An official target for house prices to disposable incomes

Getting back to thinking about housing issues, in preparation for a speech next week, I noticed that the Auckland Council’s Development Committee had adopted a target of reducing the Auckland ratio of median house prices to median disposable income to five (from around ten at present) by 2030.

The target appears to have been adopted following the recent report on housing affordability issues by the Council’s Chief Economist. That report,  if rather patchy, has some interesting material I’d not seen previously, such as the estimated range of costs of some of the view shaft restrictions on building that Auckland currently has in place.

I wasn’t that impressed by the new target.  The report notes that house price to income ratios probably “should” be around three, and then adopts a target which, even if taken seriously, would still leave price to income ratios 15 years hence well above the sorts of levels that should be able to be sustained over the longer-term.  Targets for asset prices leave me queasy at the best of times, but set that ‘theoretical” objection to one side for now.

But what chance is there of this target being taken seriously?  It is being adopted by the Development Committee of a Council that is a year out from an election.   Five sets of local authority elections will occur before 2030.    And unlike central government there is no strong party discipline in local government, which means there is even less meaningful basis for anyone to believe that a target adopted today by a committee of the current Council will translate meaningfully into action over the next 15 years.

There is an old cynic’s line that in making a prediction one can safely offer a number or a date, but would be most unwise to include both.  Probably the same goes for target-setting.  But an alternative formulation might be that if you must include a number and a date, set the date so far into the future that no one is likely to even remember it when the date comes round, and all those involved in setting the target will long since have moved on.     Concrete targets around things the Auckland Council can actually control for the 12 months between now and the next election  –  or at a pinch the one after that, which sitting councillors might campaign on next year  –  might have been more impressive.

Targets like this have more of a feel of “virtue-signalling” –  adopted and articulated to signal that the adoptees “feel the pain” rather than because they necessarily intend to do much about the problem in question.  To say that is not to doubt the goodwill of the Auckland councillors, simply to observe that in isolation this target gets some cheap feel-good headlines (the word “ambitious” gets associated with one’s name, and not necessarily in a Sir Humphrey sense) and commits them to precisely nothing.

In fact, I was reminded of some previous targets.    Numerous governments have talked about getting New Zealand back into, say, the top half of OECD per capita income rankings.  Not that long ago there was the goal of catching up with Australian per capita incomes by 2025.  No doubt all those involved would have welcomed achieving the targets, but weren’t willing to actually do anything much themselves to achieve them.  And having served their short-term purpose (fill out a speech, fend off a minor party or whatever) the targets themselves would soon be forgotten.

Getting rather long in the tooth now, I was also reminded of the 1989 Budget.  The then Labour Government was in increasingly desperate straits.  The economy was doing badly, the financial crisis was continuing to unfold, the tensions within the Cabinet grew more intense by the day, and Labour’s position in the polls looked bleak.  The Minister of Finance needed something a bit new for the Budget, and so a serious of macroeconomic targets were announced.  By December 1992, the government  –  which looked most unlikely to be re-elected anyway –  would aim to:

  • Reduce public debt to 50 per cent of GDP
  • Reduce inflation to 0 to 2 per cent
  • Reduce unemployment below 100000,
  • And get first mortgage interest rates in a 7-10 per cent range.

This was actually the first time the 0 to 2 per cent inflation target had been given a specific target date.

At the time, the new Reserve Bank legislation was being considered by Parliament.  That legislation would give someone –  the Reserve Bank Governor –  specific responsibility for getting inflation to the target by a particular date.    And it was (over)achieved, (nobody having mentioned the need for a severe recession when the targets were articulated).

But none of the other targets was ever heard of again. No one was made responsible, no one took them seriously, and there was no reporting and monitoring mechanism established.

I hope the Development Committee’s target is the next step in a serious process of freeing-up housing supply, and making housing and urban land in Auckland affordable once again.  But I’m not convinced.  I’m still not aware of any Anglo country major city in which planning restrictions have been materially and sustainably unwound to facilitate a responsive and affordable housing market (are there such examples?)  Perhaps Auckland can be the first, but there is little sign of the vision, passion, commitment, and political leadership –  whether at central or local government level –  to really address, and reverse, these issues.

(And, of course, we could get to the goal –  and beyond –  much more quickly if the target rates of inward non-citizen migration –  being reviewed by Cabinet now –  were materially reduced.  That could be done quickly and easily –  and it has worked previously.  It might buy time for a considered reassessment of the planning rules, in a rather less-fevered, less threatening, environment.)