It will come with wider housing reform, including the two new laws to replace the Resource Management Act and reforms to the Building Act, Overseas Investment Act and tax regime for residential investors.

However, as a small country with limited private and public capital, New Zealand faces challenges in accelerating housing supply, particularly the infrastructure required to unlock new supply, of the right type, in the right locations.

In an ideal world, new development would be weighted towards brownfield rather than greenfield areas to make better use of our existing resources and infrastructure and preserve our productive land. However, growth in both areas is clearly needed given NZ is playing years of catch-up on housing supply.

There are complexities and trade-offs involved in managing brownfield and greenfield development (growing "up" and "out"). How can we ensure the housing market continues to grow "up" when there is increasing opportunity and incentive to grow "out"?

1. Infrastructure challenges – unlocking vertical housing supply by delivering the right solutions, in the right place, at the right time.

Lack of certainty about investment in urban infrastructure places a cap on development within our cities. The planned infrastructure pipeline will help give the market certainty provided the type and location of infrastructure identified (and any subsequent city deals assuming they come second) reflect where the greatest development opportunities lie.

To realise a return on infrastructure investment, the development community must be involved in shaping the pipeline. This offers many benefits, including leveraging their market understanding, technical expertise, and financial resources to inform realistic and efficient urban strategies.

Shared vision and constructive dialogue between the Crown, councils, iwi and the development community allows for the development of flexible and adaptable strategies that can respond to changing market conditions and emerging challenges. This agility is key to maintaining a robust land supply pipeline.

This approach has been successfully implemented overseas, including via shared governance models, in London (Kings Cross, Vauxhall/Battersea/Nine Elms), Barangaroo in Sydney and locally, albeit to a lesser extent (Kainga Ora large-scale projects and the Christchurch earthquake rebuild).

Who and how we pay for infrastructure is a stickier point to resolve, particularly in high growth towns and cities. The proposed shift to a user pays (or growth pays for growth model) has strong potential. However, it will have to carefully balance the amount a "user" pays (and when they start paying) with the benefit that user receives.

There are many moving parts in the housing system and land supply policy announcements have been made ahead of more detail around infrastructure funding presenting some short-term challenges.

Developers may purchase land in areas without planned infrastructure, risking underestimation of development costs, or they may hold off or shelve existing plans until there is greater certainty (negatively impacting supply when market conditions start to improve).

Alternatively, there could be challenges to the growth charges, forcing the government and councils to choose between spending to unlock housing or further restricting supply. Both are politically unappealing, as recently witnessed in Drury, where Auckland Council is looking to collect $1.1 billion off developers over the next 30 years to pay for infrastructure, but a report to the council suggests affected developers could seek a judicial review.

Embedding the true cost of infrastructure into land values ensures the financial burden of public investment is equitably shared by those who benefit directly. This approach incentivises efficient land use in most instances as the true cost of enabling greenfield development is higher. This should improve the relative attractiveness of brownfield development.

Value capture mechanisms offer councils the opportunity for direct growth into desired areas, encouraging integrated land use and infrastructure planning to support new developments with essential services and amenities. This approach works best in high-potential areas, reducing urban sprawl and enhancing livability.

Effective design of value capture mechanisms should balance cost certainty for the market with flexible application across different precincts, towns and cities. This allows for bespoke agreements between developers and councils and has been reasonably successful in redistribution of cost and benefit across high growth areas.

2. Incentivising vertical development – giving developers a reason to build up.

Rationally, if infrastructure is available (or can be made available) greenfield development (building "out") will be prioritised by developers. This is typically less complex, lower density and, in most instances, lower risk; it’s quicker to develop and less reliant on presales.

For example, in the aftermath of the Christchurch earthquakes, mass greenfield rezoning occurred in the Selwyn (Rolleston, Lincoln and Prebbleton) and Waimakariri districts (Rangiora and Kaiapoi).

There was an initial rise in prices due to housing shortage caused by red zoning of some properties and extensive repair programmes requiring short-term accommodation. However, the subsequent increase in residential land supply in neighbouring districts and several new developments in the city itself effectively kept the median sale price in the region relatively flat between 2014 and 2020.

Over the same timeframe, prices in the Auckland and Wellington regions saw significant increases.

The trade-offs
While a positive outcome in terms of affordability, it was not without trade-offs, including the loss of productive land, marginal costs of infrastructure, "hollowing out" of the city and the reliance on private vehicles and new motorways for commuting from the neighbouring districts. The primary type of housing developed was single-level standalone homes, which require the most land.

Planning, demand and development economics at the time all supported this type of development and when given the option between a three-bedroom standalone home (albeit a 25-minute drive from the city) or a two-bedroom CBD apartment for a similar price, people voted with their feet (or perhaps, more accurately, their cars).

From 2020 onwards, Christchurch has seen more densification, including a proliferation of terraced housing around the city and mid-rise apartment development in the CBD. Standalone housing has become more expensive and development economics for higher density typologies has improved (also driven by delivery of most of the CBD blueprint), meaning the balance has shifted back to a mix of both "up and out" development.

In the existing market across the country, few scale apartment developments (i.e. six storeys) are commercially feasible. The view on risk associated with these developments by financiers is high. This trend is playing out through a significant drop-off in apartment consenting and development.

There are developers specialising in apartments who will continue to build regardless of what stage of the property cycle we are in but these parties, including build-to-rent (BTR) developers, tend to be the exception. Interest rates, access to development finance, construction costs and presales, particularly for vertical development, are likely to continue to be barriers to unlocking housing growth in the short term.

Given this context, the key question is to what extent do the government and councils wish to support, or incentivise, density (building "up") through the cycle vs leaving the market to respond with density when it’s feasible?

If we assume that building "up" remains desirable in terms of the outcomes it drives, but is less attractive from a feasibility perspective through a significant part of each property cycle, what tools exist to support the vertical market?

Some examples could include:

• Continuing to leverage Crown and council land ownership to procure higher density housing, focusing on existing public housing developments, close to transport and city centres.

• Fast-track resource and building consents for higher density developments in target growth locations.

• Supporting the growth of the BTR market. BTR is attractive from a counter cyclical perspective given it’s not reliant on presales. These are scale developments that comprise long-term rental accommodation and can materially change supply dynamics in micro markets. Proposed changes to the Overseas Investment Act (OIA) to support offshore investment in, and the liquidity of the BTR market, are positive. Further changes to align the tax regime with the retirement and student accommodation sectors in NZ and offshore markets like Australia, which we are competing with for capital, would further support building "up".

• Relaxing regulations for apartment development – this is already being addressed to some extent through the removal of minimum floor areas and balcony requirements and the proposed requirement for some councils to enable more mixed-use developments.

• Government or council underwrites (availability payments) for public and affordable housing as part mixed tenure vertical developments could assist feasibility through cycles and help to address the supply of affordable and market rental accommodation. The Victorian State government in Australia recently completed a pilot for a BOT (build, own, transfer) style ground lease model based on these principles. This is another approach for leveraging Crown/council land and/or redeveloping existing estates.

• Lower the loan-to-value ratios and/or debt-to-income ratios for apartment buyers to make these typologies relatively easier to purchase than other housing typologies (this would have a compounding effect given apartments, in most instances, have a lower entry price than terrace and standalone homes). We have already come a long way in this area, noting that until as recently as 2021 some banks required a 50 per cent deposit for apartments smaller than 45 square metres.

• Consider changing to a land value rating system, which would be advantageous to apartment owners. Rates in most NZ cities are struck based on capital value – the value of the land and buildings. Because most apartment developments reflect a high ratio of homes to underlying land area, striking rates based on the value of the underlying land, rather than the value of each individual apartment, could help lower the rates burden for apartment owners as well as encourage more efficient use of land.

Structural issues
Ultimately, increasing housing supply in this cycle is likely to be more dependent on lower interest rates than on increasing land supply or funding urban infrastructure. However, we must not ignore these long-term structural issues that have plagued our housing market for decades. The government’s Going for Housing Growth initiatives, especially the land supply element, should help cap, and potentially reduce, land prices over time, which will assist affordability.

Given the scale of NZ’s housing problem, a suite of responses is needed, including incentives and regulations supporting brownfield and greenfield development, along with targeted capital investment in infrastructure. While we need both, we must decide whether to focus our finite capital more on brownfield density or new greenfield options; each of our major councils is likely to have a differing political view on what is optimal for their local market.

With cyclically high interest rates currently hindering home buyers, investors and developers, there is a risk of significant demand pressure as rates start to decrease. When the market inevitably turns, councils and developers need the right tools to provide the necessary supply response and avoid a rinse-repeat of the boom-bust cycle we are currently navigating.