Does voter turnout explain dysfunctional housing supply markets?

I learned something from listening yesterday to Radio New Zealand’s 4-5pm show “The Panel”.  Bernard Hickey was one of the panellists and he was waxing eloquent about the apartment building boom apparently underway in Melbourne.  I’ve long known that Australia was one of the handful of countries in which voting is compulsory in federal elections (in company, apparently, with North Korea, Ecuador and so on, as well as a handful of more respectable stable democracies).

What I hadn’t known, and which Bernard highlighted, is that voting is also compulsory in Australian state and local authority elections.  In fact, it isn’t a universal requirement for local elections, but voting certainly is compulsory in local council/mayoral elections in New South Wales, Victoria,  and Queensland, the three most populous states, with the three largest cities.   Compulsory voting – at least in Australia, North Korea may be different –  doesn’t produce anything like a 100 per cent voter turnout.  But turnout in Australia is far higher than in New Zealand, where voting is voluntary.  At our last local authority elections in 2013, even with postal voting, turnout was only 39 per cent.

This all got me thinking about one explanation sometimes offered for the dysfunctional (“rigged”) housing supply market.  Why, people sometimes wonder, do the existing land use rules persist, even though they seem to put the hurdles in face of starting out as a home owner ever higher?  Our Productivity Commission weighed in on that topic in their land supply report released late last year  The Productivity Commission’s report was very sympathetic to local authorities.  As I noted at the time:

The Commission shows no signs of unease with the concept of urban planning, and indeed seems to treat as wholly legitimate the choices of local councils to pursue particular visions of urban form (especially compact ones). It is simply those pesky voters who stand in the way of councils realising their visions.

The Commission took the view that turnout in local authority elections was one of the problems.  They noted that older age groups were more likely to already own existing houses, and were also more likely to vote in local authority elections.

The significantly higher voter participation of older groups in local government elections, and the markedly higher home ownership rates among older New Zealanders, means that homeowners are likely to be the dominant voters in local government elections.

And

The dominance of homeowners in local government political processes could help to explain a number of the characteristics of land use regulation and the provision of infrastructure discussed in subsequent chapters of this report.

And

Local politicians will find it particularly difficult to resist the preferences of existing homeowners where those owners organise into residents’ associations, where ward voting makes councillors responsive to particular communities, or where community/local boards are formally established to act as a voice for an area.

Before concluding with an official Finding (F3.17 on page 60)

Groups that have high home ownership rates have higher rates of participation in local government elections. The influence of homeowners in local government elections and consultation processes promotes local regulatory and investment decisions that have the effect of reducing land supply for housing.

The young, the renters, the new arrivals disproportionately choose not to vote, and so they get done over in the political process.  House prices stay high as a result.

I’ve never found the story particularly persuasive.  It might be an element in a story for why existing home owners can often limit more intensification in their own neighbourhoods.  But private covenants  –  now pretty pervasive, as the Commission recognises – represents voluntary market instruments to achieve much the same sort of protections for new developments.  But existing home-owners have no strong or permanent interest in preventing the physical expansion of their city, provided that the costs of expansion are appropriately allocated.   And homeowners have children and grandchildren – who will want to buy homes in time – and we might reasonably suppose that they care at least as much about the interests of those generations as local councilors and council bureaucrats do.

I didn’t find it a persuasive story –  although it was a convenient story for council staff and Wellington bureaucrats to tell each other.  It can be hard to find  good voters to back bureaucrats’ preferences….

But the compulsory voting arrangements in Australia provide us with a bit of a natural experiment.  Voting in Australia has been compulsory for a long time, and it has always been voluntary here. I think it is safe to treat those arrangements as prior to the expansion of urban land use restrictions.

If the Productivity Commission’s story was correct –  as any material part of the story – we should be able to look across housing markets in Australia and New Zealand, and see what difference compulsory voting and voter turnout in local elections makes.   Price to income ratios should be lower in Australia than in New Zealand, and lower in compulsory voting states of Australia than in the other states.

The Demographia report is the best collection of price to income ratios.  Here are the New Zealand cites/regions they report data for, from late last year.

Median House Price/Median Household Income
Auckland 9.7
Christchurch 6.1
Dunedin 5.2
Hamilton 5.1
Palmerston North/Manawatu 4.1
Napier-Hastings 5.0
Tauranga 8.1
Wellington 5.2
Median of these markets 5.2

There are a lot more cities in Australia (Demographia capture all those with populations above about 100000 –  details are here).  Here are capital city multiples, and the median market multiple for all the Australian cities.

Median House Price/Median Household Income
Sydney 12.2
Melbourne 9.7
Brisbane 6.1
Adelaide 6.4
Perth 6.6
Hobart 5.6
Darwin 6.0
Canberra 5.9
Median of ALL Australian markets 5.6

Looking across the New Zealand and Australian cities, there doesn’t seem much prima facie evidence to support the Productivity Commission voter story.   These are snapshot numbers, and the picture might look a little different if one compared markets in a different year.  And there is always other stuff going on in each market –  rating schemes, land taxes, stamp duties, foreign investor restrictions, capital gains taxes, marginal income tax rates and so on –  but there doesn’t seem to be much support for the “middle aged and elderly capture the electoral process and skew housing markets to their own advantage” hypothesis.  In fact, I noticed that in Victoria, voting is compulsory only until age 70 – a concession, apparently, with the effect of (modestly) favouring the interests of the relatively younger groups.

One could generalize the point.  Voting isn’t compulsory in UK national or local body elections and their housing supply markets seem just as dysfunctional.  Voting also isn’t compulsory in the United States, and yet we see hugely different housing supply markets (and housing affordability outcomes) in different growing cities, largely reflecting differences in land use restrictions.  Atlanta is one of the success stories.  When I checked, I found that voting was once compulsory in Georgia –  but it ceased being so in 1787.  It doubt that is making much difference today.

All regulatory provisions are endogenous –  they arise out of political and bureaucratic processes in a variety of often complex and not particularly transparent ways.  In democratic societies, the public can –  ultimately – defeat any law or regulation, if enough of them care enough.  But the Australian experience suggests it is a much more complex story than one which casts local government (and even more central government) as the “good guys”, looking out for the interests of the marginalized, while the middle aged and elderly who choose to turn out to vote, rig the system in their favour.   I’d be putting much more weight on the ideologies and values of councils and their staff, and the entire ‘planning’ industry, (reinforced or enabled by central government officials and ministers).  Make an issue complex enough and sufficiently non-transparent, and it can take a long time for enough people to really realise what has been going on.  And by then the mess can certainly be very –  politically –  difficult to undo.

 

23 thoughts on “Does voter turnout explain dysfunctional housing supply markets?

  1. Michael, I don’t think Bernard was implying that voter turnout was the total cause of council unresponsiveness to citizens housing wishes. But low voter turnout, especially by renters who are too busy with their struggle to earn enough to pay the rent and who cannot, therefore, take time to be informed about candidates’ views, could well be a contributing factor.

    Like

    • As it happens, I was commenting on the Productivity Commission’s enthusiasm for the story (rather than Bernard’s – I know he has been sympathetic to it, but here his contribution was just in getting me thinking). And, of course, probably no one claimed it was the whole story. But the Commission did give quite some weight to it, and somewhat surprisingly (at least now, thinking about it) didn’t even refer to the Australian comparison.

      Like

  2. Home ownership rates in Australia were in the high 60s as recently as 2011, so there are more winners than losers. I’m pretty sure it’s falling pretty fast now, but it’ll be a few years before it starts threatening 50%. Also, the disenfranchised millennials don’t yet have a person, concept or party to rally around. That will change eventually.

    Like

  3. I live in Australia and I’ve never once been compelled to vote in a local council election, and I’ve never heard of anyone arguing that it is compulsory. I voted in a council election once (in the past 18 or so years I’ve been eligible in different states and territories). So if it is notionally compulsory, in practice it certainly isn’t.

    You should bear in mind that the size and structures of local election authorities can have dramatic consequences to local decision making processes. Brisbane City Council covers around 1.5 million people (and attracts much more organised and high profile political operators as a consequence), whereas Walkerville City Council in Adelaide covers a very small, wealthy pocket of maybe 20,000 people famous for its anti-development position. The differences in sizes of council bodies mean that different councils have very different levels of staffing and professionalism in their unelected staff. This factor alone was a major driver for the State governments to push (force) mergers between smaller councils over the past 20-30 years across Australia.

    And while the council is required to have elections, the way in which its ‘parliaments’ are structured can be very different. Adelaide City Council has Ward councillors who represent tiny seats of electors within the City area where the whole of the city has around 25,000 voters. This ward structure guarantees that you often get a few representatives who are voted in with in some cases, only hundreds of votes. When the representatives of a council body are elected on these hyper-local constituencies, then they will be naturally inclined to making decisions which benefit their hyper-local lobbies and in the City of Adelaide’s case, have a history of campaigning heavily on old peoples issues: keeping local heritage, preventing increases in density, blocking noisy roads, and preventing even small scale retail or commercial development. The City of Adelaide recently passed motions to effectively get rid of food carts within its boundaries.

    But no matter what the structure, if you want to live in a given council area but you don’t because its too expensive and cant afford a house or rent – then you don’t get to vote in those elections which determine the policies driving the lack of housing affordability in that council. I lived outside the Adelaide City Council boundaries for several years and would have loved to live in the City, but I never got to vote to make the City more positively inclined towards development.

    Like

    • Thanks

      I drew the details by state from this paper
      https://www.lga.sa.gov.au/webdata/resources/files/Voter_Turnout_Elections_Discussion_Paper_Prof_Russell_Aug_04.pdf , and specifically checked the electoral office websites for NSW and Vic.

      As you note, voting in local elections is not compulsory in South Australia.

      I had a look at detailed results for a couple of Sydney local authorities, which seemed to get turnout up near 70% for local elections, far higher than NZ numbers.

      Of course, the inability to vote in another locality’s election (as an argument for mergers) is a bit of a doubel–edged sword: lots of different locailites can provide for regulatory competiton, something largely prevented in Auckland once the current government imposed a single council on the entire region

      Like

      • Yes, that’s true. Competition by comparison has some merits. But that said, lots of Councils and Governments actively engage in aligning their policy positions in behaviour which would be considered cartel behaviour if performed by a company. I also think that competition by comparison means something when you’re comparing Adelaide City to Melbourne perhaps, but it’s just too much of a stretch to say that one reform done in an outer urban council would work as well in an inner urban dense pocket. (That’s not to say that the comparison wouldn’t actually be fair – it’s just that in people’s minds the two places are too different to compare.)

        And when you speak to Council people, nobody, ever, mentions the word ‘competition’, except to say that they don’t consider that they should or are competing with one another. It’s a dirty word, and I think there are effectively gentlemen’s agreements amongst Council types in Australia (and States) that one shouldn’t actively compete with a neighbouring government. The only exception I can think of is the very pro-development position of South East Queensland during the 1980s and early 90s when it actively pursued population growth very aggressively (and successfully). After that period of growth though, the old mantra of ‘no competition between friends’ prevailed.

        Like

  4. quote:
    In democratic societies, the public can – ultimately – defeat any law or regulation, if enough of them care enough

    Yes, that democracy stuff worked out really well for the citizens of Devonport Borough and the Ngataringa Bay saga

    Bankrupted the place, sent council rates sky high, and drove the long-time elderly residents out

    Like

  5. note the qualifiers: “ultimately” and “if enough care enough” Clearly the system isn’t working well around much of the Anglo world when it comes to housing supply markets. Doesn’t mean there is a better system of government.

    And the system was much easier to fix before it got going (kill at birth) than when we have such massive distortions. and redistributions, associated with the absurd prices of urban land.

    It needs a leader who can galvanise coalitions around a package of measures, combining the interests of enough voters, to allow for far-reaching change, and be willing to ride through the inevitable pain for some people (in particular, the highly indebted non-owner occupiers)

    Like

    • “Ultimately” – that’s exactly what happened – enough people did care, and chucked the old entrenched council out of office – and overturned a number of arrangements and schemes – at enormous cost

      Like

      • That’s the difference

        I was born in Auckland, grew up in Auckland. It is imprinted on my brain as if it was yesterday. At a time when I was not politically aware or even active, the Devonport council entered into an agreement with a US Company to reclaim Ngataringa Bay which covered nearly 300 acres, turn it into a marina, and cede title to the US company.

        A furore ensued, protests mounted, opposition became so visceral the Green movement and hippie, and alternative lifestyler were elected to power in an absolute rout of the “old” council

        The new council renneged and rescinded all agreements

        The US company sued for damages. Rates in Devonport shot up to $3000 per annum at a time when rates for the average auckland property were about $200 per annum

        Devonport was a quiet idyllic haven for the elderly who got their clocks properly cleaned

        Anyway, the Saga was still going 20 years later when the Central government stepped in to clean the mess up

        Plenty of history on the web about it

        Like

      • Sorry, now I know the story. I grew up in AKld in the 70s and well remember the furore (somehow I was just assuming you must have been talking about a more recent episode_)

        Like

    • The funny thing about all this is, if you imagine a 2-out-of-3 response to the housing crisis – say a right-to-build up to 3 storey terrace density, combined with a winding back of the immigration quota to long term average levels – there wouldn’t actually be that many losers as a percentage of the population. Just a few over-indebted landlords and some long term inner city homeowners who are so offended by the sight of terrace housing that a further increase in the unimproved land value of their section can’t compensate. It wouldn’t take that large a coalition to get the attention of our politicians.

      Like

    • Singapore has compulsory acquisition and the government builds housing at its discretion but house prices are also rather expensive. I guess when you entertain 15 million tourists a year it does put upward pressure on house rents which in turn puts upwards pressure on house prices.

      With John Key pushing for 4 million tourists and this year we have seen a 300k increase in tourist numbers to a record 3.2 million visitors you can expect house prices to keep on its upwards momentum as these tourists need a place to stay. They do take up an enormous amount of housing occupancy.

      Like

  6. Bernard does have a very Fabian way about him… but I agree that the machinations of the officials have far more weight on planning and eventually house prices than any voter activity… Its like the myth of the ‘mission million’…

    Ask any developer; Auckland Council has been a dysfunctional shocker and it’s at the officials level… And it isn’t the RMA per se… other councils seem to be able to build new dwellings… – Hamilton, Tauranga for example…

    The culture of Auckland Council is the key problem for the region and a good explanation for at least some of the issues around lack of building consents, lack of supply and ultimately house prices…

    Also, becuase Bernard is at heat a chardonnay socialist he is also an idiot.

    Like

    • I don’t think you can blame Council. Council has been blocked by very powerful and very vocal groups eg Auckland 2040 and their accompanying choir of very vocal retirees at every Council meeting. Look at the last attempt that council tried to rezone 20,000 properties as urban dwelling. Urban dwelling would have allowed 3 levels of high density living as of right. However Council had to back down when the highly organized Auckland 2040 groupies and their merry choir of retirees stormed each meeting to preserve their sunlight lit BBQ patch.

      But I do wonder why Council chose to launch their assault on high priced neighbourhoods who have unlimited firepower and armed with high powered lawyers. They should just choose areas like Otara or Otahuhu to launch their high rise message. Perhaps Auckland Planners did it on purpose to stymie Councillors and the government???

      Like

  7. I’ll let that stay, but I’d really rather comments didn’t get personally insulting. Criticise the views, and I have no problem, Individuals – smart individuals included, and I include Bernard in that group, even if I often disagree with him on policy – are another matter,

    Like

      • Skeptical about which part? I have started using a tool that means I will never have to hire another business or investment analyst again (i.e. someone with a post-graduate education) because this tool allows me to do what I would’ve asked them to do for a day in about half an hour which doesn’t bode well for their future in terms of gaining requisite skills and experience.

        I assume at some point in the future it will do what I can do in a half hour without any input from me at all at which time my number may be up as useful “economic input”…

        If there is little economic value added by the labour of someone with a masters degree and deep experience I’m not entirely sure what the alternative higher value economic opportunities will be. Perhaps a social media star?!

        In the meantime I look forward to your blog! 🙂

        Like

  8. I guess what Gross is talking about – as are you – is productivity, which is a good thing not a bad thing. And yet the tone of Gross is that it is somehow bad. Gross includes that prime age employment to population chart, but most advanced countries’ charts just don’t look like that. Employment and labour force participation rates are still trending up in most advanced countries. There may be some interesting inequality issues – who captures the gains of productivity – but I’m not convinced there is yet any evidence that the jobs won’t be there.

    Like

    • Maybe the Keynes leisure week will arrive and economic output will continue to increase? – which would be nice!

      Agree Re: the inequality issues. Who captures the productivity gains? I guess Gross as a Bond man comes at the issue with that lens whilst if you read many of the venture capitalists on Medium they say that the future couldn’t be brighter.

      Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s