New Zealand Infrastructure Commission research finds 'accelerating house prices were not inevitable'

New Zealand has experienced faster growth in house prices than any other OECD country.
New Zealand has experienced faster growth in house prices than any other OECD country. Photo credit: Getty Images

New Zealand's "prohibitively expensive" housing market could have been prevented with successful congestion-mitigation policies and less restrictive planning rules, new research has found. 

The New Zealand Infrastructure Commission's new report looks at how prices and supply have changed over 90 years from the 1930s to the 2010s, to understand why New Zealand has experienced faster growth in house prices than any other OECD country.

Despite Auckland house prices dropping for the first time in two years over the last few months, the average price is still $1.55 million, according to the latest OneRoof-Valocity House Value Index.

Of course, there are several factors at play. House prices shot up by 30 percent in 2021, sparked in part by historically low interest rates imposed by the Reserve Bank at the start of COVID-19 to stimulate the economy. But lack of housing supply is an issue that goes back decades. 

New Zealand was building at a rapid rate in the 1950s, 60s, and 70s, but it has declined continuously since then, according to Infrastructure Commission Economics Director Peter Nunns. 

"Between 2010 and 2018, we built new homes at a slower rate than population growth, and prices accelerated. The research suggests that now, when housing demand increases, we build a quarter to a third less homes than we used to." 

Nuns pointed blame at changes to urban planning and transport that started in the 1970s, which raised barriers to housing development.

"Until the 1970s, city councils actively encouraged population growth both at the fringe of the cities and in established suburbs. Cars became more affordable and urban roads were paved and improved, allowing people to travel further, faster and boosting development of new suburbs.

"Council plans facilitated infill housing prior to the 1970s but started to limit it after that point. Planning began to focus less on facilitating growth and planning infrastructure, and more on maintaining the character of existing neighbourhoods by stopping the construction of blocks of flats and apartments."

The Te Waihanga researchers noted that, when urban planning policies limit development either 'up' in the centre of the city or 'out' at the fringes, it leads to higher house prices and reduced supply over time.

"Planning rules became more restrictive and more complex over time. Central Auckland's capacity for new housing was cut in half in the early 1970s - a change that was partially reversed in the 2016 Auckland Unitary Plan."

Another major barrier to city growth was traffic congestion, the research found.  

Between 1950 and 1970, as cars became widespread and roads were improved, average travel speeds increased, allowing for more urban spread. But since the 1990s, average speeds have declined "due to rising traffic congestion and the lack of high-quality alternatives". 

The research found that travel speeds on nine arterial roads and motorways declined by an average of around 30 percent between 1986 and 2012 despite significant road widening.

"When travel speeds change, it changes the attractiveness of different locations for housing development, which can open up more opportunities to build. Urban planning and transport facilitated housing prior to the 1970s, but subsequent changes have erected barriers to housing."

The researchers concluded: "Our analysis shows that accelerating house prices were not inevitable. If we had not downzoned central Auckland in the 1970s, or if we had chosen to adopt successful congestion-mitigation policies, then housing would now be more abundant and house prices would be lower."

Is there hope for New Zealand's housing market?

The Te Waihanga researchers note that it's "ironic" councils chose to limit urban intensification at the point at which changing transport speeds were about to make urban expansion harder. 

The Resource Management Act of 1991 (RMA), for instance, introduced a planning regime where new developments had to avoid, remedy, or mitigate negative effects.

The RMA also mandated extensive public participation and consultation throughout the planning process, requiring councils to consult widely. The RMA provided the ability for people and groups to make submissions on plans and proposed plan changes, be heard at council meetings, and to appeal planning decisions to the Environment Court.

It hasn't gone unnoticed. The Government announced plans last year to replace the RMA with three new laws this parliamentary term, though the overall process will take years. The intention is to consolidate more than 100 RMA policy statements and regional district plans into about 14, simplifying national planning.

And in a rare display of bipartisanship, Labour and National in October jointly announced a law change to speed up the process of forcing councils to allow more apartment blocks throughout the biggest cities.

Tier 1 councils - Auckland, Hamilton, Tauranga, Rotorua, Wellington and Christchurch - must enable intensification in their plans by August 2022, brought forward by one year. It will allow three homes up to three storeys to be built on most sites without the need for resource consent. 

The latest building consent figures show a continuing shift towards denser dwellings, with townhouses leading the charge rising by 108 percent per annum to 1842 consents in February, the second-highest monthly total on record.

"While work is underway to reform our consenting system, it's critical that it takes on these lessons of the past," New Zealand Infrastructure Commission chief executive Ross Copland said on Monday. 

"Te Waihanga research into the last 90 years shows that unless the planning system is very specific about prioritising housing and infrastructure as core objectives, concerns about urban and natural character will continue to prevail over building the homes New Zealanders desperately need."

There is also significant investment being made in alternative transport options to try and reduce traffic congestion, particularly in Auckland. The $4.4 billion City Rail Link is expected to be finished in late 2024 and plans are in place for a $14 billion city-wide light rail project. There's also a proposal to build light rail in Wellington.

But it's clear that more needs to be done, because according to the Te Waihanga researchers, even with significant investment in transport infrastructure, current transport modelling suggests that rising traffic congestion will continue.