Phil Goff hopes Auckland gets a good share of the Government’s $1b housing fund, writes Tim McCready
Auckland Council has put in an indicative bid for the $1 billion housing infrastructure fund, and Mayor Phil Goff hopes New Zealand’s largest city will gain a significant share of the investment.

“Done right, that will enable us to do a whole lot more,” he says. “We could build 36,000 more houses with the Government’s assistance. That’s an offer I don’t think they would want to refuse.”

The Government is making the fund available to local councils in high growth areas — Christchurch, Queenstown, Tauranga, Hamilton and Auckland — to assist them to establish “substantial new infrastructure investments” that are crucial to increasing housing supply.

At the time of the announcement, then Finance Minister Bill English said the fund will help bring forward the new roads and water infrastructure needed for new housing where financing is a constraint.

“The Government will invest up front to ensure the infrastructure is in place,” he said. “But councils will have to repay the investment or buy back the assets once houses have been built and development contributions paid.”

English acknowledged that infrastructure and its financing is one of the three key constraints to building more houses, alongside land supply and consenting requirements.

“Councils have strict debt limits which means some lack the headroom to invest in infrastructure now and then wait for future development contributions to recover the costs. The fund will help provide more infrastructure sooner by aligning the cost to councils with the timing of revenue from development contributions.”

Building and Housing Minister Dr Nick Smith stressed that the fund is available only for substantial new infrastructure investments that support more new housing, not to replace existing infrastructure. “To access the fund, local councils must outline how many new houses will be built, where they will be built and when they will be available,” he said.

“Ideally, they will have agreements with developers on these issues.”

Auckland has clearly been struggling to deal with the housing crisis. In order to meet the demand over the next 30 years, the council predicts Auckland will need more than 400,000 new residential homes.

Goff agrees with the Government — in order to build more houses, the city must put more money into infrastructure. “I welcomed the housing infrastructure fund when I was still a Labour MP and my party was opposing it,” he says. “That’s because I knew it was important symbolically. The Government knows that with a fast-growing population, it is a cost not a benefit to a council.”

It is that pragmatism that saw many of New Zealand’s top CEOs in the New Zealand Herald’s Mood of the Boardroom survey — held before the mayoral election — agree that Goff’s connectivity to Wellington is a capability that will help things get done.

But will a portion of $1 billion be enough to break the logjam when it comes to housing Aucklanders?

Stephen Selwood, chief executive of Infrastructure New Zealand, thinks that even if Auckland were to get the entire $1 billion, it would only make a small dent in the infrastructure funding deficit. “New Zealand has a legacy of investing too little too late,” he says. “Even though investment has increased significantly in recent years, it is not keeping pace with growth. The reality is that we need to increase investment with urgency and consolidate growth by lead investment in infrastructure.

“This would enable us to develop residential and commercial development at scale integrated with transport investment and make maximum use of limited dollars.”

Selwood says the current plans allow growth everywhere. The infrastructure providers, especially transport providers, can’t keep up, even if they had the budgets to do so.

Goff agrees that even the entire infrastructure fund wouldn’t be enough for Auckland — let alone being spread around all five centres it is being offered to.

The Auckland Transport Alignment Project, presented in September by outgoing Mayor Len Brown and Minister of Transport Simon Bridges, revealed an extra $4 billion must be found over the next decade to fund transportation projects.

“That means we have to find $400 million a year extra to fund even a modest growth in infrastructure that will only slow — and not reverse — the level of congestion,” says Goff.

He is considering alternative funding tools to supplement above and beyond the housing infrastructure fund, one of which is the adoption of a fair level of user-pays for roading infrastructure.

“I have never understood why rates should fund infrastructure, when a significant section of our population who are retired, or who hardly use the roads or public transport, are paying the same as those of us who are working our roads and transport system to death,” he says.

While there are many different mechanisms that could be used to implement a user-pays system, Goff favours a fuel tax for its simplicity to implement. “A 10 per cent fuel tax would probably provide about $150 million per year. I have been a convert to user pays for quite some time — it would make a direct connection between utilisation of the roads and paying for transport infrastructure. It’s simple, cheap, easy to administer — and interim.”

The chart above, produced by Branz and Pacifecon, projects the value of all construction nationally (historic and forecast), and shows the increasing gap between projected investment in residential construction (in blue) vs infrastructure (in green).

 

Tim McCready

Auckland Mayor Phil Goff has expressed a strong desire to see “assets sustained and protected for generations to come”.

In line with this, many of his campaign policies in the lead up to the election were environmental, including protecting Auckland’s marine environment and the Waitemata Harbour, planting a million additional trees in three years, reducing the city’s waste, addressing global warming, and reducing carbon emissions from transport.

The new council may have only been in place for a couple of months, but many of these policies are already underway.

Reducing waste
Goff wants to increase the city’s recycling efforts, implementing initiatives that will work towards an aspirational goal of zero waste to landfill by 2040, set out in the Auckland Council’s Waste Management and Minimisation Plan.

Of the initiatives, one expected to pass fairly quickly is a charge on plastic bags.

“The truth of the matter is that we all know we shouldn’t use them. But we are all lazy,” says Goff.

“Unless we’re pushed, we won’t do it. We could probably cut 500 or 600 million plastic bags a year out of the waste stream in Auckland when we do it.”

Governments around the world have been taking action to ban plastic bags or charge customers for them, beginning with Bangladesh in 2002.

Even some supermarkets in Myanmar are now promoting “No Plastic Bag Day Fridays”, and instead pushing reusable and recycled bags.

California is one of the most recent regions of the world (and the first US state) to ban all retailers from handing out single-use plastic shopping bags at the checkout.

California Proposition 67 — or the “Plastic Bag Ban Veto Referendum” — was included on the ballot in the United States election last month, and passed with 52 per cent of votes.

But rather than an outright ban, a more likely model for Auckland is a plastic bag charge similar to that implemented in Britain in 2015.

British retailers with more than 250 full-time employees are required to charge 5p per plastic bag, which has resulted in a reduction of around 80 per cent.

There is an exemption on certain products (such as uncooked meat, poultry or fish), and small business in England are also exempt as the administrative burden is considered too high for them to manage.

“It’s simple,” says Goff. “Focus on your supermarkets — New World, Countdown, Pak’nSave, which already does it, as does The Warehouse.

“We would allow exemptions for meat, fish and vegetables, and encourage people to use reusable bags.”

Goff has two options for implementing charges on plastic bags.

“I can get an agreement from the supermarket chains to do it voluntarily,” he says.

“I have ready talked to both Foodstuffs and Progressive Enterprises.”

Alternatively, legislation could be passed through a local bill in Parliament.

Outgoing Prime Minister John Key was ambivalent about introducing any national policy to force a behavioural change.

But assuming New Zealand is serious about living up to its “100 per cent Pure New Zealand” tourism slogan, rolling out a policy throughout not only Auckland but the rest of the country must surely be just a matter of time.

Goff points to a 1 NEWS Colmar Brunton poll conducted last month, which found that 78 per cent of those polled thought it was a good idea to charge for plastic bags, and use the money raised to go towards reducing plastic’s impact on the environment.

“It’s a no brainer. I’ll be pushing hard on it,” says Goff.

A Million Trees programme
On the campaign trail, Goff announced an urban forestation programme for Auckland, aiming to plant a million, predominantly native, trees and shrubs across the region during his first term with council — in addition to those already being planted.

His goal is to “green our city”, offset carbon emissions, protect Auckland’s water quality by planting along rivers and coastlines, and improve our living environment.

The transformation of Te Auaunga Awa (Oakley Creek) is already underway. It is Auckland’s longest stream, and is undergoing a transformation to replace the concrete channel and underground pipes with a wider, natural flowing stream with cycle paths, walking trails — and 50,000 new trees.

Goff wants a formal plan for the Million Trees programme to be in place in autumn, in time for the start of next year’s planting season.

The programme has a budget of $1 million a year, which will fund practical support and help provide an overall strategy around which tree species to plant and where.

Local boards, schools, service and social sector groups, private entities, farmers, the Department of Conservation, New Zealand Transport Agency and developers are among the organisations which already plant trees and shrubs around the region. Council will work alongside all of these groups, and offset costs through partnerships.

“We have also got the potential to use nurseries within prisons and those used for training purposes,” Goff says. “Things are underway.”

Addressing global warming
Reducing carbon emissions from transport was a key priority on the campaign trail for Goff’s mayoral bid. Extending beyond an ambitious tree planting exercise, Goff plans to increase public transport use with non-polluting electric trains and light rail, and by building more walkways and cycleways.

“We’re more than a third of the country’s population, we have to demonstrate that we can pull our weight as well,” he says.

Interestingly, in the lead up to the byelection to appoint his Mount Roskill successor (which Labour’s Michael Wood won convincingly), Goff wouldn’t commit to paying half the $1.36 billion cost for Labour’s pledged light rail service from Mt Roskill to the CBD — instead disclosing he would negotiate hard to protect ratepayers.

“It will be carrying far more passengers than many other roads around New Zealand that are funded 100 per cent,” he said.

“We’d want to negotiate between the Labour Party position of 50 per cent funding and what would currently be paid for a road of national significance by central government, which is 100 per cent.”

Goff has said he would like to reduce the council’s 800 cars, and convert those that remain over time to electric vehicles.

Changing his own car has been something he’s quickly acted on.

“I don’t believe that council needs 800 cars, just like I didn’t believe the Mayor needed two chauffeurs and a big Holden — I have neither of those things now.”

Goff is now driving a Toyota Prius, and makes use of an electric bike.

“It’s fantastic because I can peddle up Albert St and look like I’m really fit — and it’s quicker.”

Tim McCready

Maintaining a balance between economic and social progress is a key part of investing in our country

Should businesses provide more opportunities for employees to share in their firm’s governance, and ensure communities benefit more from their profits? These ideas appeared briefly on the radar in Britain recently.

British Prime Minister Theresa May appeared to suggest employee representation on company boards may be mandated while campaigning for the Conservative leadership, and mooted the idea of lump sum payouts (thought to be up to 10,000 ($17,746) per household) to communities affected by fracking.

The commercial end of town might also reconsider hiring policies.

Much resentment arises from a sense that upward mobility is limited for the working class. A significant driver of this is the growing norm that a university degree is essential to gain a corporate job. In the past, aspirational individuals from low income backgrounds could pursue an apprenticeship at prestigious firms in financial, administrative, or legal areas. Now they cannot without taking on three years (or more) of university fees and foregone income.

EY have already removed their GPA-threshold for screening university graduates in the UK, stating their research had “found no evidence to conclude that previous success in higher education correlated with future success in subsequent professional qualifications undertaken.”

It would also be helpful — though, granted, high risk — for some businesses to enter the political sphere when it comes to issues that affect their bottom line and, in turn, their workers. Being willing to more staunchly defend out-sourcing and its benefits — both to foreign workers and domestic consumers — would be helpful. Radio silence on globalisation implies shame about globalisation, and allows its opponents to steal the narrative.

This isn’t limited to the Trans-Pacific Partnership (TPP) debate.

Before New Zealand signed the much lauded China free trade agreement in 2008, protests were held up and down New Zealand, with claims that “so-called free trade with China has cost tens of thousands of skilled jobs in New Zealand manufacturing industries” and “under such an FTA the negative impacts will be felt by working New Zealanders and their families while the profits of transnational corporations will soar”.

The outcome was benign.

New Zealand’s trade relationship with China has nearly tripled over the past decade. Two-way trade has risen from $8.2 billion in the year ended June 2007 (the year before the free trade agreement was signed), to $23 billion in the June 2016 year.

At Apec last month, New Zealand and China announced they will upgrade the historic agreement to ensure it remains one of the highest standard agreements ever negotiated — particularly now that e-commerce has become increasingly significant for bilateral trade.

Like the Trans-Pacific Partnership, this deal received much support within the business community. Yet most businesses remain silent on why they think it is good for New Zealand. Some will argue it is for selfish reasons — that it allows the rich to get richer — but these arguments will be levelled by opponents regardless.

And very few business leaders actually made the argument for why the TPP could benefit their workers, New Zealand consumers, and citizens overseas (who, yes, are deserving of our consideration).

This will become more important as the negotiation of the Regional Comprehensive Economic Partnership (an Asia-Pacific agreement that includes China instead of the US alongside a range of other countries), gathers momentum after the breakdown of TPP.

Opposition may become vehement, with widespread public scepticism of Chinese trade potentially dwarfing that of the US, making the political cost of New Zealand’s participation high. Unless the success story of the China free trade agreement is told — and not just by politicians — our participation in this key part of the region’s future trade architecture may be hindered.

It may also be prudent for businesses to bear the costs of retraining when jobs are displaced.

Maintaining a balance between economic and social progress is a key part of investing in the future. Building strategies to invest in society will create better, brighter and stronger communities. What’s more, an investment in social change is difficult to reverse — once it takes root, it can only grow.

It is more important now than ever that New Zealand’s top businesses take a serious role in this, and consider whether certain protection measures are necessary to minimise disruption. What these companies say and do could ultimately help — or hinder — New Zealand’s ability to solve those issues that will impact the future of the country.

Tim McCready

We fear our children won’t own homes, say the nation’s business leaders. Housing is one of the biggest issues in New Zealand at the moment — that was the response from CEOs in this year’s Mood of the Boardroom survey.

Cathy Quinn, chair of law firm Minter Ellison Rudd Watts, says “New Zealand is a comparatively good place in the world and our economy is doing well. But like many New Zealanders, I worry about housing affordability in Auckland for our staff and our children.”

When asked whether the Government should be doing more to dampen house price inflation, 70 per cent of CEOs agreed, while 18 per cent think the Government is doing enough, and 12 per cent are unsure.

Chris Gudgeon, chief executive of Kiwi Property, says the Government has been “lazy, naive, and negligent”.

He thinks it has lost sight of the crucial societal role that affordable housing plays.

“The Government has allowed housing to move from becoming a social good (when affordable) to a tax-effective investment that has only served to enrich investors at the expense of the next generation of talent we need to retain and attract,” he says.

The Government’s refusal to use both the demand lever as well as the supply lever has exacerbated the problem, Gudgeon says.

“The continued labelling of the problem as purely a supply issue is disingenuous, and blaming the Reserve Bank and Auckland Council is pure politics.

“Government should be imposing restrictions on non-resident investors until supply issue is resolved, and imposing a stamp duty on domestic investors to raise revenue to fund the infrastructure investment needed to support new supply and to disincentivise speculation,” he says.

The boss of one of New Zealand’s major banks thinks that “the Government has been far too hands-off around Auckland housing and the stresses and strains that the city’s infrastructure is under”.

Deloitte CEO Thomas Pippos says “while it is healthy for asset values like property to increase over time, the rate of recent change is unhelpful on a number of fronts, including exacerbating wealth and income disparity that will continue to raise challenges”.

Independent director Dame Alison Paterson says all the initiatives announced are worthwhile, however they take too long to have an impact. “While the incentives are to invest for capital gain and not in productive industries, the position will not change.”

Another CEO suggested: “Get Nick Smith off the (housing) portfolio. The man is clueless and disinterested.”

Although most CEOs agree the Government must step up and do something to curb housing inflation, there is considerable debate over what that action should be, and an appreciation that perhaps there is no silver bullet.

“This is clearly not an easy issue to fix — otherwise it would have been done,” says Quinn. “Collapsing the housing market and having people lose their equity does not seem right.”

Pippos cautions that “what is unhelpful is that property will become even more of a political football that may result in populous measures rather than those that are effective in the long run.”

The chief executive of an Auckland law firm says “we need to assess what has and hasn’t been effective elsewhere. Australia has massive taxes and stamp duties, but rather than blindly follow we need to assess and tailor make something sensible”.

Many CEOs see housing as a personal issue. Not necessarily because of the effects it will have on them, but because it will affect the ability of their children or grandchildren to own property in Auckland. Just over 70 per cent of those surveyed are concerned that the New Zealand “dream” of owning property is becoming out of reach for younger generations, and 73 per cent are concerned that younger New Zealanders are being priced out of the Auckland residential property market.

“I think it is really sad to see so many young people — many of whom are well-educated and in good jobs — that don’t believe they will ever be able to afford their own home,” says one CEO.

Though only a third of those surveyed worry that the Auckland property market will stall, there is concern that any fall in property prices will most severely impact first-home buyers who are more at risk of falling into negative equity.

“I wouldn’t want to see my house value deliberately dropped by 20 per cent, but it’s not me that would hurt,” says one CEO. “It’s my niece, for example, who just climbed on to the property ladder with an ‘affordable’ first home in Avondale.”

Though CEOs think that the lack of supply is the most significant contributor to the rapid increase in Auckland house prices, the majority of those surveyed agree increased net migration, low interest rates, domestic speculation, foreign investment, and the absence of a full capital gains tax are all important factors.

Finding solutions
NZ Council for Infrastructure Development CEO Stephen Selwood thinks the Government should assist development by aggregating land and providing development opportunities to the market. “This will deliver subdivisions at scale adjacent to transport services,” he says.

The head of a real estate company thinks the supply of homes is the fundamental issue, and is not convinced that any new bans, taxes, or regulation will provide a solution. “The biggest issue is a lack of supply. All other issues add to the situation, but not as significantly as supply.

“We need to encourage developers and investors (both local and foreign) to acquire land and redevelopment projects and get on with building homes and apartments,” he says.

“Taxing residential investors and imposing LVR restrictions just discourages them from increasing supply to the rental market — this simply diminishes supply further and pushes rents upwards,” says the real estate boss. “Fix the supply issue and the value equation will begin to balance out.”

Beca chief executive Greg Lowe, says “empty houses owned by people who don’t want to either live in them or provide rental homes, or are being held by short-term speculators (if the reports are correct), creates an unhelpful distortion of demand”.

Although house price inflation is a supply issue, Mazda NZ’s Andrew Clearwater says the real issue is a lack of skilled tradespeople. “There needs to be a curb on foreign investment where it is at the expense of first time buyers.”

Lowe agrees, believing more skilled labour is needed in New Zealand — skilled migration will help meet this need, and also add to growth in domestic demand.”

The boss of an agricultural company says until supply catches up with demand, the Government needs to implement fairly drastic action in terms of immigration. “It needs to be Government-led, as immigration is a national choice, but Auckland is wearing most of the consequences.”

Other CEOs agree New Zealand needs much lower and far more targeted immigration — “we need a smaller number of highly skilled migrants.”

Auckland Chamber of Commerce chief executive Michael Barnett says: “We need to address the foreign buyer advantage.”

The chairman of an investment management firm says there should be no sales of existing homes to foreigners, and an energy company chief executive says the Government must contemplate new building rules for overseas buyers.

“I support a Government housing programme, but only for permanent residents who take up occupation and do not use the property for investment purposes,” says a real estate boss.

Are taxes the answer?
The Government has notably avoided an effective capital gains tax, instead implementing the two-year “bright line” test. Whether capital gains and other taxes should be implemented remains a contentious issue, with CEOs unsure whether it will make a difference.

The boss of a real estate company says “if we look overseas to countries that have capital gains tax, house prices have continued to increase”.

On the other hand, a manufacturing chief executive thinks “a capital gains tax is needed now on property other than the family home. Shifting speculative property investment into investment in productive capital markets would be a better economic outcome.”

Don Brash, chairman of ICBC (NZ), says if metropolitan urban limits were scrapped, and infrastructure on the fringe of major cities appropriately funded, local authorities wouldn’t have to do much else. “Bill English understands this, and so does Phil Twyford”.

Yet most chief executives believe the solution to the housing crisis shouldn’t be the sole responsibility of the Government, and that local authorities need to step up and take action. Just over 80 per cent of those surveyed think local authorities should establish satellite towns or cities to service major metropolitan areas, and 57 per cent think local authorities should apply a substantial differential rate to “banked land”‘ to incentivise owners to make it available for housing.

Port of Tauranga CEO Mark Cairns says “unoccupied land tax seems to be a no-brainer”.

Lowe says that there is plenty of land already in Auckland, but housing density is too low for the current and expected population.

“We waste the land we have on inefficient and unnecessary section sizes. Urban intensification, particularly around transport and retail hubs, has been a common solution overseas and provides for more efficient use of land that still allows a good urban lifestyle,” he says.

The head of a government agency agrees: “We must embrace intensification, and tackle the Nimbys in the leafy suburbs of Auckland.”

Another CEO suggests: “Build along the Auckland rail corridor. This will allow at least part of the growth to not impact on the roading network if rail continues to improve.”

Yet most CEOs agree that any intensification should not be at the expense of Auckland’s green space.

“I agree with selling off golf courses, but would not like to see all green areas gone,” says a real estate chief executive.

“We must not compromise the desired quality of life that Aucklanders are after, including parks and golf courses.”

CEO solutions:

• 81 per cent want to see satellite cities/towns established to service major metropolitan areas
• 39 per cent find it more difficult to attract staff to relocate to Auckland
• 70 per cent believe Govt should do more to dampen house price inflation in NZ
• 70 per cent are concerned the NZ dream of owning your own house is becoming out of reach for younger generations
• 62 per cent are not concerned the Auckland housing market will stall