High house prices: a blunder of our governments

That was the title of an address I did to a group of several hundred investment management professionals in Auckland this morning.  The organisers wanted snappy titles: mine was inspired by the book, The Blunders of our Governments that I wrote about a few weeks ago.

The essence of my story is in this summary I gave them for the programme.

High and rising house prices in Auckland hog the headlines.  The tax regime and bank lending practices are largely irrelevant to what has gone on.   Instead, increasingly unaffordable house and land prices result from the collision of two, no doubt individually well-intentioned, sets of policies.  Tight restrictions on land use crimp the supply of the sort of properties most people want to live in, while very high target levels of non-citizen inward migration persistently boost demand for housing.  One or other policy might make sense, but together they represent a blunder that is enormously costly to the younger generation of Aucklanders.

I only had 20 minutes to speak, but a fuller version of my story, with a few more of i’s dotted and t’s crossed, is here.

High house prices a blunder of our governments

In a slightly intimidating approach (at least for the speaker), each presentation was rated electronically by each member of the audience as soon as it ended.  93 per cent of the audience claimed to “largely agree” with my story.  I’m sure that won’t be the general reaction, and as ever I’m interested in thoughtful comments etc.

22 thoughts on “High house prices: a blunder of our governments

  1. surely your argument about the long run experience of housing as a low risk lending area for banks is valid precisely because situations like Auckland have been such a small subset of banks’ overall experience of home lending. When the house price to household income ratio becomes as extreme as it is in Auckland the ability of households to withstand any economic shock without consequences for mortgage servicing must diminish. isn’t that precisely why it is now far riskier lending than in other parts of the country like Invercargill and should be treated as such by the regulator.
    Overall it is impossible to fault your argument about the causes of the Auckland property boom though. a fascinating article.

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    • Stephen

      Thanks

      Two brief thought in response:
      – this is where things like the RB’s stress tests are relevant. Assuming something like a 50% fall in Akld house prices, 13% unemployment etc, banks came through largely unscathed. I agree that Akld risk is probably much greater than Invercargill, at least for new debt being taken out now, and there could be a case for Akld specific risk weights – at least if the Bank could explain why it doesn’t seem to believe its own stress tests
      – the loan loss experiences I had in mind included those like Finland, Sweden and Norway in the early 90s, when house prices fell 50% (and there were pretty wrenching recessions). There were loan losses, but they were (a) not systemically threatening, and (b) very small compared with those on commercial property and property development loans.

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  2. Outstanding commentary on this issue, and one of the clearest and (apparently) least biased assessments I have read of why prices are so silly up here. Makes good points in a clear and accessible way that is quite hard to argue with.

    I have passed this on to a number of people to read. Great blog, great insights.

    Liked by 1 person

    • Yes, of course there are alternative views. I’m happy to engage on them some time, but even (say) Jacques Poot’s handbook essay on the economic gains from immigration would suggest that nothing like the sort of gains touted in the NZIER piece are on offer.

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    • Yes, but you can have immigration, and gains from immigration, without asset price bubbles. In fact I would argue one of the potential benefits of immigration is greater economies of scale in housing construction and associated infrastructure. This benefit is lost and even rendered negative by inelastic supply and intransigence of the government branches responsible for infrastructure.

      Look at Houston. Grew from 4 million to 5 million people between 2000 and 2010 without a house price problem. And it is turning into one of the world’s strongest local economies. All the cash brought in by migrants (including Californians who sold their home in CA for $1 million Plus) goes straight into REAL capital or consumption.

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  3. Supply “of the houses most people want to live in” is also crimped by design deficiencies, lack of modification and deferred maintenance of secondary market stock built in the 1960-80s. Sale price expectations are high led by actual sales of probably better presented stock. Aspiring limited resource buyers generally don’t have recourse to funds for renovation. They could be empowered by bank lending practises designed to facilitate post-acquisition improvements. Affordability can be improved and household risk reduced with demand on new houses diverted.
    Of course any such trend is only relief within your two tenants of land use regulation and non-citizen inward capital investment in housing.

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  4. Hi Michael
    Thanks for an interesting paper. The link between housing and migration in New Zealand is quite puzzling, particularly the extraordinarily strong relationship between house prices and migration flows, but also between migration and housing construction in Auckland.

    I am not convinced your arguments against the role of tax are watertight – the standard argument is that the way capital income in NZ is taxed should accentuate the way the yield of conveniently located urban land is capitalised into land prices. If conveniently located land is plentiful (in places where transport infrastructure is good, congestion minimal, or natural and man-made amenities are evenly distributed across space) – small regional cities perhaps or large cities on featureless plains that have great road networks- then the marginal benefit of being conveniently located is low and as there is not much to capitalise so that tax has a minimal effect. When conveniently located land is scarce (in places where amenities are concentrated or transport infrastructure is poor) then the annual benefit of being conveniently located is high and the tax system should accentuate how it is capitalised into land price. Well that is the theory anyway. The effect of the tax system on Auckland could be considerable even if it is not in regional cities because Auckland may have a much higher marginal convenience yield than other cities. When I last looked, there was no need to pay a premium to be centrally located in that glorious harbor city, Dunedin, because there was still plenty of space and relatively uncongested roads and you can live more or less anywhere and still savour the delights that Dunedin offers. When the marginal convenience yield is near zero, the tax system provides few extra distortions.

    But what I am curious about is the contention that Auckland is one of the fastest growing cities in the OECD. You are referring to percentage growth, I think. When I last looked, houses housed real people, not percentage growths.. In terms of the absolute increase, Auckland certainly grew faster than most cities in small European countries (a natural comparison group) but it didn’t grow particularly fast in terms of cities in populous European countries, or Australia, Canada, or the US. Here are some numbers on the population increase between 1980 and 2010 for cities with at least 1 million people (Jeff de Jong and I compiled these last year for a poster we presented on the topic at the NZAE conference). The numbers are in 1000s and if you divide by 3 you get an estimate of the number of new dwellings that the city would need to provide over a 30 year period.

    Auckland + 632

    Sydney + 1252 Melbourne + 1131 Brisbane + 925 Perth + 719 Adelaide + 238

    Toronto + 2476 Montreal +988 Vancouver + 988 Calgary +672 Edmonton + 498 Ottawa + 461

    Madrid + 2151 Barcelona + 1651 Paris + 1847 London +1262 (All other European cities grew appreciably less quickly than Auckland, or declined in population)

    Tokyo 8384 Osaka 1439 Nagoya 709 Fukuoka 815 Sappora 718 Sendai 669

    US (north/west) NY 4502 LA 3711 Chicago 2328 Boston 1491 Philapdelphia 1301 Washington 1857 Minneapolis 1007 Denver 1135 Seattle 1517 Portland 995 Riverside 1167 San Diego 1401

    US (south) Atlanta 3249 Miami 2848 Tampa 1122 Dallas 2675 Houston 2360 Phoenix 2408

    By this metric, Auckland didn’t have to construct too many extra houses by world city standards (although many more than in Europe). It lagged the 4 big Australian cities in terms of population increase

    So the question is: why has Auckland had so much trouble building houses for new people? Is it mainly because of land restrictions? Are there enough builders (there were very few in NZ in 1991 – 40000 less than in 1975, and they still leave when times are good in Australia)? Is it because the supply of conveniently located land is low, because the transport to outer suburbs is not up to world standards (or because the supply of manmade amenities (eg commercial developments/ good schools) is lagging? Is it because the centrally located land in Auckland where people are prepared to pay a large premium to live was already covered by low density housing, and it takes a long time to redevelop such land as individual plots come to the market piecemeal (This is my interpretation of the Frost conjecture). Some of these alternatives seem to be plausible components of the whole story.

    This is just OECD data. When you consider Shenzen, the story is just depressing. It had a population of 58000 in 1980 and 10 million in 2010. It managed to house a population increase 16 times as large as that of Auckland…….

    Andrew

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    • Thanks Andrew

      Re tax, yes in a speech like that, where I was trying to focus on my own story, I didn’t really have the time to develop the tax arguments as fully as I would like. I take your point that the simple rhetorical point – one tax system, many different house price outcomes – isn’t totally valid, altho I’d be inclined to argue that it is relevant to, say, an Akld vs Wgtn comparison. More generally, the tax system hasn’t changed that much for some decades. Add in the fact that our tax system doesn’t seem more favourable to housing than those in other countries and I’m left unconvinced it is a big part of the story. But I accept the idea of accentuation – eg the ability to offset rental losses against other income almost certainly didn’t cause the 2000s housing boom, but might have helped extend it (most of the talk about loss-offsetting provisions came late in the cycle, when losses actually started becoming quite common).

      On the population issues, thanks for those numbers. Of course, I’d argue the issue was land rather than houses per se, and over time the availability of builders is likely to be somewhat proportionate to the initial population. It certainly shouldn’t have been impossible for the housing/land market to provide for the population growth in Auckland, without such upward pressure on prices. But it has proved so. I suspect land use restrictions are probably also more proportionate than absolute.

      I’m struck by the Demographia numbers suggesting that Akld is already quite dense. Yes, I know there are disputes about what the numbers mean, but I recall growing up in Auckland in the 1970s how much densification was already going on in our area – lots of singe family dwellings on good sized sections being placed with 3-4 townhouses per section.

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    • Andrew: Kiwis have so little clue about how harmless “sprawl” really is. Dispersion of employment is the big story of the last 6 decades. In any case, commuting is less than half of total travel, but we don’t imagine all schoolchildren being run by car to a central CBD, and we should lose this stupid imagery about commuting too.

      If you find a good data set of average commute times “by city” there is no problem at all showing up to correlate with density when other factors such as growth rates are considered. The fact that Houston has an average commute time of around 27 minutes is extraordinary when you consider the rate at which it is adding population. People are not stupid; housing is so affordable everywhere, people can make good decisions where to live relative to work and everything else they do. In fact when you have an affordability problem, then you have people forced into inefficient location decisions.

      London has less people than Los Angeles, and at 5 times the density, yet London’s average commute time is like 39 minutes while LA’s is 28 minutes. And LA is around twice the density of Houston and 3 times the density of Boston and Atlanta. And LA is unaffordable, which should result in people being forced into inefficient location decisions – however the extremely dispersed employment seems to negate this – possibly the high incumbency rate in the population is a factor – it is people buying into an unaffordable market for the first time who get forced into inefficient location decisions.

      As Michael points out in his response, Auckland (and LA) actually are NOT “low density” at all – there is hardly any 1/4 acre sections left anywhere, they were always only a “dream” for most. Boston has an average section size of 2/3 of an acre and is 1/3 the density of Auckland or LA. This does not reflect in bad commuting times for Boston, though! Auckland and LA compare in density, to many European cities like Amsterdam, Brussels and Hamburg. When Alain Bertaud arrived in Auckland a year ago, he looked down from the plane and exclaimed, “this is a European city already”.

      Most French cities outside Paris have so much automobile based suburbs that they are LOWER density than Auckland – look on Google Earth, at Lyon and Marseille and so on. And look at RE sites for the French Riviera, it is not as stupidly expensive as Auckland!!

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  5. This is all familiar territory for those of us who read your blog regularly, but it is well packaged and well delivered. More importantly perhaps, I’m heartened to hear that you were able to present this to a room of smart people and be so convincing. Maybe in the medium term some policy wonks might change their minds about these policies and change them.

    But I’d be interested in your views on whether that’s even achievable. Everyone who currently owns a house in Auckland which has a grossly inflated market price, largely thanks to scarcity rents, is going to form a pretty solid lobby group to prevent any relaxation in housing supply policies. So, the better work you do in communicating the link between planning policies and house prices, the clearer the stitch up becomes, and the harder the resistance will be to change it.

    This is a bigger version of the taxi medallion problem, where there are more medallion holders and they probably account for a majority of the electorate. But I don’t see any Uber on the horizon.

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  6. Ryan

    Yes, I have a lot of sympathy with that view (and better resourced people than me, such as the Productivity Commission) have already done a lot of good work to establish the importance of the supply restrictions issue. As I noted in the speech, I’m not optimistic about the prospects for major enduring change re supply regulations – after all, it is as bad or worse in places like London and Sydney, and home owners there have a next generation (their own kids) to worry about too. In some ways it should be easier to get change when prices are rising strongly – after all, if Akld prices fell back 20% most people would be where they were a year or so so ago (not those who have bought for the first time in that time, but that is a fairly small minority in any year).

    Then again, we once had huge protective barriers around NZ manufacturing – with lots of people with vested interests in those controls – and they’ve mostly gone. Courageous effective political leadership can make a real difference, but it needs the right moment as well.

    I suppose it is why I think action on immigration is more likely. The target is administered simply by ministerial edict, and so could be changed one Monday afternoon after Cabinet. It isn’t ideal – my arguments about the downsides of migration have nothing whatever to do with house prices, and I think we need a housing market than can cope with whatever population pressures are put on it (see Houston) – but since I don’t think there is general evidence of much econ gain from immigration, and in the NZ specific case probably some costs, changing the target could, and should, be done. And it is easily calibrated – don’t halve the target straight off as I suggested, but pull it down by say 5000 per annum, and see how it plays out. Do it again next year, and again. Of course, doing it takes some political courage (to stand up against elite prejudice), but not that much – high immigration isn’t hugely popular, and it doesn’t need to be fought through the House to legislate a change. Again, perhaps it takes an opportune moment – really great politicians are often those with the skill and luck to identify those and ride with them.

    Michael

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    • I think if the left side of politics, anywhere, is going to find either of those options absolutely non negotiable. Certainly no cut to the migrant intake, and definitely no unfettered right to sprawl outwards into farms or bushland, or build upwards in nice neighbourhoods. Any amount of political courage will be trumped by a scare campaign and a lot of negatively impacted marginal voters.

      Given what you’ve said before about employment growth and opportunities in Auckland (or Sydney or London, the logic is the same), I wonder about the viability of a special economic zone which permitted these things, and acted as a pressure relief valve. In my mind, if employers had a convincing reason to move, then employees might find the offer pretty hard to turn down: a decent job and a reasonably priced house.

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      • I’m not so sure that the left should find either option impossible, and perhaps esp immigration cuts. after all, traditional Labour parties are a mix of a working class mass movement and urban liberals. If there are costs from immigration they fall most heavily on ordinary working people and their families. And altho the urban liberal – green-inclined – hate sprawl etc, the ordinary working people want a house and a backyard.

        Perhaps I’m being starry-eyed, but in various conversations I’ve had with people over the years, there has probably been more recognition of the issues and possible solutions from people broadly on the left than those on the right

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  7. Some good commentary but I don’t understand why you are so dismissive of intensification.

    “The same Chief Economist noted that his Council was “encouraging as much intensification as the community will allow”, but seems oblivious to the likelihood that intensification isn’t something that anybody really wants that much of in New Zealand.”

    How do you know what other people’s preferences are? You are just stating your own preference and assuming it applies to everyone in NZ. What evidence is there on this? We do know that apartment developments are selling straight off the plans and house price inflation has been greater in inner suburbs than outer ones. This tells us that people value living centrally and some people are willing to trade off a stand-alone house to live centrally.

    “The Deputy Governor of the Reserve Bank recently fell into this trap – he suggested that more people should live in apartments , just as they apparently do in Sydney, without stopping to reflect that planning restrictions in Sydney are typically regarded as even more constraining than those in Auckland. People move to apartments partly because they are cheaper, because regulatory restrictions have pushed urban land prices so far out of reach.”

    Firstly apartments are not the only way to intensify. In most of Auckland it is currently prohibited to build a house on less than 400 m2 of land. Some intensification can be achieved by allowing more compact stand-alone housing. A significant proportion of Tokyo lives in compact stand alone housing and that city has had flat house prices while the population has grown. Secondly there are many other housing typologies more intense than the stand-alone housing we currently have but less intense than high rise apartments. For example terraced houses, duplexes, and granny flats.

    “I’m not suggesting that there should be no intensification. I don’t have a view on the matter. I think we should let people’s preferences dictate. Note, however, that cross-country historical evidence suggests that as countries become richer their big cities become less dense over time, not more so.”

    Richer countries have partly become less dense because of planning restrictions and NIMBYism. How can you separate the cause and effect here when the stock of housing we have has been so severely distorted by density restricting planning regulations?
    Decreasing density is also a result of decreasing household size.

    “Space is a normal good – on average, people want more of it as they become richer.”

    As Alain Bertuad has stated floor space is the consumer end point of urban development not land. Intensification can allow people to consume more floor space (a bigger apartment) without consuming more land.

    Secondly proximity is also a normal good. On average people will live closer to the center as they become richer. This conflicts with consuming more space and people are willing to trade off space for proximity.

    “Consistent with that, it looks as though, when they can afford it, most people in countries like ours prefer to raise families in stand-alone houses with a garden and backyard etc. That should not be an impossible dream for ordinary families in a city of only 1.5 million people. But regulation – and associated practice – is fast making it so.”

    Again you are presuming your preferences are universal – “most people prefer”. For starters half of households are not families with children. And as stated above there are intensified housing typologies such as terraces that maintain a garden and backyard. Also in a growing city with a naturally constrained supply of land (through water and hills) it is going to be less and less realistic for a large stand-alone house to be affordable for ordinary families in areas close to the city.

    And if we’re going to use anecdata about what “most people prefer” – I’ve never meet anyone wild about living 30 km outside of the city (though of course I don’t think anyone should be denied that option if they’re willing to pay its true cost).

    If we actually look at what “most people prefer” it is a huge house in a central suburb that doesn’t cost much. In a growing successful city however this does not and cannot exist. In the real world people accept trade offs and accepting less space for a better location is one of those.

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    • The problem is that intensification has two different effects depending whether the city is growth-constrained and “rent extractive” (I mean economic rent) or whether it is free-sprawling and has a low, flat urban land rent curve with site values derived from “differentials” relative to the exurban rural land values.

      During decades when sprawl was uninhibited, economists came to some broad assumptions, such as that more intense housing resulted in more affordability. This simply ceases to be true when you have a growth boundary – no “housing”, no matter how intense, ends up cheaper than what the median home USED to be under conditions of freedom of sprawl. Site values end up elastic to density – they rise according to how many households you can put on them, and the amount of economic rent you can “extract” from each household tends to be HIGHER the smaller the average home is. Hence HK with 66,000 people per square mile, has a median multiple equivalent of 17.

      But in Houston, not only is the median multiple below 4, and decent family homes are available for $200,000, but CBD apartments are absurdly affordable in their rentals too – and Houston CBD is far more of a powerhouse than Auckland where the apartments are absurdly expensive!

      And in the boundary-contained city where the “differential” derivation of site values is lost, “sites” are turned into a speculative commodity like gold, rather than a resource that the market allocates to best use.

      http://blogs.lse.ac.uk/politicsandpolicy/turning-houses-into-gold-the-failure-of-british-planning/

      http://blogs.lse.ac.uk/politicsandpolicy/why-arent-we-building-enough-homes/

      That second item should be compulsory reading for all urban planners and urban economists whose theories are out of touch with the way urban site markets actually work when distorted by land rationing policies.

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  8. Some good commentary but I don’t understand why you are so dismissive of intensification.

    “The same Chief Economist noted that his Council was “encouraging as much intensification as the community will allow”, but seems oblivious to the likelihood that intensification isn’t something that anybody really wants that much of in New Zealand.”

    How do you know what other people’s preferences are? You are just stating your own preference and assuming it applies to everyone in NZ. What evidence is there on this? We do know that apartment developments are selling straight off the plans and house price inflation has been greater in inner suburbs than outer ones. This tells us that people value living centrally and some people are willing to trade off a stand-alone house to live centrally.

    “The Deputy Governor of the Reserve Bank recently fell into this trap – he suggested that more people should live in apartments , just as they apparently do in Sydney, without stopping to reflect that planning restrictions in Sydney are typically regarded as even more constraining than those in Auckland. People move to apartments partly because they are cheaper, because regulatory restrictions have pushed urban land prices so far out of reach.”

    Firstly apartments are not the only way to intensify. In most of Auckland it is currently prohibited to build a house on less than 400 m2 of land. Some intensification can be achieved by allowing more compact stand-alone housing. A significant proportion of Tokyo lives in compact stand alone housing and that city has had flat house prices while the population grows. Secondly there are other housing typologies more intense than the stand-alone housing we currently have but less intense high rise apartments. For example also terraced houses, duplexes, and granny flats.

    “I’m not suggesting that there should be no intensification. I don’t have a view on the matter. I think we should let people’s preferences dictate. Note, however, that cross-country historical evidence suggests that as countries become richer their big cities become less dense over time, not more so.”

    Richer countries have partly become less dense because of planning restrictions and NIMBYism. How can you separate the cause and effect here when the stock of housing we have has been so severely distorted by density restricting planning regulations? Decreasing density is also a result of decreasing household size.

    “Space is a normal good – on average, people want more of it as they become richer.”

    As Alain Bertuad has stated floor space is the consumer end point of urban development not land. Intensification can allow people to consume more floor space (a bigger apartment) without consuming more land.

    Secondly proximity is also a normal good. On average people will live closer to the center as they become richer. This conflicts with consuming more space and people are willing to trade off space for proximity.

    “Consistent with that, it looks as though, when they can afford it, most people in countries like ours prefer to raise families in stand-alone houses with a garden and backyard etc. That should not be an impossible dream for ordinary families in a city of only 1.5 million people. But regulation – and associated practice – is fast making it so.”

    Again you are presuming your preferences are universal – “most people prefer”. For starters half of households are not families with children. And as stated above there are intensified housing typologies such as terraces that maintain a garden and backyard. Also in a growing city with a naturally constrained supply of land (through water and hills) it is going to be less and less realistic for a large stand-alone house to be affordable for ordinary families in areas close to the city.

    And if we’re going to use anecdata about what “most people prefer” – I’ve never meet anyone wild about living 30 km outside of the city (though of course I don’t think anyone should be denied that option if they’re willing to pay its true cost).

    If we actually look at what “most people prefer” it is a huge house in a central suburb that doesn’t cost much. In a growing successful city however this does not and cannot exist. In the real world people accept trade offs and accepting less space for a better location is one of those.

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    • You seem to have posted the same comment twice.

      Alain Bertaud agrees with my argument (made in response to your above duplicate comment) about “site rents” and the total supply of land available to the urban economy. We have been corresponding for years. He is an “out AND up” advocate, not an “up is is good as out” advocate – which is plain wrong.

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  9. Thanks very much for the comments.

    Just to be clear, I am quite in favouring of removing restrictions that limit “sprawl” and those limiting “intensification”. As Eric Crampton put it recently, when I mean “increased supply” it can be up, out, or just (as you note) smaller sections.

    My paper was written as the basis for a 20 minute speech, so I couldn’t cover off everything in the depth the issues deserve. My key point was simply that supply constraints intersect with rapid policy-induced population growth to drive house and land prices high.

    Re your point from Bertaud, it is an interesting claim, and yet historically the data I’ve linked to suggest that actually it isn’t just floor space. As cities become richer, they typically take more space per capita.

    As to my speculations, yes they are largely that. They aren’t necessarily my preferences – we had a very happy couple of years in an apartment in a US city – but they are my hunch as to what would happen if controls were removed more generally (up, out, and denser). We’ll probably never know, but I’m not aware that apartments, or really dense urban living, characterise Houston or Atlanta. NZ cities, esp Akld and Wgtn, are more geographically constrained, but my hunch is that if Auckland had no material planning controls (ok an extreme straw man) and its 1985 population, we would see much cheaper house and land prices and quite limited interest in apartments. At present, they sell well because they use less land per unit – and land is the factor regulated to be scarce.

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    • Alain Bertaud agrees with my argument (made in response to one of Frank McRae’s above duplicate comments) about “site rents” and the total supply of land available to the urban economy. We have been corresponding for years. He is an “out AND up” advocate, not an “up is is good as out” advocate – which is plain wrong. Ed Glaeser in particular should know better, and there are plenty of his professional counterparts who disagree with him.

      Auckland was far more “constrained” within its isthmus back when whole subdivisions like Mangere were being built and housing was systemically affordable. Now it has spread beyond the narrowest part of the isthmus, the “geographic constraints” argument has never been more invalid. Look on Google Earth – there is oodles of land in uses like potato farming – and lifestyle blocks! NZ has more space taken up by lifestyle blocks than cities, already!

      Apartments “sell well” when land supply is constrained, like motor scooters might “sell well” when cars are rendered too expensive by an oligopoly. It doesn’t mean they are what people really want. By the way, when the chips are down for most people forced to go without a car, they will get a motor scooter – mass public transport just is not in the hunt. Motor scooter mode share is several times as high as mass public transport in most pre-car societies like Vietnam.

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  10. I would just like to make a few comments for you now that I have read your full speech.

    TVNZ did an excellent documentary the other day that would benefit the knowledge of anyone watching it.

    http://tvnz.co.nz/sunday-news/somewhere-live-video-6319500

    There is more to come apparently.

    I believe that NZ, and Auckland, had greater population growth just from birth rates in the past, and that immigration is a red herring. The crucial difference is that we got on and built houses. Growth rates in many affordable US cities leaves Auckland for dead, it is not just Houston. Even Indianapolis and Nashville, which are more comparable to Auckland in size. Austin, Raleigh and Charlotte are smaller cities growing significantly faster than Houston, and again, a better comparison with Auckland. From 2000 to 2010, Austin, TX grew from 900,000 to 1.35 million. Charlotte, NC grew from 760,000 to 1.25 million. Raleigh, NC grew from 540,000 to 880,000.

    I don’t think “immigrants prepared to live 17 to a room” are a reason some US cities are coping with growth so well – housing is so cheap that this sort of cramming is unnecessary even for immigrants. Median multiples only tell part of the story. I argue that higher median multiples are accompanied by disproportionately higher “multiples” in the bottom quintile or whatever of the data. The median multiple 3 cities tend to have actual houses for less than $100,000. The same houses in a median multiple 8 city tend to be $1,000,000 because the value of the dirt they are sitting on has inflated 20-fold. And the cheapest houses tend to be $350,000, easily well over 10 times the incomes of the corresponding lowest-in-the-data households. In median multiple 3 cities, there tends to be an actual match of households and houses at “3 times income” – the $30,000 income household CAN get a $90,000 house.

    Your point is correct that NZ has cities without the population pressures that Auckland does, and house prices that have not grown since 2007, but all our cities prices were too high by then. We should not regard the absurdity of Auckland as deeming Wellington house prices “affordable”. Your point about planners being dead from the neck upwards about price signals is spot on. Planners claim to be able to survey people’s wishes and then ration “just the right amount of supply to keep prices affordable” with a bit of rezoning. This is nonsense in any market, a quota scheme is a quota scheme, but it is especially nonsense in urban land markets.

    I argue that a city like Liverpool, which has lost population and businesses at a rate comparable to Detroit, yet still has a median multiple over 7 (versus Detroit’s 2 point something), is evidence that there is still a “bidding war for insufficient space” between the residents who are still there – the population density even after the population loss, is still double that of Amsterdam/Hamburg/Brussels/Toronto/Los Angeles/Auckland. Planners need to accept that the price signal is proof that this density is higher than the density people DO WANT if they ended up with the space they DO WANT at a fair, free market price. Of course the land price per square foot is tens of times higher, the fact that housing is “twice the price” conceals where the problem really is.

    I have dealt with the fallacy that planners “x years supply of sites” enables affordability, at length in submissions and essays. If you have time to delve into the below linked submission, it covers most of what is necessary to know on this point.

    http://www.productivity.govt.nz/sites/default/files/sub-using-land-for-housing-41-phil-hayward-128Kb.pdf

    Appreciate your interest in this subject. I hold that it is a hugely important subject because it has major macroeconomic implications in the long term – an economy taken over by the rentier class is, as Acemoglu and Robinson entitle their book, “Why Nations Fail”. They do not put it in these terms, but I say that the extent to which economic rent exists in a nation’s economy, and transfers crowd out honest production and supply and demand, determines long term growth.

    Of course a national economy like that of the UK can be riddled with economic rent, but the primary income source to the national economy is “weightless” – the finance sector and the media sectors centred on London. I hold that a nation without this luck, will decline far more rapidly once economic rent in urban land and finance of property gets away on the real economy.

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