Tag Archives: economy

What is “Affordable Housing?”

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Affordable Housing – Just What Is It?

 

As the Affordable Housing debate continues (to pretty much go around in circles (enough to make you dizzy)) a question came to mind; “What is exactly affordable housing?” For those like myself who keep an eye on main indicator (which irony would have it, it is of those from the Centre-Right that follow the indicator while those of the Centre-Left do not) from Professor Wendell Cox‘s Demographia website, housing affordability is defined as:

 

The Demographia International Housing Affordability Survey employs the “Median Multiple” (median house price divided by gross [before tax] annual median household income) to rate housing affordability (Table ES-1).

Table ES-1
Demographia Housing Affordability Rating Categories
Rating Median Multiple

  • Affordable 3.0 & Under
  • Moderately Unaffordable 3.1 to 4.0
  • Seriously Unaffordable 4.1 to 5.0
  • Severely Unaffordable 5.1 & Over

 

Now according to that same document, Auckland sits at (as of 2011) 6.4 with the National median multiple at 5.2. So basically just using the Demographia Housing Affordability Rating, Auckland is pretty much a joke when it comes to housing affordability. Irony would have it, it was these exact figures that I used to raise the housing affordability issue this time last year in my submission to the Auckland Plan – along with ideas on how to get that median multiple rating back towards 3.0. How far we have come in 12 months – not, with the rating most likely not hitting 6.5 if not 6.8 by now rather than say 5.0 as a mark for progress. Now if medians confuzzle you I’ll present it some dollar figures for you.

The median wage in New Zealand is $50,000 a year for a person working 40 hours a week, 48 weeks in a year. On that if you have a working couple working full-time at the same rates it means the household income stands at $100,000 year. If we follow Demographia and their Housing Affordability Rating methodology, based on a median combined wage of $100,000 for a working couple then the median house price should around the $300,ooo mark. However if the NZ Herald is to be believed with this PDF today, the average asking price is at $611,000 which on that figure alone means (if we were to use it) asking prices for Auckland houses is double where it should in reality be. Hence Demographia rates Auckland as of 2011 at 6.4. So in short, housing affordability in Auckland – YEAH RIGHT!

To use myself and Rebekka as an example (as I did in the Auckland Plan hearings); we purchased our first home by choice in the suburb of our choice called Papakura for $283,000. It is a three bedroom ex-army house that needed a bit of work but at least it does not leak like modern houses have done… At the time of purchase with our combined income, the Demographia rating was at 4.0 (so moderately unaffordable). It meant some financial stress and a tight budget for a while but now eleven months later and with some overtime, renovations and landscaping (which are ongoing); we are well ahead of the mortgage and the Demographia rating is now around 2.8-3.0. The house itself if we were to put it on the market with some slick marketing could mostly get away with an asking price of $350,000. So Rebekka and I were extremely lucky if we were to just be using the figures used so above which most people and institutions do. However as was raised by a counterpart at the Civic Forum; there is more than Demographia’s figures, asking prices and income when it comes to housing affordability.

 

And this is where the question is raised and I am going to ask. Just what is “Housing Affordability?” I have given the primary method or rather explanation used with one housing aspect of housing affordability. However there are and in my opinion on pondering about it two other legitimate aspects that should be looked at as well:

  1. Mortgage or rent payments verses total income
  2. Costs of amenities and transport

 

Mortgage or rent payments verses total income

The mortgage or rent payments verses total income method for housing affordability measurement is used by the Reserve Bank of New Zealand and some statisticians. As a rule; no more than a third of the household’s total income should be used for mortgage or rent payments. In fact the Demographia system used above can be applied to mortgage and rent payments verses income as well. Auckland I think currently if we were to use Demographia is around the 50-67% mark which means 5.0-6.7 so severely unaffordable despite low-interest rates (which Demographia point out is not that useful in this case). And where do Rebekka and I sit as again another example with the mortgage verses income:

  • Renting versus our income: 35%
  • When we first took the mortgage: 40%
  • As of when I wrote this post using standard payments (so no extra money dumped into the mortgage): 20%
  • As of when I wrote this post using standard plus extra payments: 13-18%

 

So again Rebekka and I are extremely lucky as we pay the mortgage down (although we have had a few capital expenses) at maximum speed.

 

Cost of amenities and transport

Now this where the question of housing affordability raised at the Civic Forum was raised. Income verses House Purchase Price, and income verses rent or mortgage repayments are measures mainly used to gauge for housing affordability in Auckland. But what is not often measured at great length and was legitimately raised at the Civic Forum is the cost of amenities and transport. Basically you might have your house that you rent or have purchased and you can afford the payments pretty well. But what can chew your income and even quality of life is: the cost of transport to get to work, schools, shops, recreation and family; access to transport (bit of a bugger if you are nowhere near a public transport node and forced to use your car to travel); access to your local town centre with its community facilities (similar to the transport situation if you can not access your local town centre or even a major hub like Manukau); access to passive recreation (parks or even the beach).

So in this case we are looking at things that are non monetary as well as monetary that in all honestly affect housing affordability. You can basically say ‘how can you have an affordable house/home when you have high costs due to lack of access to basic amenities and transport to conduct your lives (in a sane manner :P ). And this is often what is forgotten in urban planning and development; we can build affordable houses per se, but they are not truly affordable when the cost of transport and access to amenities is too high.

Again using Rebekka and myself as an example; owing to who we work for, where we live,  the fact we can afford a car which gives us ready access to Papakura Town Centre and Manukau City Centre (so our local AND our major hub), and the fact we are two minutes away from rural Auckland the cost of amenities and transport does not affect us in a major way. But while it does not affect us, I damn well know it affects others and this is where we need to have the conversation.

 

The conversation on cost (or cost of access) of amenities and transport is frankly not being talked about enough when it comes to housing affordability and this conversation needs to be held more in-depth than the Civic Forum and Civic On-Line forum. It is a conversation Local Boards with their Councillors and our City Planners need to facilitate with residents, businesses, and interest groups.

My post titled: PAPAKURA SET FOR ‘LARGE’ HOUSING DEVELOPMENT illustrates an example where THIS CONVERSATION needs to be held immediately. Otherwise I am sorry but that 500 “affordable housing” development will be basically a slum area in five years (let alone it is also in my back yard literally). 

 

So let’s have this conversation today starting with Local Board facilitated town hall meetings where our Local Board, the Planners, and our Councillor (Cllr Calum Penrose in my case) are all present and having this conversation with us – the community. On second thoughts this might be running into a series of town hall meetings with the amount of material I am finding that needs to be “discussed.”

 

And for those interested in a bit of academia, here is a copy of the Demographia report into Affordable Housing.

 

 

 

Councils Spend More Than They Earn

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How Hard is it to Budget?

 

Another round of articles, another round of our Councils spending more than they are earning. I am beginning to wonder how hard is it for Councils to set a budget and try to keep revenue exceeding expense at least just once this decade? Probably the answer is: impossible with the current crop.

 

And so from TVNZ I have two articles:

Local councils keep up long stretch of deficits

Published: 12:48PM Tuesday September 11, 2012 Source: BusinessDesk

 

New Zealand‘s 11 regional councils and 68 territorial authorities spent $145 million more than they earned in the second quarter, continuing an almost unbroken run of deficits reaching back to 2007, government figures show.

Total operating income, which includes rates, investment returns, grants, subsidies and donations, regulatory income such as building consent and dog registration fees, and operating income such as admissions and service charges, rose 7% to $2.16 billion in the second quarter from the first quarter.

Operating expenditure rose about 12% to a record $2.3 billion, according to Statistics New Zealand. The figures are seasonally adjusted.

 

You can read more over at TVNZ

But OPEX expanding by 12% while Revenue rose 7%. Ok if that is not a case of LOL-FAIL then I do not what is…  But by any accounts someone (or more likely a whole lot of people) need to be sacked if expenditure outpaced income rather than the other way around – either that or a serious dose of financial literacy needs to be installed.

 

For those of us living in Auckland we have this from TVNZ:

Auckland Council spending quicker than earning

Published: 5:25PM Thursday August 30, 2012 Source: BusinessDesk

 

Auckland Council – New Zealand’s biggest local body after its amalgamation of eight of the region’s councils into one in November 2010 – widened its full-year loss as growth in expanses outpaced income.

The loss widened to $233 million in the 12 months ended June 30, from a loss of $110 million in the eight months of the previous year that the amalgamated was in existence, the council said in a statement.

Income rose 37% to $2.9 billion, with rates jumping 50% to $1.39 billion, and income from services gained 61% to $1.4 billion.

The council said the result included a $167 million charge relating to the unrealised cost of contracts to fix interest rates currently at historic lows and $83 million for asset impairment, legacy costs and provisions including weathertightness.

The council’s assets increased by $1.5 billion as a result of new acquisitions and revaluations, even as slower economic growth across the city reduced property developer contributions and vested assets.

During the previous eight months, New Zealand’s largest council began implementing the Auckland Plan, a 30 year ‘prospectus’ for the region, which includes a plan to identify stable housing, job growth, skills development and the environmental enhancement of South Auckland.

A City Centre Masterplan, Waterfront Plan and Economic Development Strategy have also been adopted.

The council signed off of its 2012-2020 long-term plan, a ten-year plan totaling $59 billion for operational and capital expenditure.

“Auckland Council is now focused on transforming our organisation and we have defined how we will continue to improve our delivery,” it said.

“Successful transformation will free up the resources needed for us to deliver on the Auckland Plan, the strategy to create the world’s most liveable city, and also deliver value for money for ratepayers.”

In October, rating agency Standard & Poor’s affirmed the council’s AA long-term and A-1 short-term issuer credit rating, with a ‘stable’ outlook.

In April, Moody’s Investors Service gave the council an Aa2 credit rating, its third-highest, with a stable outlook.

Now that is eye watering stuff all round especially the stuff I highlighted in the article in bold. Hmm rate rises account for that much folks?

But even with the hefty jump in income, we still get a damn OPEX deficit that basically just over doubled…

Something is seriously wrong with Auckland Council and its Strategy/Finance Committee which oversees the Budget (revenue and expenditure) of Auckland Council if the deficit blew out by over double!

 

I have a policy idea and a simple one at that when setting the budget:

You set your annual revenue figures first, THEN you set your expenditure figures so that (OPEX) expenditure is no more that 98% of revenue for the year. Further more any form of revenue collection should not rise more than the average of inflation and population increase combined per year – thus expenditure should still not exceed 98% of all annual revenue after the annual adjustment.

I wonder how hard that policy would be to follow?

 

But in any case 2013 would be a good time to sack councillors who endorse this spend then set income budget approach, as well as being implicit in the operating lose expanding by over double. 2013 is when we have our Local Government Elections, in which we decide if we endorse this current fiscally illiterate council or bring in a new one that is more fiscally literate.

I know for me I will be campaigning on, as well as looking at in my candidates down in Papakura on the following aspects on all things financial:

  • Finances: If my family has to live within its means then so does the civic institutions that impact on us greatly (that being Council and Government). You work out your income, then what you can spend on – NOT THE OTHER WAY AROUND as with Auckland Council
  • Basics first: One thing I learnt when I moved out from the parents’ home and struck it out in the real world (including getting married and owning our first house) is that with the limited resources you have got, you did the basics first then with anything left over you just might be able to afford a luxury. Same applies to our civic institutions; they have limited resources so get the basics right first then “treat yourself or others” to a luxury if you are able to do so once the basics are taken care of.

It is time for us to take back of Council and restore both fiscal responsibility and literacy – for a Better and Healthier Auckland

 

BEN ROSS : AUCKLAND

Shining The Light –
To a Better Auckland

Auckland 2013: YOUR CITY – YOUR CALL

 

Rates Rise Shock

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Rates Rise BEYOND the 10% Cap!

 

Seems Auckland was caught out by Council spin and forgot to read the small print when it came to the rates rises and our rates hitting our letter boxes.

From the New Zealand Herald:

35 per cent increase reveals rates plan loophole

By Wayne Thompson

Thousands of homeowners who recently made improvements to their properties have been shocked by rates rises far above the Auckland Council‘s promised 10 per cent transition cap.

The council said it was softening the blow of bringing in a single rating system based on capital (improved) value by limiting the maximum rise to 10 per cent each year for the next three years for residential and farm/lifestyle properties.

The council’s first revaluation under capital value came out last year and new valuations were used for the rates struck on July 1.

But a little-known provision of the legislation setting up the Super City council in November 2010 excluded from the benefit of the cap any residents who had changed the value of their properties.

Three North Shore homeowners who opened their rates bills on Tuesday are the first to complain to the Herald, saying their rates for 2012-13 have risen by up to 35 per cent.

Brian Swann of Silverdale said the extent of his rates rise was “unacceptable” for his new home in the Millwater subdivision.

OUCH and I mean OUCH! Councillor Cameron Brewer has just had his first hand experience when he got his rates bill in the post just recently. The Councillor got slugged with a 32.47% rate increase on his property in Ellersile. His reaction can be gauged from reading his press release over at Scoop (click the link).

 

While I get a rates decrease being down in Papakura I am somewhat nervous too. The part I highlighted in bold red is the reason why I am nervous. Okay while I get a rates decrease, that can easily flip over as we are undertaking some largish capital improvement works on our property. We have had an HRV system put in and the house retrofitted with insulation in the walls (we will be doing the floor and roof over the next two years). The house is being painted both inside and out, the kitchen is getting its bench new top, and some large-scale landscaping is under way (three raised vege beds, new edging, new plants amongst other things). All in all we are working on our property to make it our unique property as well as value to the place (as you do). But seeing some of the stuff in the Herald happening in regards to rate rises beyond the cap as I said earlier is making me nervous. Time shall tell when the property gets revalued in a few years time and my rates are reset to the new property value.

So while I am nervous my end, I am somewhat disgusted (at Auckland Council) and sympathetic to the residents who got stung beyond the 10% rate rise cap. There are going to be some gnashing of teeth and some budget reworkings in some homes to compensate for the large increase in one’s rates bill.

 

And it all seems the city got pretty duped from the small print (that loophole) that allowed rates to rise beyond the much stated 10%. Talk about someone from the Mayor’s Office playing a rather successful game of smoke and mirrors to cover the true extent of what was coming! Or as Cameron Slater from Whale Oil would say, we the ratepayer just copped one in the chook – OUCH!

 

This comment came up in one of my earlier posts on rates:

Talk is great, but we need to do something collectively. I am a middle to lower-income Orakei resident who has received a 24% increase. I, like many, have not seen a wage rise in 5 years and have been reducing expenditure in a recession.
I ask you to head a public meeting and allow us to get together where we can network and perhaps refuse collectively to pay this crazy extortion. Lens vision is out of step with the current financially realities of this recessive economy. We simply CANNOT afford this!!

I agree with the commenter here entirely. As for heading a public meeting yes I can look into this although to be perfectly honest not the best person to “lead it.” The reason being is I can not speak personally on facing a rates increase as I actually got the opposite – a decrease. However I am more than happy to facilitate and continue advocacy on behalf of other Aucklanders on the rates situation. I’ll do some asking around and see what I can do.

 

In the mean time the postie has been and my letter box is err empty. No rates bill yet and its Thursday :-/

Right time for some action on the rates issue here in Auckland. Time to let Council know what we exactly think here and what we just might do about it!

More on Rates

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You Can Tell our Rates Bills are Coming

 

 

That would be especially the case with two more articles on Rates in this morning NZ Herald.

Lets take a quick look at both shall we:

Both articles from the NZ Herald

Most Auckland firms will face big rates increases

By Bernard Orsman

5:30 AM Tuesday Jul 31, 2012

About 8000 Auckland small businesses and 1700 large businesses face rates increases of more than 10 per cent for three consecutive years. Unlike households, businesses do not have the luxury of a rates cap and have to change to the new single rating system for the Super City in equal steps over three years. Seven out of 10 small businesses and six out of 10 big businesses face a rise in rates. About 11,000 businesses across the region will get a reduction in rates.

Auckland Mayor Len Brown said that while the value of rates being paid by business was being shuffled around, the 34 per cent of total rates collected from businesses was the same as under the former councils.

For every dollar in rates paid by households, urban businesses are charged $2.63 and rural businesses $2.37. In the case of Pukekohe businesses, the council has set the differential at $2.03. This is because the former Franklin District Council did not charge a business differential and a $2.63 differential would have had a “significant and extreme” impact on those businesses, Mr Brown said.

BUSINESS RATES

* Most businesses pay $2.63 for every $1 paid by households.
* Pukekohe businesses will pay $2.03.
* The $2.63 differential will be cut by 10c every year to $1.63 after 10 years.

 

So businesses get slugged rather heavily. Not particularly helpful when trying to encourage businesses into Auckland and either create or expand employment centres like Papakura, and Manukau City Centre which sorely need our existing and new businesses.

I must have a look over the conversations I have had with people since the Long Term Plan (which has set our rates) came into force. As I am for sure the Business Differential could be around the $1.50 mark if Council could balance its books properly. So much with a Business Diff at $2.63 for Auckland being the most livable city (when we rate our businesses into oblivion).

 

 

With this next article it is a case of you win some and you lose some:

Manukau hit by 41.4% rise in wastewater costs

By Bernard Orsman

5:30 AM Tuesday Jul 31, 2012

Auckland Mayor Len Brown’s old city of Manukau – home to many of the poorest suburbs in Auckland – is being hit with a 41.4 per cent rise in wastewater charges. Combined with a 3 per cent rise in rates, that makes the 95,000 households in Manukau the biggest losers of a single rating system for the Super City with an average increase of 10.3 per cent. The move to a single charge for wastewater has resulted in significant rises and falls across the region with residents in Manukau, Waitakere and the North Shore feeling the brunt of the increases.

The big winners are residents in the old Auckland City, who have been paying wastewater charges based on use through Metrowater, a council company, since 1997 when other councils subsidised the true cost of wastewater in their rates. Auckland City wastewater charges are falling by an average of 19.6 per cent, although some low water users will pay more. Mr Brown – the former Mayor of Manukau whose political career began on the streets of Otara – yesterday denied that Manukau had subsidised wastewater through rates.

 

Thank Lord I moved from Manukau to Papakura with incoming waste-water charges going up like that. If you compare the jump in water prices to your rates bill as shown in the embed below, maybe Orakei and Councillor Brewer got a sweet deal after all – because Manukau sure did not looking at the averages.

However averages are averages. VOAKL is interested to hear how you “feel” once your rates and water bill arrives in your letter box. Did you get stung or did you in the overall scheme of things get some savings? Comment below.

As for me:

Residents in the former Papakura District Council will continue to be billed by United Water, which has provided water and wastewater services since 1997 to about 15,000 customers under a 30-year franchise agreement.

So a sweet deal through to 2027?

 

Time to review the books again folks, especially as I see the following article from The NBR: NZ families fret over fraught financial situation – survey

In Brief

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In Brief on the Incoming from Auckland Council

 

I will cover these two particular issues in-depth over the weekend, but for your Friday viewing we shall take a look In Brief two particular issues that affect Auckland – highly

 

Rates

From Stuff.co.nz

Rates bill on its way

ESTHER LAUAKI

Mayor Len Brown is defending the capital value-based rates model and asking for understanding when eastern bays residents get their bills next month. The task of amalgamating rates across eight legacy councils is complete and there will be winners and losers. Councillor Cameron Brewer says despite widespread publicity that everyone can expect rates increases averaging 3.6 per cent, most in the Orakei ward face an increase of more than twice that. Some will get a reprieve from the hefty hike but more than 28,000 households in the area will pay an average 7.67 per cent more than last year.

“I’m particularly worried about the impact on those residents who find themselves asset rich but cash poor. “In the eastern suburbs we have a lot of elderly living off very modest fixed incomes who are struggling to stay in the family home. ”These rates increases will sadly tip some over the edge,” Mr Brewer says. “For many, it could not have come at a worse time and just adds to a growing list of costs being lumped on to ratepayers. ”Last month it was user-pays rubbish. “This month the talk’s been about toll roads and fuel taxes and next month, it’s rates increases.”

Rates rises are capped at 10 per cent and 18,310 households in Orakei will pay that this year. The majority of those households actually face rates rises greater than 15 per cent. What they don’t pay this year will turn up in their rates bills over the next two years.

Mr Brewer says a higher Uniform Annual General Charge could have brought rates down for higher valued households but it was voted against. The charge is set at $350. Mr Brown says property valuation was the best option.

“When we changed rates it was tough enough, it’s never had to be done before and we’re trying to do a few things at the same time. “Properties across Auckland of a similar value and use will, over time, be charged a similar amount of rates. “I support this system because it was the least impact for the most amount of people. We explored a number of different ways to change rates and this was the fairest way. ”Every other option would have meant an increase for Orakei and this was the option that was the best.”

Mr Brewer believes it’s political that the model sees Manukau and Waitakere set to enjoy rates decreases while the eastern suburbs face massive increases.

Mr Brown says: “I’m always going to be subject to that accusation that I’m favouring one or the other but I’m going straight down the middle and I’m pretty sure we’ve done a good job.

 

I have covered this particular issue before when I was submitting and reacting to The Long Term Plan earlier this year. I will go back over my previous commentary and run full commentary on our incoming rates bills for your consumption either Sunday or Monday coming up.

In brief though, I am in opposition to The Long Term Plan thus the incoming rating scheme and rates bills to hit our mail boxes!

And to be clear, open and honest with readers on here and as I have said before; when my rates bill comes out I face a rates decrease.

 

Response to The Auckland Plan from Central Government

From   Howick and Pakuranga Times:

Argy-bargy over plan

By: MARIANNE KELLY | Thursday, 26 July 2012

CATERING for an increased population’s housing and transport needs over the next three decades is a sticking point in discussions between super-city councillors and Government ministers.

The recent annual meeting between Mayor Len Brown and Auckland councillors and Local Government Minister David Carter, along with other senior ministers, concentrated on the Government’s reaction to the 30-year Auckland Plan.

Mr Carter says the Government supports the plan’s approach in several areas, such as economic development, arts, culture and heritage, Maori development and recreation and sport.

“However, some concerns were expressed about the effectiveness and affordability of the transport strategy and proposals to address quality affordable housing in Auckland.”

The Auckland Plan, the Government response paper says, continues to emphasise a shift to public transport as the main way of addressing congestion. Public transport is expected to make up 12 per cent of peak period trips and eight per cent of daily trips in 2041.

“However, this is not enough to offset the forecast increase in demand for private vehicle travel as the population grows,” says Mr Carter.

“The Auckland Plan proposes an ambitious programme of roads and public transport projects.

“However, the modelling results show that even if these projects are implemented, congestion is forecast to increase significantly from 2021, affecting the majority of trips on the Auckland network.”

The paper says the Government does not support the plan’s estimates of $10 billion to $15b needed over the next 30 years to deliver the proposed transport programme. “Given the forecast results, and taking into account the projected growth, the Government also remains to be convinced that the programme represents the right mix of projects and provides value for money.”

It says the Government will consider the transport projects in the Auckland Plan on their merits.

“The challenging economic environment means the Government will not be in a position to support programmes or projects which do not deliver benefits to justify the cost,” says Mr Carter.

 

You can read the rest of the article by clicking the respective link.

I have managed to get a hold of a PDF copy on The Auckland Plan from the Minister of Local Government – The Hon. David Carter and will embed it down below. I will also run full independent commentary on this ready (hopefully) for Monday . But in the meantime take a look and post a comment below on your thoughts to Central Government’s reaction to The Auckland Plan.

 

So stay tuned for more commentary coming up on: The Auckland Plan and your Rates Bill – due to hit your mail box soon.

 

Response to The Auckland Plan