Housing reform, the Corn Laws and possibilities for New Zealand

Brendon Harre, who writes interesting and thought-provoking pieces on housing (including contributing from time to time to the new Making New Zealand housing blog), had another stimulating article out this week, titled Housing affordability: Reform or Revolution .  Harre is strongly of the view that supply-side reform of the urban land market is critical to making home ownership affordable again, but is particularly interesting because he comes at the issues from a left wing perspective: the sheer injustice of the sorts of house price outcomes we (and so many other similar countries) have experienced in recent decades.  He fears that if reform doesn’t happen, extreme populist movements –  the modern “revolution”  – could.

In his latest article, Harre picks up on a point I’ve made several times previously.  I’ve argued that it is difficult to be optimistic about the supply-side reforms happening in New Zealand any time soon, partly because there are few or no known precedents of countries or regions/cities (and certainly not from among the Anglo countries) undoing restrictive land use regulations once they have been put in place.  He links to a post I did a few months ago suggesting that perhaps Tokyo might have been something of a counter-example, but essentially accepts the point that, thus far, there few modern examples of successful supply-side land use/housing reform.  In pondering why this might be, and how it might be changed, Harre suggests thinking about other cases from history in which policy reforms have finally overcome longstanding resistance, to free-up markets and bring prices down.

In a New Zealand context, he could have thought about the eventual removal of the sort of heavy import protection which for decades meant that New Zealand was a rare country where cars were not only very expensive, but often held their value over time.  Or of the removal of most agricultural industry support in the 1980s.

But on this occasion he looked at the movement that led, over decades, to the repeal of Corn Laws (which tended to hold up the price of wheat, benefiting landowners but at the cost of urban workers and industrialist) in the United Kingdom in 1846.    You can read the story for yourself, and I’m not an expert in the area (although the few books I pulled off my shelf suggested a different emphasis in a few areas), but the lessons Harre draws are

What are the lessons from the campaign for affordable food?

  • Achieving a strategic alignment of a broad cross-section of social groups is important
  • Acknowledging that moderate incremental reform can prevent future radical revolutions.
  • If traditional media does not report on your campaign create new media. The Economist newspaper was founded by the British businessman and banker James Wilson in 1843, to advance the repeal of the Corn Law.
  • Simple clear statements/images with a strong moral message are effective.

Harre ends on an optimistic note.

For New Zealand to become a fairer society, we should learn the lessons from earlier struggles for economic, social and political justice. If these lessons were applied to New Zealand’s housing crisis, in my opinion affordable housing could be easily solved.

I remain rather more skeptical.  As a technical matter, housing price scandals (here and abroad) are easily resolved.  But the challenges aren’t technical, they are political.

Harre draws hope from the recent Obama administration initiatives to encourage states, cities, counties etc to rethink their zoning rules

President Obama has chosen to address supply restrictions by releasing a Housing Development Toolkit, advising States and local jurisdictions on how to best manage urban planning to achieve affordable housing. Some US cities are very restrictive, so these reforms may cause a measurable downward price correction, but it is too early to tell. There are both supporters and detractors for the President’s approach, which if followed to its logical conclusion by going from advice to a command would remove some aspects of planning autonomy from local government control.

But…the US federal government has no responsibility for zoning and other local land use laws, the Obama administration is weeks from ending, and there seems little appetite in the places that matter in the US to make the sorts of land use liberalisations that many economists favour.  Of course, it is good to see the Administration (even an outgoing one) pick up the issue, but substantively it might matter not much more than, say in a New Zealand context, the ACT Party favouring such reform.  And housing affordability isn’t such an issue in the US, no doubt partly because if New York or San Francisco are “unaffordable” there are other big fast-growing cities people can move to without such regulatory burdens.

I’m not sure that reform is inevitable, even with a decades-long perspective.  After all, awful as the current system is, it could maintain an uneasy equilibrium in which more people involuntarily rent than used to, people buy homes much later in life than they used to with more debt, and then –  on average –  they reap a transfer back from their parents late in life.   I don’t favour such an outcome, but after several decades already of progressively more unaffordable home ownership for the relatively young, there is still no sign of this becoming some sort of moral crusade for justice, let alone efficiency.

Reverting to the Corn Law process briefly, my British economic history textbook records that

By 1846 the Anti-Corn Law League was the most powerful pressure group  England had known, and upon their techniques of mass meetings, travelling orators, hymns and catechisms a good deal of later Victorian  revivalist and temperance –  even trade union –  oratory was based.

Translated into the language and style of a different age, I don’t detect anything like that at present around land use regulation (outright homeless is a little different).

As Harre, and the economic historians note, the rising “ideology” of free trade played a part – though not necessarily a decisive part –  in getting the Corn Laws repealed.  There was an alignment between that belief system and the cause of “cheaper food for urban workers”.  But in New Zealand –  or Canada, or Australia, or the UK, or most of coastal USA –  is there any sign of that sort of ideological movement around housing, cities etc?  I don’t detect it.  There is no sign of the rhetoric of choice, freedom, flexibility etc assuming a dominant role –  among the public let alone among the elites.  The talk is still endlessly of smarter planning, and top down visions for what cities and other urban areas should be like –  our own Productivity Commission put its imprimatur recently on local authority desires to plan cities.  If there is ever talk of reform, it is of targeted specific interventions, not of getting planners out of the way, and allowing markets to work.  In my own suburb, there is currently a process underway –  hours and hours of meetings between “community representatives” and the Wellington City Council –  on a 10 year plan for the suburb –  and no one seems to find this strange, not 25 years on from the fall of European communism.

This isn’t intended to be a counsel of despair.  Things can change, but there doesn’t at present seem to be a pressing demand for change –  and particularly not for the sort of regulatory changes that would really make a major sustainable difference.  That means if change is really going to happen any time soon, someone –  some party –  is going to have to be willing to spend a lot of political or reputational capital on making initially unpopular change.  And that cost is only rising with each passing month in which more households – in Auckland and increasingly elsewhere –  take on debt at the new higher house prices.  Falling house prices don’t actually threaten most of those people –  servicing is the real issue –  but that doesn’t stop the prospect sounding pretty frightening.

One obstacles to getting comprehensive land use reform is fear in some circles –  particularly on the environmental left –  about what post-reform cities might look like.  Many talk disdainfully of “sprawl” –  as if there is something profoundly wrong about people in a small, lightly populated, country wanting a decent backyard for their kids to play in etc.  But even when the attitude isn’t disdainful, it is often fearful –  how far will Auckland stretch, and all those questions about roads and other infrastructure.  If Auckland really is going to grow by another million people those issues become a lot more pressing than otherwise.  People can, and do, come up with all sorts of smart solutions –  differential rates, MUDs etc-  and I’m quite sympathetic to all those arguments.  But they don’t really resonate with the wider public, and some visceral unease about “sprawl” (and even the loss of “prime agricultural land”) seems to.  It isn’t only the public: the Green Party is likely to be part of the next non-National government.

Which is partly why I think any successful sustainable package of land use reforms, particularly in New Zealand, should be accompanied by a commitment to much lower rates of non-citizen immigration for the foreseeable future.  As readers know, my main arguments about immigration policy aren’t about house prices –  which can be “fixed’ with proper supply side reforms –  but if one of the real barriers to land use liberalization is unease about population-driven “sprawl”, why not just take the policy-driven component of population growth out of the mix for a few decades?  It is not as if the proponents of immigration can show the real economic gains to New Zealanders from our immigration policy, and we know that GDP per capita in Auckland has been falling relative to that in the rest of the country, not rising.    There is no hard trade-off, only the scope for mutually reinforcing packages of reforms that might finally make a more liberal approach to urban land use possible in New Zealand, if some political leader (or coalition of parties) is really willing to take the risk.

Individual political leaders can make a real difference.  It would be great if one would stake a lot on urban land use reform, but anyone considering it needs to recognize the lack of precedents, the potential losers, and the worries and beliefs that underpin the durability of the current model here and abroad. And they probably need to find not only the right language to help frame repeal choices and options, but find a package of measures which helps allay – even if only in part, and for a time –  the sorts of concerns some have.  Plenty of the elites don’t really believe in choice and freedom  –  especially for other people –  but perhaps they might be a little more relaxed if they weren’t (reasonably or otherwise) worrying about the idea of an Auckland that stretched from Wellsford to Hamilton.

38 thoughts on “Housing reform, the Corn Laws and possibilities for New Zealand

  1. Thanks Michael for the review, even though it flirts with pessimism. Largely I agree with your comments, but I want to be more optimistic.

    With regard to your comment about a lack of progressive social movements, campaigning for more choice and more affordability in the housing market, I agree with you about NZ. There is quite a lot of concern about the housing crisis, it is a hotly debated issue, but it hasn’t yet coalesced into a particular social movement. But I am hopeful it will.

    In the US, in cities like San Francisco and Seattle which are culturally similiar to our NZ cities and which are experiencing the same crisis in their housing markets, there is a growing YIMBY movement.

    I particularly like -Sara Maxana -a progressive YIMBY who clearly articulates the problem and some solutions. See https://www.youtube.com/watch?v=kNYAvhaWN6s for a short video -there is longer one from the YIMBY conference that is very good too.

    The US had a YIMBY conference in Boulder in 2016 http://yimbytown.com/. I believe the YIMBY movement is going through a phase of honing their message and broadening their appeal. The optimist in me wants to believe in years to come YIMBYs will be more influential than NIMBYs.

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    • I hope you are right Brendon, but part of my unease is that the problem isn’t only so-called NIMBYs; it is the whole cast of mind among local (and central ) govt bureaucrats, and Western citizens more generally, that doesn’t put much trust in markets (and there are reasons for that) and doesn’t prioritise choice/freedom/flexibility. When I look at polling, including in the US, what worries me is that millennials seem no better – probably worse – on that score than older age groups. One can hope it is purely an age effect, and will wear off as these people age, but it needn’t be.

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      • Michael coming from a lefty perspective I can say there is a lot of cynicism about markets. The cynics see establishment types promoting market forces when it assists the elites, the well-offs etc and ignoring market mechanisms when it doesn’t assist this group.

        This can go on for only so long, before there is some sort of anti-establishment backlash.

        This would be sad because the market is a useful tool to improve equity and efficiency in society if used properly by a government with a social justice agenda.

        P.S can you delete the above double entry by me.

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      • Yes, I can understand that skepticism. On the right, there is an important distinction between pro-business policies and pro-market ones (National, and even more so the US Republican party end up mostly in the former camp unfortunately. I put something like TPP in the same pro-business class of policies.

        I guess everyone has their own biases and priors. I just wish there was at least as much (well-founded) skepticism of govts as of markets: after all, in this case, it is governments that have stuffed up housing markets, probably more at the behest of planners and people with a ‘smart active govt” orientation than of business people, let alone people with a genuine strong commitment to markets, freedom, competition. Good intentions – while good – don’t actually typically take governments far, when they run head on into limitations of knowledge and other human frailties.

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      • I am a guy who was influenced, as a teenager, by Milton Friedman’s “Free To Choose”, and I found it exhilarating to live through the era of Thatcher, Reagan, and Rogernomics.

        But in spite of being reasonably well-informed politically, I did not until around 2010 really grasp the power of the gravitational forces towards rentier / crony / vampire capitalism; which forces ruin the “good name” that capitalism per se actually should have. I was never an Ayn Randist, because I was repelled by her condemnation of all altriusm, period – but it was from the libertarian political writers that I finally got the point. What was happening to urban land markets and housing affordability, was a working illustration right in my own time.

        This is actually a classic unintended devil’s alliance between the theoretically opposing ideologies of the Left: which contributes to the alliance urban planning; environmental preservation; and Statist-only solutions: and the “Right”: which contributes to the alliance “big business interests”, in this case particularly property investment and mortgage finance. In NZ and much of the west, it is quite a grey area just where each mainstream political party lies on this spectrum: the Conservatives in the UK are as beholden to “Green Belt” constituencies as anyone else (and the arch-conservative Roger Scruton is a strong supporter of them); National in NZ have abandoned any principles they once might have had on such things as freedom to develop land for different uses and look less likely to reform things than Labour; the Democrats in the USA have long since become the favourite party of Wall Street (who see the Ron Paul / Tea Party / Ted Cruz / Donald Trump wing of the Republicans as their ONLY serious threat).

        The quotes that sum this up for me are: Vladimir Lenin: “A capitalist will sell you the rope you are going to hang him with” – and Ayn Rand’s response: “crony capitalists should be hung anyway, only before they sell the rope to the communists”.

        The problem that Brendon and Michael are discussing in these comments, is that so few people have thus made the intellectual distinction between “free markets” and “capital-ISTS” – the people themselves who invariably seek advantage through political rigging of markets as their first tactic, rather than get on with “competing”. The only hope is really in politicians and political movements of “principle”; who WILL “say no” to the rent-seekers of all shapes and forms. This is extremely rare in politics. For all the repudiation since, of what Roger Douglas stood for, nevertheless he had the guts to “say no” to a grand chorus of protest from vested interests. And he has consistently been on the right side in the very issue we are discussing, urban planning reform, although from the political margins to which he has been consigned.

        I share Michael’s pessimism still, on the grounds of the comments threads on mainstream sites every time this issue comes up. Every man and his dog has a strong opinion, and the overwhelming majority, each have their favourite magic bullet solution still: one or the other of “stop immigration”; “a capital gains tax”; “tougher credit”; “more social housing”; and “smash the NIMBYs and intensify small housing units that young people should lower their sights to”. Every one of these self-appointed round-the-barbie experts responds to suggestions that land supply should be freed up, with the same “but we cannot allow more urban sprawl”. Their opinion on this is based on a raft of wrong assumptions and a diet of falsehoods that they have been fed for years by way of the mainstream media.

        H L Mencken once said something like the following, which absolutely applies to the issue of urban planning and its central assumptions: “to every complex problem there is a solution that is neat, simple, popular, and wrong”. Anthony Downs, normally a very dry academic writer, summed up the knee-jerk opposition to “sprawl” as follows: “you have a picture on the living-room wall that is in the wrong place; so you get the house rebuilt around the picture instead of simply moving the picture”. His point is that the variables we are so upset about – resource consumption and emissions – are as simply fixed as moving a picture on a wall, in contrast to the favoured planning approach that tries to prescribe an urban form that will take decades to achieve, if at all. In fact the unintended consequences of the policy prevent it from happening anyway, via the land-price distortions created.

        The lesson that people need to learn is that what we have is not “free markets that are failing” – it is regulatory distortions that are preventing the free-market solutions that were actually the default norm for decades in the past. The contemporary fad for compact-city planning and growth by intensification, would intelligently be described by a future economics history writer, as “the rentier empire strikes back”. Their early victory occurred in the UK in the form of the 1947 Town and Country Planning Act. The epitome of the confusion that exists on this issue, is Thomas Piketty and his global following of social justice advocates, who chronicle the concentration of “capital” in the modern era, but fail to see the glaring evidence in their own data, of the particular area of “capital” in which this concentration has occurred. Matthew Rognlie, the author of one of the best critiques of Piketty, infers that the famous book really should have been titled “urban land in the 21st century”. Rognlie also is enlightened enough to pick that the cause is contemporary urban regulatory trends.

        Piketty himself infuriatingly personifies the mass ignorance concerning the difference between rentier capitalism and free-market, consumer-surplus-maximising capitalsm, in several pages deep in his book in which he actually mocks and disparages the argument (doubtless already made to him by sincere and intelligent people) that there needs to be any different policy treatment of wealth made in the form of economic rents versus that made by producers of consumer surplus. He is thus actually a classic enemy of the enlightenment itself, ideologically birthing yet another tragic wave of destructive, slope-browed, golden-goose-killing politics. I would have been more gracious in my opinion of him, had he not specifically taken such intransigent ground in print.

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      • Stimulating thoughts as always Phil. I’m less convinced, especially in the NZ context, that the current planning/housing disaster has much to do with “capitalists”. Seems to me the development of the web of regulation was mostly down to bureaucrats and the politicians they either took with them or persusaded (with a fair chunk of “no one quite realized what these provisions would result in” thrown in). of course, individuals holding newly scarce developable land did very nicely out of the morass of controls, but I don’t see the evidence that they were a key driving force. Of course, now the morass is in place there are a large number of people/groups with interests in avoiding an unwind – especially the very indebted existing owners – but the problem is that the pro-control ideology is still there.

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      • “…the development of the web of regulation was mostly down to bureaucrats…”

        Yeah, but the ideas are coming from somewhere, and don’t underestimate the liberal funding from donors like the Rockefellers and George Soros, for “smart growth” and conservation advocacy groups and their work. As far back as 1974’s “Uses of Land” mega-study, Rockefeller funding was in this up to the eyeballs. Mightn’t some of these people understand land markets pretty well, better than the average politician or bleeding-heart activist?

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      • Yes, agree ideas have to come from somewhere, altho remember that (eg) the designers of the RMA thought they were freeing things up. I’m really uneasy – without more evidence – about just assuming personal financial interests (apparent ex post) drive eg funding for studies etc. It all ends up sounding too much like the flipside of “the evil Koch brothers” – people who do have personal financial interests, but also find causes they believe in where there is little direct interest (eg the current cause around criminal records vetting).

        I don’t think we got decades of heavy protectionism because of, say, local manufacturers, altho once it was in place those manufacturers were a big (interested) obstacles to removal.

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    • Yimby like Nimby are conflicted. Thee want the visual beauty of our t7 sacred mounts but they also want affordable housing. In the past, the older folk died off and the younger folk just moved into existing houses. But older folk are not dying off and younger folk cannot move into existing houses. So we build new houses but our metropolitan cities are too far away and roads, railway, bridges and tunnels are not cheap.

      Spoke to a highrise preform concrete engineer and he tells me that preform concrete on highrise becomes highly cost efficient from 20 levels. The only location that goes beyond 20 levels in Auckland is a tiny 500skm at the harbour. Take out the public spaces and we would be lucky to have 200skm and that’s why AUCKLAND is one of the most highly dense cities in the work. Because we have dense town planners.

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      • “Preform concrete on highrise becomes highly cost efficient from 20 levels.”

        Never heard of that before. The taller the building gets, the more bulky the overall support structures need to be, adding to expense and also requiring the sacrifice of floor space. The need for stairs and lift shafts, also erodes the cost efficiency

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      • Running a cost benefit analysis on a few years back we had the same effect (building heights and profitability). Once you have to build a lift core the timeframe and cost for the project blows becomes much more complicated, and the product is clearly inferior to a walk up townhouse. Based on the resale values of the product you can build, you’re better off either building a 2/3 storey walkup or building as high as you’re allowed once you need a lift.

        All that 5/6 storey stuff which is encouraged by urban plans as a compromise between density and existing communities is in the worst of both worlds: a low rise lift core build with less return than you’d like.

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      • Yes, I was trying get preform concrete from Malaysia as the Unitary Plan has rezoned one of my sites in Otahuhu to a 6 level apartment site. As the new zoning will eliminate the requirements for carpark for 1 bedroom or studio apartments, it seemed cost efficient to pre build in Malaysia and ship the 6 levels across and bolt it on site. Since he was a mate in the industry and was raving about how he was building at a rate of 2 weeks for each 1000sqm level of building using preform concrete, I mentioned to him of our Auckland construction boom and if he was interested. He said sorry no interest as his preform concrete design becomes cost competitive after 20 levels.

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  2. So what happens ina city the size of Sydney then. Well it seems that they will run out of the cheaper labour to tend to the needs of others, much like Auckland is starting down that track.
    There is pressure there for developers to have “affordable units” in their developments. As the y point out that will mean others poay so someone can have that privilege. Following Micheal’s line about employment what should happen is that cleaers et al should be paid a lot more money so that they can afford to live in those apartment complexes.

    http://www.smh.com.au/nsw/governments-new-affordable-housing-policy-for-sydney-welcomed-and-feared-20161028-gscwk5.html

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    • The problem with the “people should be paid more” argument, is that the problem is a land market distorted in a way that makes it a kind of “black hole”. It will suck out of the real economy and housing tenants, a completely predictable “share of income”. Income goes up, so does land rent.

      There is a lot of confusion about the effect of numerous policies on “housing markets” precisely because for decades they were not distorted in this way. For example, tax breaks for landlords once upon a time just made the supply of rental housing a bit stronger and kept rents lower. Now it feeds the black hole of urban land rents. Immigration and population growth once upon a time simply enabled bigger economies of scale in housing and infrastructure provision. Artificially low interest rates and subsidies for home buyers, merely helped home buyers obtain a home and pay it off; the price of homes did not react to those demand-side boosts (just as the price of most consumer goods these days also do not react). Subsidies to renters; same thing. Higher density rezoning and redevelopment actually did result in more housing units on a site of fixed value, which fixed value was then split up over more housing units, with a cheaper price as the result. Now, the site price rises in response to upzoning, and in fact affordability becomes worse regardless of the new theoretical “availability of smaller housing units” – this last is so complex it is a subject for a whole essay (there is one on “Making NZ” blog).

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      • ….tend to think demand matters as does how such demand is financed: if you present a lending proposal to a bank with land as security, their willingness to transact is almost without question; to that end, any estimate of how many hosing units NZ is currently short of? granted, some people are living in very tough circumstances but seems like there is a sufficient stock of houses but not homes (see Figure 4.7 within RBNZ FSR November 2015)

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    • I think you are picking up my “market would pay more” line from the immigration discussion, but it doesn’t work for rigged housing market: there is nothing about what is going on in the labour market that would tend to push wages higher just because house prices were unaffordable unless, and to the extent that, people started moving away from expensive cities en masse/

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      • No, my argument is the opposite way round from “people will need to be paid more because housing is more expensive” (however true that might be under some conditions). My point is that rising incomes for whatever reason, will push house prices up in a market as rigged as ours is. And so do a lot of factors push house prices up, when historically they did not do so.

        Developers competing with each other on scale (such as Keith Hay once upon a time) do not start charging more for new houses for which their own land costs have remained static, just because incomes have risen, or interest rates have fallen, or first home buyers have been handed subsidies, or there are more immigrants. They just get on with trying to capture their share of the now larger market.

        The relationship I am describing is all about the land value reacting (or not). Other inputs such as building materials are a separate issue. The land value does not react, when the superabundant resource being drawn on is rural land, available to any buyer at rural land prices. The market does not distinguish between a buyer wanting to keep farming the land or wanting to build houses on it, any more than iron ore sellers distinguish between buyers putting it to different uses. It is regulatory rationing that changes this.

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  3. “…President Obama has chosen to address supply restrictions by releasing a Housing Development Toolkit, advising States and local jurisdictions on how to best manage urban planning to achieve affordable housing…”

    But the problem with this toolkit is that none of the expert advisors in the USA have recognised that the single determinant of housing affordability is the freedom to expand. As long as that freedom exists, all that the restrictions on density do, is keep the value of land flatter. The elasticity of price of urban land is a funny thing; it seems to run in the direction that the flattening of land prices by anti-density mandates is so strong that affordability in the urban system is maintained regardless; and the inflation of land prices by zoning for higher density, is so strong that it swamps any “housing supply” effect that was intended to lower prices.

    There are plenty of median-multiple-3 cities with densities as low as 700 people per square km (less than 1/3 Auckland’s density); and Hong Kong with 26,000 people per square km, has a median multiple of 15 to 17. These are not data outliers – they are end points that fall right on the trend line. There is no evidence that high density is an input in the direction of affordability, or that anything other than urban expansion is such an input. In the case of the data-outliers on this point, such as Tokyo and Singapore, there are factors relating to ownership of urban land itself, that are not even on the discussion list in the West. I do believe that we can learn a lot from Tokyo, but we are light-years away from understanding the complexities involved; and it is far too late in NZ’s history to “copy Tokyo” anyway. Their reforms and their relative lassez-faire on the ground are one thing, but the risk is that they are not the only factor, and only work in combination with several factors.

    One powerful factor is the way the integrated property-and-commuter rail enterprises are legally bound to operate.

    https://croakingcassandra.com/2016/08/05/perhaps-there-is-an-example-after-all/#comment-11540

    Another is that the Japanese have a cultural fetishisation of “new things” – they simply detest buying anything that has been sat on, held, operated, or lived in, by others already. Hence the constant demolitions and rebuilds and the minimal care regarding “how it looks in the local context”.

    http://www.archdaily.com/450212/why-japan-is-crazy-about-housing/

    Another factor is that although Tokyo has been growing, this is in the face of a nationwide trend to population shrinkage. The Japanese urban evolution under this trend is highly unusual; they seem to “retract” inwards into their cities and there is no revealed preference for a “low density living” dividend from the population shrinkage. The exurbs become ghost towns first, followed by the fringe suburbs. So although the overall density is high, there must be a strange land-value-depressing effect from all this abandoned land that still represents “available supply” of land for housing. It has not been rezoned “rural”; the retraction of the spread of urban areas has not been accompanied by a retracting regulatory “rural-urban limit”.

    An interesting contrast is Liverpool and other UK cities that sustained high land prices and unaffordable housing markets even as they lost population for decades. Clearly cultural factors and they way they interact with land supply, do differ.

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  4. “…awful as the current system is, it could maintain an uneasy equilibrium in which more people involuntarily rent than used to, people buy homes much later in life than they used to with more debt, and then – on average – they reap a transfer back from their parents late in life. I don’t favour such an outcome, but after several decades already of progressively more unaffordable home ownership for the relatively young, there is still no sign of this becoming some sort of moral crusade for justice, let alone efficiency…”

    The UK is the object lesson we should be observing. “Generation Rent” is a term that came into common use over there quite a while before the Eaqub book of that name in NZ.

    What we see there, is how intensification and crowding and homelessness “compensate” for and interact with rising land rent. We are only in the early stages, where urban land rent is “only” 20 to 30 times inflated above the possible base. The UK’s cities have a range of 100 to 900 times compared to a benchmark of US cities that are comparable. One of the consequences is that the “smallest rental unit” keeps falling in size without falling in price. “Shared rentals” are common if you look at rental accommodation sites in UK cities – for the rent that would get you a small house in a US median multiple 3 city, you get a 1/4 share in 2 rooms with 3 others, and access shared with something like 20 or 30 others, to a kitchen and a bathroom or two. Then there is the rented-out “crawl space” which is becoming common, and a scandal, not just in the UK but in San Francisco.

    Something else we see in the UK, is a maturely evolved, draconian response from the authorities to squatting on Green Belt or other sites. They may not shine in terms of their efficiency at dealing with housing supply issues, but episodes of organised squatting and “informal development” will be over within 48 hours, dealt with if necessary using full riot gear, handcuffs, bulldozers, and swift sentencing of the miscreants. Another remarkable feature: reconnaissance planes flying around at night taking thermal imaging photos which Council officers overlay on standard images to detect warm bodies where they shouldn’t be, such as in garden sheds. The officers then move in on the illegal accommodation, kick out the tenant(s) and fine the illegal landlords.

    This is the depths to which this racket can sink without a revolution happening.

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    • I often wondered whether you could aim to try to create a Rosa Parks moment, where a very low income family deliberately builds a house on a farmers property, without consent of the plan but in full consent of the farmer, with his own two hands – and then dares the State to knock it down because it ‘doesn’t comply with the plan’. It seems that there are probably many of these types of events going on everywhere, and there is little or no public sympathy for the ‘miscreants’.

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      • There are certainly well-informed movements in the UK that would do precisely that if the authorities were not geared up to crush it instantly. I am not aware of anything in NZ though. The Buddhists were trying to do something like this completely legally a few years ago; I had hoped they would defy the Council and go ahead anyway.

        http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11138332

        “A Buddhist trust wants to build a Tibetan temple on a South Auckland rural lifestyle block – with 28 affordable homes for followers.

        But objectors say the project will break planning rules and is inappropriate for the location.

        A senior Auckland Council planner has also warned the council that allowing the Alfriston subdivision could start a run of religious groups trying to provide affordable housing for their members on cheaper urban-fringe land…..”

        (That is a pretty explicit admission that they understand how the housing market can be turned into an affordable one, and that they are deliberately obstructing this from happening).

        In the news recently there was a “slumlord” defying Auckland Council by creating and letting out substandard housing units all over the place (sheds, internally partitioned ramshackle houses, etc), it seems that shutting him down is not something happening rapidly, at the moment. As he argues, the people he is letting to, need somewhere to exist at the rents he is charging: and he says the Council is at fault for the undersupply “because its staff are lazy”.

        http://www.stuff.co.nz/business/83271758/Property-developer-slammed-in-Environment-Court-says-he-is-starting-a-revolution-against-housing-bureaucracy

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  5. Having said what I already have about the USA and the Obama Administration’s “Tool Kit” for housing affordability, there is a significant difference between their cities potential for intensification and infill, and ours. There is a series of very interesting posts by Issi Romem on “Buildzoom” blog about this. The US cities that expand the fastest and have the housing affordability, also do the most infill already, and there is potential for more. There is also more scope for “YIMBYism” in US cities.

    This difference between their cities and ours, is that they have massive areas of REALLY low density that we don’t even imagine. We get all this rot in the mainstream media about Auckland being like “typical American low density automobile dependent sprawl” when in fact Auckland is 3 times more dense, or more, than most US cities, especially comparably small ones population-wise. While we have almost nothing between the now-ubiquitous pocket-handkerchief urban or suburban (long since subdivided or cross-leased) property; and the lifestyle block; US cities all have a full range of mandated low density suburbs untouched by infill – 1/2 acre minimum lot sizes are like the smallest common mandate, and 1 acre, 2 acre, and 4 acre minimums are quite common in “suburban” developments. There is obvious massive potential for infill of any kind, in contrast to Auckland which now has just SEVEN sections of 1/4 acre + left on the isthmus.

    There is a typical perverse unintended consequence of government introduced distortions at work in the US cities. That is, Federal Law mandates how schools are to be provided and run; the education system is a de facto top-down monopoly, with all the implications of Teachers Union involvement. Zoning is rigorous, with no choice outside of your “nearest” school. But the schools are funded from local property taxes.

    Therefore, neighbourhoods have an incentive to minimise the need to provide schools locally, and thus minimise their property taxes. There is also an incentive for well-to-do parents to want to obtain a house in the zone of a “good school”, and the only way schools are “good” is that local property prices are too high for the typical parents of likely low-achieving (and disruptive and worse) children. The default mechanism by which “unwanted families” are “excluded” by means of high property prices, is the mandating of large lots, intended to cause high prices. Now this is actually eroded in its effectiveness in practice, by the fact that land prices can be so low in so many cities, that every extra acre of size mandated might only boost the property prices by $30,000. As the actual houses depreciate and lose their value, which always was the main ingredient in the “house price”, poorer families with children can afford to move in, and as they say, “there goes the neighbourhood”. Hence more and more desperately large mandates in an attempt to sustain the “exclusionary” effect in new developments.

    Obviously in cities where the land prices have been inflated and are being inflated by constraints on urban expansion, it is far easier to sustain the exclusionary effect of large-lot mandates; hence there might be more willingness to allow denser development, because undesired families cannot afford even the smaller homes that will be developed.

    If US Federal education policy was reformed so that parents had “school choice”, or if the funding of schools was central rather than from local property taxes, this perverse incentive would be greatly reduced. I noticed a few days ago that Donald Trump is the first ever Presidential Candidate to have in his policy platform, comprehensive education reform towards “school choice”. There are major implications from this that haven’t even entered the public discussion, presumably because The Donald has so much controversy on offer that even “school choice” remains un-noticed..! While finding a lot about Trump disagreeable, I think an education reform like this would be a major game-lifter for the USA, including in the tangential urban form debacle.

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    • Fact, Auckland spreads from Leigh north to Pukekohe South 129km. Houston with 6.2 million people from the Woodlands north to Texas city south 118km.

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      • Sigh. We have been over this point before.

        The actual currently built-up footprint of Houston is 4644 square kms. But surrounding this, there is virtually unlimited quantities of land not limited in any way for development to urban use.

        Auckland’s actual currently built-up footprint is 544 square kms.

        Between Leigh and Pukekohe there are thousands of square kilometers of land that is NOT allowed to be built on. If it WAS allowed to be built on, we would not have an affordability problem. The spread-out towns north and south of Auckland are many kilometers beyond the Auckland urban area “fringe” and almost as far outside the Auckland growth boundary; and therefore it is utterly invalid to use the distance between such towns as some kind of indicator of Auckland’s existing “growth”. The amount of land inside the growth boundary is a miserable fraction of the comparable “available land ratio” in Houston and all median-multiple-3 cities. This is the crucial factor.

        Ironically if it were not for the growth boundary, many of the people commuting to Auckland from as far away as Thames and Paparoa, would instead live in a home they could afford, most likely somewhere not far beyond the existing Auckland “fringe”. The present policy, intended to “keep the city compact”, has the perverse effect that commuting distances are increased on average. Even inside the Auckland built-up area fringe, there is an increasing incidence of forced inefficient commutes because the population is being increasingly “sorted by location” according to “what they can pay”, which swamps normal, logical and efficient location decisions. This is the best explanation why a city like London can be 5 to 10 times denser than comparable US cities and yet have an average commute time 50% longer. In fact in global data, all the “monster commute” cities are the densest ones; and they all have a severe land affordabilty problem which is the conduit for locational inefficiency among the residents and businesses.

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      • Phil, you will have to identify exactly where all this available land is because all I see is, the Waitakere ranges, plenty of land but I doubt the community will allow you to cut down hundreds of kauai trees, we do have 57 sacred mounts. Sure, try telling Maori you are going to build houses all the way to the top of 57 sacred mounts. There are huge numbers of streams and rivers . Sure let’s just disregard the Queens chain. Auckland Klang has water on three sides. Let’s put up houses on house boats sure dream away. We can’t even extend a docking berth to allow for mega container ships to dock in Auckland due to community objections. Try putting people 9nto houseboats along the coast..

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    • Yes Auckland is one of the most dense cities in the world due to the privileges of 57 sacred mounts that restrict height limits from eye level from every public park ie visual height limits. The CBD harbour has been severely restricted to 500skm because the next street from Queen st is Mt Eden, Then you have One Tree Hill, 3 KINGS, Mt Roskill etc etc.

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      • Density is never anything to do with height limits, other than the height limits being a factor in the direction of LOWER density. Reading your comment again and again, I wonder what on earth you mean / what on earth are you smoking?

        The density is the result of rationing the supply of land for horizontal expansion. It should not even be necessary to have to spell this out.

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      • Phil, it is you who confuse the real issue and really do not know what you are talking about. I am working in the building sector for 30 years now and I live in Auckland and own a portfolio of properties which I develop myself. Fully aware of all the real issues faced by the industry. It looks like you just read a lot of books and spout literature with no real practical reference.

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      • getgreatstuff:

        Love your admission that you are a property specufestor. That explains everything. You have the cheek to say I don’t know what I am talking about, when all the confusion you are trying to spread, is in the general direction of sustaining the racket in super profits for the likes of yourself?

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      • Phil, I have no problems with any of your literary copy and paste as your academic interpretation has lead to expensive house prices throughout Auckland. The lack of infrastructure spending and the costs involved is so readily disregarded by you.

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      • Getgreatstuff: you just completely changed the subject.

        As a matter of fact I do not “disregard” the lack of infrastructure, and the cost of providing it. You were not talking about that before. I am well aware of this point. It is a totally irrational argument and it borders on dishonesty and fraud when the Auckland planners make this argument. Let me deal with it right away.

        Firstly, there is NOT “spare capacity” in infrastructure in existing built areas and expanding its capacity is often more expensive than simply adding new infrastructure on greenfields. The Council is being dishonest because they need to renew a lot of the old infrastructure and they have failed to accumulate funds for it. So they force developers into the position of “fall guys” to gouge the costs out of them instead of ratepayers, by forcing them to do intensification rather than greenfields, and then charging them “development contributions” for the alleged “new infrastructure requirements”. But the “intensification instead of expansion” policy is sold to the public on the grounds that there is “spare capacity” – therefore developers should surely not have to pay DC’s when they do intensification!!

        Secondly, the result of “saving money on infrastructure” under the current policy (which is not even true anyway) is that every first home buyer and renter from now on will have to pay literally thousands of dollars per year too much for housing. An exhaustive and authoritative study in the USA, “The Costs of Sprawl 2000”, found that the added burden of local property taxes in new greenfields developments when the cost of infrastructure was properly charged in those property taxes, was $50 per year (compared to a hypothetical mature suburb). So here is a proposal: let’s ask young New Zealanders if they would mind paying $50 per year higher rates for greenfields subdivisional housing with land prices having the 20 to 30 -fold super profits eliminated, and a consequent mortgage financing cost of several thousand dollars per year less?

        This approach has been explained to the government and many Councils for years already; their inaction on this issue, based on fraudulent arguments, is inexcusable and scandalous.

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    • We do have low cost cities beyond leigh and beyond pukekohe and they are large 1000sqm sections with 3 bedroom houses. No one wants to live there. I have a 5000sqm lakeside property with 3 bedrooms which I would love to stay however the commute time over 100km is prohibitive. But let’s ignore that Auckland is already stretched over 129km anyway. What’s the problem with including Huntly into a Auckland suburb? Just a simply redrawing of the map and immediately average house prices In Auckland falls 40%. Easy.

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      • A fully, John Key should pay attention. Reclassify the Waikato region as part of Auckland and Auckland house prices at a stroke of a pen falls by 40% just before the next election. The government has done what everyone wants. A immediate 40% reduction in house prices. Well done John Key. Shuts down the opposition on housing affordability and on the winning track to the next election.

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      • Your whole argument here is incoherent unless you include something like “extend the Auckland growth boundary” to Huntly / Waikato.

        What are you up to, trying to confuse the issue with omission of any consideration of the growth boundary?

        When it comes to “no-one wants to live there”; things would change rapidly if competing cities had a growth plan that enabled any volume of demand for housing and commercial land to be met at constant competitive prices. The fact that price inflation is spilling over into other cities outside of Auckland means that
        1) people DO want to live there
        2) those cities are also not planning adequately or liberally enough for growth
        3) the potential growth of those cities is finding its own level well short of what is possible were affordable land being provided

        None of these cities were anywhere near a median multiple of 3 anyway even before the latest round of price inflations set in. In fact the range of median multiples across the data set of NZ cities has long been significantly higher than the levels of Irish cities at their pre-crash peak in 2007.

        NZ 2015:

        Auckland 9.7
        Christchurch 6.1
        Dunedin 5.2
        Hamilton-Waikato 5.1
        Napier-Hastings 5.0
        Palmerston North-Manawatu 4.1
        Taraunga-Western Bay of Plenty 8.1
        Wellington 5.2

        Ireland 2007:

        Cork 4.7
        Dublin City/County 5.4
        Galway 4.6
        Limerick 3.5
        Waterford 4.1

        Why does this not seriously scare the people who matter?

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  6. I’m guessing when the Corn Laws were brought in the affected landowners were a minority? So it was probably only a matter of time before the majority decided to take action. House owners are in the majority in NZ, so perhaps we need to wait until renters become the majority, before action will be taken.

    Perhaps the public also need a better demonstration of what is possible. From reading this blog I understand there are cities with reasonable property prices. A better demonstration to the public of the planning rules those cities have, how infrastructure is provided, what ends up getting built, how prices vary within the city, how environmental impacts are handled etc. might get them interested.

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    • Good points.

      One of the things I have been challenging editors in the mainstream media on for YEARS: why don’t they run features showing the public the house prices in benchmark cities like Indianapolis, Nashville, Kansas City, Richmond, Raleigh, San Antonio, etc?

      Why has there been no social media revolution over this long since? People like Andrew Atkin and Matt Webster and Stephen Berry have tried to get one going. Why are our young people so dull?

      Most of the time the mainstream media is just bombarding everyone with comparisons of Auckland, Hong Kong, London, and New York; and assuring everyone that “we can take pride that we are up there with the global big-boy cities”. This is some of the most stupid Walter Mitty thinking imaginable; masochistic Walter Mitty thinking, what’s more. Auckland is NOT comparable with the world’s famous global cities at all apart from the spill-over of global specufesting into it, which for a city as small as Auckland, can easily upset the equilibrium to the disbenefit of the locally-born.

      Ironically some of the median-multiple 3 cities in the USA are growing at least as fast as Auckland, and the growth is associated with a completely different type of migrant and investor: the ones who appreciate the opportunities for REAL wealth creating enterprise as opposed to specufesting, and the ones who appreciate the egalitarian opportunity and the true value in housing (which is considerably more spacious and higher quality as well as being cheaper).

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