Nick Smith’s Gambit
Last night, Nick Smith announced he was reforming the parts of the RMA that property developers don’t like. According to developers, this will make new homes cheaper.
How much cheaper? Treasury did a bit of work on this by asking some developers how much the RMA regulations cost them. The developers estimated around $15,000 per house or around $30,000 per apartment.
Not even Nick Smith is talking about getting rid of environmental regulations entirely. So if the current cost is $15,000-$30,000, what is the new cost? Nobody seems to have a figure for that—not even Nick Smith in his speech last night.
Let’s be generous here. Assume (1) the developers are being completely honest about what the RMA is costing them and are not exaggerating at all. Also, assume that (2) Nick Smith can cut the RMA compliance costs completely in half. That’s a huge ask, but let’s assume he can do it. Then we will have, wait for it, a $7,500-$15,000 one-time reduction in the cost of building a new house or apartment.
Let’s be even more generous. Assume that (3) through completely frictionless, perfectly competitive market forces, that saving automatically translates into a one-off reduction in the sale price of absolutely all the other properties in Auckland. (Yes, it is a ludicrous assumption, but hear me out.)
Even if those three heroic assumptions come to pass, Auckland house prices would drop (once you average out houses and apartments) by about $10,000, one-off. This would make Auckland’s “severely unaffordable” score of 8.2 in the Demographia survey drop amazingly to a “severely affordable” 8.06. I will post separately on the shortcomings of the Demographia survey itself. Whoop-de-fricken-do.
Any progress is good, of course, but pretending RMA reform is a main solution is, as you see above, laughable.
This is a drop in the ocean for housing affordability, especially in Auckland, and may come at significant environmental cost.
The problem of housing affordability is caused by two things: not enough wages and not enough homes. Bill English has made his views pretty clear this week on not raising wages, and National has consistently opposed building more homes.
This problem isn’t going away while this lot is in charge.