Don spoke to the Auckland ACT Conference on the real and present dangers to housing affordability and property rights.
Mr Chairman, ladies and gentlemen,
I’ve returned to political life out of a deep concern for the future of our country. I’m concerned that the country I leave to my children is not only far from what it could be, but faces serious threats to its continued existence.
Anyone who doubts that should consider the following facts:
We have not managed to export more than we’ve imported in any year since 1973. We now find our net indebtedness to other countries is some 90 percent of GDP. Although most of that debt is owed by the private sector, not the government, in total that level of net indebtedness is comparable to that of Portugal, Ireland, Greece and Spain. With the competitiveness of our own economy eroded, we consume too much, produce too little, and now we’re deeply in debt to the rest of the world.
Aside from some brief surges caused by favourable commodity prices, artificial stimulus by irresponsible governments, and the very sound reforms of the 1980s and early 1990s, we’ve been the poorest performing developed economy for most of my lifetime. A few decades ago Australians earned the same as we do. Today, they earn 35 percent more.
We have a higher percentage of our population living overseas than any other country except Ireland.
A quarter of our tertiary graduates now live overseas.
We have lost a net 280,000 people to Australia alone in the past decade, and on current trends we’ll lose another 410,000 by 2025.
Making matters worse is the fact that every time a New Zealander leaves our shores, there’s one less person to socialise with, do business with, and learn from.
Each departure increases the incentive for one more person to leave, and so it goes on.
As a nation, we are experiencing a long slow emergency. As collapses go, our decline is comfortable and scenic. But we should be under no illusion: if we continue down this track, New Zealand will gradually become a backwater, delivering an ever poorer environment for everybody. Our children will grow up cheering for the Wallabies.
That’s why I’ve come back to politics. We must start putting things right, because New Zealand’s worth it.
Sadly, I don’t believe that my old party has what it takes to make this change. The faith I once had has been destroyed by the National Party’s extreme timidity in the face of this crisis. The only way that National will commit to turning New Zealand around is if they are nudged to do so by a forward-looking partner.
That partner must be ACT. ACT must have a strong presence in the next Parliament to give them a strong nudge.
Three weeks ago, I gave the first of a series of speeches on what ACT would offer as a partner for a National-led government.
In that speech, I outlined ACT’s principles. I said that we’re not worried about left or right, but rather wish to take New Zealand up to a place where we are freer, more creative, more tolerant and more prosperous. I argued we must abandon the paradigm of stifling taxation, regulation, and political correctness, in favour of a New Zealand that empowers each and every one of its citizens for a brighter future: a better life through less government.
Two weeks ago in Wellington, I gave the first example of those principles in action. My speech on education argued that we must encourage choice and creativity in that all-important sector. We must have funding following the child so parents can choose the school that’s best for their children. We must give principals more autonomy, and both principals and teachers more reward for serving their communities better.
Just over one week ago, I gave a speech outlining the kind of economic policy ACT would promote to lift the living standards of all New Zealanders.
And today, in this magnificently refurbished building, I want to elaborate on one aspect of our policy on lifting living standards, namely the crucial importance of restoring a respect for property rights.
Ladies and gentlemen, New Zealand must again be a place where the young can hope to own their own home without incurring a debt that will hold them back for life.
New Zealand must again be a place where farmers can use the land they own without the stifling interference of plans, planners, and bureaucracy, subject only of course to a respect for the property of others.
New Zealand must again be a place where businesses can grow and expand without concern that their use of land will bring with it intolerable regulatory burdens.
What ties all of these quests together is a lost regard for property rights.
Property rights are the basis of any modern society. Ownership of a piece of land puts upon the owner both the freedom to use it for new and better purposes, and the responsibility to bear the losses of using it badly.
This balanced freedom and responsibility gives rise to experimentation. You may wish to open a factory, someone else may wish to build a house. I happen to have a piece of land on which I choose to grow kiwifruit. The beauty of private property is that we can all pursue our different goals on land we own.
Would that that were the case in New Zealand today!
Property rights are not a strongly recognised part of the New Zealand tradition, even though housing is. Compared to many others, our culture is generally quite relaxed about land ownership. Into the vacuum of this relaxed attitude has come an insidious, creeping, collectivism, where property owners are told “this land is not your land.”
It’s been said that those who like public policy and sausages should not watch the making of either. The Resource Management Act is a case in point.
This legislation was intended to streamline land use development, improve outcomes based on rational principles and improve productivity in New Zealand. In its effect, it’s done the exact opposite — hampered our productivity and eroded the whole purpose of property rights. The RMA legislation contains the word “restriction” 61 times and the words “property right” once, and then only in reference to another piece of legislation.
The ownership of property now confers the freedom to use it as the owner sees fit only within narrow constraints set out by people who don’t bear the cost of those constraints. Increasingly decisions at the local level are being made by those with a commitment to vague new-age planning philosophies rather than rational environmental outcomes.
Property owners now find themselves required to comply in the first instance with district and regional plans that constrain what they can do on their land.
Even when proposed activities are deemed “permitted”, property owners find they must go through often arduous approval processes that delay their plans and add huge and unnecessary costs for no environmental benefit.
Consider the case of a farmer I visited several months ago near Wellsford. To build a hay-barn on his own farm cost him $13,000, but he had to pay an additional $5,000 to get the necessary consents to build the hay-barn! One would hope that’s an extreme case.
On the contrary, I can assure you it’s only one of many examples I’ve seen in recent weeks. How on Earth have we come to a place where a farmer building a hay-barn on his own farm has to ask permission of anybody to do so?
That $5,000 cost creates no value. On the contrary, it actually destroys value, and property owners pay twice: once in delays, stress, and anxiety about developing their property; and again when they are made to pay for the costs of that same interference, in fees and taxes.
The situation is worse where activities are deemed ‘discretionary’ or ‘non-complying’, in which case the hurdles can be made even higher by requiring notification. Property owners then find that their use of land is not only subject to the not inconsiderable market forces of the modern economy, but also to further constraints by neighbours or interest groups who bear no cost themselves but can impose considerable additional costs and delays on property owners contemplating a development.
“Greenmail” is sometimes a real cost in these situations. An environmental lawyer tells me of a neighbour who demanded, and received, $10,000 to support a consent application for a garage. And the garage was nowhere near the neighbour’s property.
I believe that the single biggest hurdle facing New Zealand’s economic future is this creeping erosion of property rights.
For the rest of this speech, I’d like to focus on one particular area where regulatory overkill and a flagrant disregard for property rights are kneecapping our society.
New Zealand is a sparsely populated country with once-high rates of home ownership. Only an estimated 0.7 percent of our total land area is urbanised. One might be forgiven for thinking that plentiful land for building would be one of our advantages.
But one would be wrong about that! Today we have some of the most unaffordable housing in the English-speaking world. Comparing New Zealand with other English-speaking countries — Australia, Canada, Ireland, the United Kingdom, and the United States — only Australia has worse housing affordability than we do, when house prices are compared to incomes.
Once upon a time, people came here from Britain with the promise of being land owners. Today, New Zealanders would find housing more affordable if they left here for there.
Relative to incomes, the price of housing has doubled since the late 1980s, or, as a keen observer might notice, since the introduction of the Resource Management Act in 1991.
As a result, our culture of home ownership is eroding in New Zealand. In 1936, half of us owned our homes. In 1986, we achieved an admirable home ownership rate of 75 percent, or three quarters. The percentage of people owning their own homes has fallen at every consecutive census since. By 2006 that rate was down to two thirds. It seems very likely that rising prices have led to the decline in home ownership.
The evidence from the Centre for Housing Research is that it is those most sensitive to rising prices that are being squeezed out first. It is young New Zealanders, low income New Zealanders, and single parent households who are being squeezed out of home ownership first.
The apologists for the status quo have come up with a plethora of half-baked excuses for this sorry state of affairs.
Some say it’s the absence of a capital gains tax in New Zealand which has caused the huge increase in our house prices. But Australia has a capital gains tax, and house prices there have risen even more sharply, relative to incomes, than they have in New Zealand. The United States has a capital gains tax and, within the US, submarkets such as California have had much more inflated housing bubbles than ours.
Others say that younger New Zealanders simply don’t wish to own houses. This can’t be true either. Those who do manage to buy houses are paying more than ever.
Others would have it that cheap credit is fueling a speculative bubble. Once again, this is incorrect. New Zealand has generally had some of the highest interest rates in the developed world.
More importantly, if there is a speculative bubble, it can only be based on scarcity. You don’t get speculative bubbles in items where supply can readily be increased.
Still others argue that house price increases have been driven by increases in building costs. They are partially correct. Building costs rose by 60 percent between 1999 and 2010.
And it’s this huge increase in section prices which deserves an explanation.
As a result of over-inflated house prices, we are creating a society of haves and have-nots. The haves own their own homes and find themselves with healthy nest eggs; the have-nots face a seemingly insurmountable barrier between themselves and inclusion in a property-owning society.
Equity is the big loser, both within generations and between them. It is younger generations who are hit hardest, unless of course they have wealthy relatives who can help fund them into the property market.
We borrow money offshore to bid against each other for overpriced houses, paying interest on those loans, then attempt to compete against those who have lent us the money. As another former Reserve Bank economist, Rodney Dickens, has put it: “How can a small, export oriented country facing huge disadvantages because it is half a world away from some of its major markets be competitive when housing costs 30-43% more than in the U.S.?”
Affordable housing, or the lack of it, has also been linked to migration. Because it is one area where Australia too has a serious problem, affordable housing could be a game changer for our challenge of getting our citizens back.
All of this leaves us with quite a puzzle. We don’t have any obvious shortage of land — as I’ve mentioned, the urbanised part of New Zealand covers only about 0.7 percent of our land area — but increases in section prices have driven houses out of reach of more and more New Zealanders.
The answer lies in the proposition I laid out earlier. There’s absolutely no shortage of land, but the myriad of constraints placed on its use has strangled the supply of land available for people to build their lives and homes.
Take the example of Auckland’s Metropolitan Urban Limit. According to research by respected economist Arthur Grimes — now the chairman of the Reserve Bank — this limit has made land immediately inside the MUL between eight and 13 times more expensive than land immediately outside. In their wisdom, the planners in Auckland have said to outside property owners, “this land is not your land, what you can do on it depends entirely upon the purpose we deem for it.” The result is that land inside the MUL upon which people can build homes is limited, and homebuyers pay the premium.
Even within this area, there are multiple constraints on what can be built. Over much of the city there is a three storey height limit.
The new planning theory in Auckland is ‘densification.’ Providing for subdivisions suitable for families is actively discouraged with the expectation that more and more people will live like students in tower-blocks.
But prescriptive policies of any sort are doomed to be a costly failure in a complex society. The international evidence is now crystal clear that prescriptive, long-term land-use planning that supplants the basic right of land owners to use their property as they see fit always and everywhere pushes up the price of housing.
The reasons are not difficult to grasp. Planners speak of the kind of city they wish to create, yet planners don’t create cities. Families, businesses, and developers create cities. The only tool that planners have is the ability to define where certain types of development will not be allowed. Their only hope is that the cities they dream of will emerge in the spaces remaining.
The problem is that if they wish to shape a city using restrictions on development, then their restrictions will only have effect if they restrict exactly the types of development that people would otherwise wish to undertake!
The net result of the kind of comprehensive land-use planning that we are seeing in Auckland, for example, can therefore only come to pass if the range of development opportunities is restricted. Small wonder that house prices, and land prices in particular, have shot through the roof in the era of the RMA and comprehensive land-use planning.
All of this identifying the problem is well and good, but what exactly would ACT do about it?
ACT wants affordable housing to again become a reality for all New Zealanders. We want to ensure that cities grow according to the wants of people rather than dreams of planners.
We would reverse the notion that people can use their property only in accordance with local government plans. Instead, we believe that central and local governments should respect the wishes of property owners. ACT wants the law to provide that, provided baseline environmental conditions are met, any activity would be permitted. And these baseline conditions would relate solely to rational requirements, such as geo-technical reports in cases of possible ground instability.
Actually, the ACT party has already had several modest policy wins in this area.
The RMA reform undertaken by the current government was a part of the ACT Party’s Confidence and Supply Agreement.
The Productivity Commission was also established under that same Confidence and Supply Agreement, and has made housing affordability its first priority.
As the Minister for Regulatory Reform, Rodney Hide has introduced a Regulatory Responsibility Bill which would put the onus back on lawmakers to justify regulations that impinge on property rights, and reduce the burden faced by property owners.
Rodney Hide has recently been lauded in Local Government New Zealand’s magazine for the effort he has made in streamlining local government procedures in his role as the Minister for Local Government. But there is still much work to do.
In a recent speech, National’s Nick Smith said that he doesn’t want to change the fundamental balance of the RMA. ACT disagrees: we want to put the rights of property owners more firmly on the agenda.
My proposition to voters is that a party vote for ACT this election is a vote for stronger property rights. It’s a vote for a party in Parliament that will put property rights high on the agenda.
It’s a vote for a party that says “this land is your land.” It’s a vote for a party that will shift the pendulum from the property-right-denying paradigm we currently have to one where we begin with the presumption that people can do what they like on their own land absent a physical threat to the property of others.
Ultimately we would like to achieve that through an amendment to the Bill of Rights Act. That Act currently lacks any reference to property rights.
It guarantees New Zealanders freedom of thought, religion, peaceful assembly, and movement, as well as the right to justice and the right to vote — but not the right to own and use property.
ACT would push to amend the Bill of Rights Act to protect the right to own and use property as the owner sees fit absent a physical threat to others or the property of others.
Governments would still be able to interfere with property rights, but they would have to show a good public interest reason to do so, and the question of compensation would have to be acknowledged and addressed.
The immediate result would be that much of the current planning apparatus that tightly restricts land supply would become void.
The shift to a property rights paradigm would be a very significant one for our current legislative framework. But it would arguably be the single most important thing that New Zealand could do to reverse its economic decline.
It would open up the supply of housing, making it affordable for all New Zealanders once again.
It would free our farmers from stifling regulatory burden.
It would free our businesses from much of the regulatory burden they now face.
It would be another illustration of how you would have a better life through less government.
Ladies and gentlemen, thank you, and please remember: a party vote for ACT is a vote for property rights.
Morrison, P.S. (2008) ‘On the Falling Rate of Home Ownership in New Zealand.’ p6 Centre for Housing Research Aotearoa New Zealand, Wellington.
Dickens, R (2010) ‘Housing Affordability —Is a solution waiting in the wings?’ p2 Strategic Risk Analysis Ltd.
Dickens, R (2010) ‘Housing Affordability —Is a solution in the wings?’ p2 Strategic Risk Analysis Ltd.
ACT Auckland Regional Conference 2011.
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