I’m pretty pessimistic about the prospects of sorting out the housing supply/land use regulatory mess that, in conjunction with population pressures, has given us – Auckland in particular – extremely high house prices (and price to income ratios). There are no great technical barriers to getting the market working again, with housing as affordable as it used to be. But I have repeatedly noted here that I’m not aware of any country/region/locality that had once got into such a mess and had found its way back again, unwinding the morass of regulation (tell me again how many pages there are in the draft Unitary Plan). Each time I make the point, I really hope someone is going to tell me about a compelling counter-example, demonstrating that what it technically possible has also proved politically feasible.
But reading Tyler Cowen’s Marginal Revolution blog just now I found a really encouraging piece headed Laissez-faire in Toyko Land , which in turn draws on a fascinating Financial Times article Why Tokyo is the land of rising home construction but not prices . I hadn’t paid much attention to Japanese house prices, implicitly ascribing the lack of house price inflation to (a) the aftermath of the 1980s boom, and (b) the flat and now falling population. But here is the key chart in the FT article
Over the last 20 years, Tokyo itself has had about the same rate of population increase as London. A nice locality apparently relatively near the centre has had faster population growth than San Francisco. And yet look at the differences in the rates of house price increases. Sure, the chart flatters Japan because Japan has had general consumer price deflation, while the US and the UK have had general inflation – but even in real terms, the differences would be large.
Anyway, I’d encourage people to read the blog piece and the underlying article itself. It isn’t a totally laissez-faire story, but the flexibility that seems to have been introduced to the system following the 1980s boom looks impressive. I’m not expert – no doubt there are other perspectives on the Tokyo experience – and perhaps the changes that were put through in Japan could never be done in Anglo countries. But they were done in Japan. That in itself is encouraging.
UPDATE: I had been continuing to mull this FT material. It focuses on the change in prices over the last 20 years as a whole, and not at all on the levels. This 2014 link from one of the FT blogs confirms that the bulk of the 1980s boom in Tokyo prices had been reversed by 1995. However, it also includes a chart showing price to income ratios for new Tokyo apartments (in the greater Tokyo area) which – while pretty stable over the last 20 years – still seem strikingly high, especially once one takes account of the “famously diminutive” size of Tokyo apartments.
And here is an interesting post with a more extensive discussion of Japanese zoning procedures and rules.