start getting them right. Why are we still getting different RFIs back? It doesn't make any sense," he said.

Institute of Architects Auckland branch chair, Ken Crosson said that councils had become the "last man standing" after the leaky house crisis.

"What we've got now are very gun-shy councils and a building sector beset with problems largely because of poor legislation," he said.

Joint and several liability was a real problem for councils who had picked up costs disproportionate to their liability in the leaky homes saga, resulting in an environment of "super-caution".

Crosson said the cost of consent was exorbitant, and added that any delay resulted in further costs.

"The holding cost on land is enormous, just enormous,'" he said.

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