Dr Grimes, who contributed the arguments against Metropolitan Urban Limits, is a Senior Fellow with Motu, the Research Agency specializing in economics and public policy.

However, Dr Grimes is also Chairman of the Board of the Reserve Bank of New Zealand.

Consequently, Dr Grimes is well aware of the link between inflated house prices, excessive borrowing against bubbling assets, increasing inflation, and the consequent raising of interest rates, and the over-valuation of the New Zealand dollar. The current Chairman of the Board of the Reserve Bank was presenting his case to Don Brash, a former Governor of the Reserve Bank who is also well aware of these linkages.

At least one commentator picked up on the significance of this ‘conversation’ between two people with real life experience of the impact of real estate bubbles on the operations of the Reserve Bank.

On his Interest.co website Bernard Hickey reports:

 ‘Motu’ economist Arthur Grimes told the taskforce that Auckland’s development was at risk from being stifled by high house prices, with current policy settings around the MUL making houses more expensive.

Auckland is land-rich, Grimes said, adding that the MUL could be extended around existing infrastructure such as the Northern Motorway.

This would have the double effect of lowering Auckland house prices and creating more space for productive ‘urban’ activities not allowed outside the boundaries in rural zones.

‘Urban’ activities not allowed included setting up factories or housing, or even schools in rural zones.

(Go to the blog site and search under Grimes Urban Limits).

On one side of the bloggers’ debate are those who recognize the importance of supply and demand, and the efficiency of markets. On the other side are those who see ‘urban sprawl’ as the greatest threat to civilization and life on Earth – after climate change, of course. None of the bloggers, however, consider the impact of high compliance costs on land costs.

For example, someone in Kaiwaka in Northland, trying to create a section on which to build a house for retirement,
has to make the following payments before Council will issue the title:

·      a 5% reserve contribution estimate – say $10,000.


·      a roading development contribution – $9,795.


·      consent processing fees (just gone up) $2,500.


·      challenge to consent conditions $600.

Total Council compliance costs – say $30,000.

Then the following works must be completed prior to issue of title:

·      a double gated street crossing; estimate based on neighbour’s costs – $30,000.


         Total pre-title compliance – costs say $53,000.

Then professional fees must be paid to provide the necessary information to council.

·      Surveyors’ fees – say $6,000.


·      Planning consultancy fees – say $3,500 to $5,000.


The Council has chosen this time of recession to increase Reserve Contributions from 5% to 7.5% – a fifty percent increase. This would raise the estimated reserve contribution to $15,000.

So a new lot in the tiny town of Kaiwaka has to carry say $65,000 in compliance costs.

These costs add nothing to the value of the property. Indeed the grossly gold-plated “Panzer Division” Street Crossing will undoubtedly devalue both properties.


The end result is that a typical new lot in Kaiwaka costs $150,000 – $200,000.

In Houston, Texas, a fringe section costs US$30,000 and a 2,500 sq ft house costs $150,000 – including land.

Houston’s population of 6 million is growing at double the national average rate and its employment growth rate is second highest in the US. Houston is second to New York City in Fortune 500 headquarters. The Houston medical centre treats over five million patients a year from all around the world.

Planners hate Houston because it is guilty of sinful, unplanned, ad hoc development – actually ‘spontaneous order’.

The difference between housing costs in Kaiwaka and Houston – the planners’ penalty – pays for a lot of air tickets and moving costs.

Some Kaiwaka parents decide to create a new lot to give to their children so they can afford to buy a house. Others set out to subdivide around an existing second house to improve their security with the bank.

When they realise these compliance costs have to be paid out of hard cash, such plans grind to a rapid halt. These applicants have no plans to sell the new property, so where does the money come from? How many families have $65,000 sitting in their bank account?

Once again our young families get locked out of the housing market even when their parents want to help.

Reducing housing costs is a potent way of increasing real incomes, while reducing pressure on interest rates and the NZ dollar. The 2025 Task Force has identified the first key steps.

When will John Key act?