Arbitrary Lines

Ever since I’ve been writing about house prices – more or less the life of this blog – one of the things that has struck (and sobered) me is that I do not know of (and no one has ever been able to point me to) an example of a country or even a region that having once messed up its housing and urban land regulation, generating absurdly high house price to income ratios has undone things and returned to sustainably low price to income ratios (perhaps fluctuating around three times). There are, of course, many places in the United States where price to income ratios never went crazy. But never having dug a deep hole is a different matter than getting out of one once dug. One reads occasionally – even briefly on this blog – of how easy it is to build in Tokyo (and a culture of frequent demolition and rebuild), but no one ever suggests that Tokyo price to income ratios are low (just much lower than they were a few decades ago at the peak of the 1980s boom).

A month or two back I saw reference somewhere to Arbitrary Lines: How Zoning Broke the American City and How to Fix It, a new book by an American “professional city planner” Nolan Gray. Last week it turned up in the mail, and being neither very long nor very technical I’ve now read it.

Gray offers a pretty useful introduction to how zoning came to be in the United States (complete, as usual, with various Supreme Court cases), and if much of that isn’t very directly relevant to New Zealand I found it interesting nonetheless. And, of course, some of the best-known restrictions in many areas of the United States – single family dwelling zoning, to the complete exclusion of any other uses for the land (whether two single-storey townhouses, or a corner dairy, or a hairdresser’s), isn’t (and hasn’t really been) a widespread thing in urban New Zealand.

And there is some useful material on some of the potential wider costs to restrictive land use, although on my reading of the relevant papers Grey often jumps too readily to assert causal relationships. But then his background is planning (and is currently studying for a PhD in urban planning) and in some respects the book is best seen as an evangelistic tract (they have their place). No doubt it would appeal quite strongly to that small but vocal group of New Zealand reformers who dream of demolishing whole suburbs, long for light rail systems, and really dislike the idea of backyards (and increasing physical footprints of cities). They often dislike cars too. And often don’t seem too keen on – quite derisive of – people not like them.

And thus as the book went on I was finding it more than a little annoying in places. Gray makes many good points about the inadequacies (and worse) of US zoning systems. But it was pretty clear that he had one particular urban form in mind, and whole agenda of other issues he (and his publisher – explicitly focused on “solving environmental problems”) cared about. And, perhaps reflecting that, there was very little in the book about house prices themselves or the likelihood that his solutions would materially lower them. But there was quite a lot on emissions and energy use (which could simply be priced, as they now largely are in New Zealand), and a dislike of turning farmland (or any other undeveloped land) into suburbs (where, again, any externalities can and should be priced). He seems to have been living in Washington DC when he wrote the book, and enjoying that: we enjoyed our time living in a DC apartment too.

It was also getting frustrating that despite writing about a country that has quite diverse systems, for a long time there was almost no mention of the vast swathes of the United States with (a) population growth, and (b) low and fairly stable house prices.

Until, three-quarters of the way through the book, I came to the chapter headed “The Great Unzoned City”, about Houston. I wouldn’t be bothering with this post if Gray had simply been making the point that real house prices are pretty low, and fluctuate around a fairly stable trend, in Houston. There are, after all, many cities in the annual Demographia tables that are cheaper still. There isn’t that much zoning in Houston, and people have written previously about Municipal Urban Districts (MUDs) which enable land – outside established urban local government boundaries – to be readily developed by private developers, including dealing directly with (internalising) the associated infrastructure costs of development. It was nice to see his, perhaps grudging, recognition that (a) everyone drives in Houston, and b) people are moving to places such as it with cheaper housing. It works. And there has been considerable intensification in Houston over the years.

But the real thing I learned about – and the point of the post – was about the Houston system of Deed Restrictions.

Again, as long as I’ve been writing about housing and possible reform options for New Zealand, I have been intrigued (starting here I think) by the idea of allowing small groups of landowners in existing urban areas (perhaps at the scale of a city block or a small neighbourhood) to set collectively their own land-use rules for their own group of properties. They are an established market mechanisms in new developments in New Zealand, in the form of private covenants, and one could mount an argument that zoning was really an attempt to do much the same thing (collectively manage shared interests, where there are real externalities).

In a report some years ago, the Productivity Commission took a very dim view of private covenants, even suggesting that the government should legislate to restrict their use. But they’ve always seemed to me to be a way through the endless battles (eg the Christchurch City Council stories this morning) around land use, at least among those willing to operate in good faith (and it is never clear how many are). Why not, for example, remove all government restrictions on land use for housing (height, setback, site coverage, “character”, parking or whatever) in existing urban areas AND on undeveloped land, while allowing neighbourhoods/blocks (groups of existing property owners) to adopt by super-majority (and be able to amend by the same super-majority) previous restrictions as applicable to their land, and their land only?

Over the years, I’ve seen a few other people make similar suggestions (eg there was a UK think tank piece a year or two back) but it had about it perhaps an obscure textbook-y feel. It wasn’t clear that anyone had tried it ever, and I myself am inclined to invoke revealed preference arguments at times (if something doesn’t exist anywhere, it is worth at least thinking about whether there is a good – well-grounded, not just political – reason for that).

But it seems that in Houston they have done something very like what I’ve suggested, and it has been in place long enough to see how it works. It is a big, growing, city with pretty-affordable house prices (I’ve been looking recently at small modern units in Christchurch recently – NZ’s least unaffordable city of any size – and it is simply depressing (although also a reminder of what we could do) to check in from time to time and see what one gets for the same money, in a higher wage country, in Houston).

There have been attempts over the years to put in place more extensive zoning systems in Houston. They have failed, at several referenda. But here is Grey:

It is easy to develop on the margins of Houston, it is fairly easy to develop in much of the existing city, but those individual groups of landowners who want to have collective rules for their own properties can do so, and the local authority will enforce those rules on those properties. Deed restrictions are not set in stone for ever, but appear to be often time-limited and requiring a further (super-majority) vote of the then owners (a different group than 25 years earlier typically) at expiry to renew them.

It seems like a model that has a lot to offer here, and which should be looked at more closely by (a) officials, and (b) political parties exploring the best durable way ahead for New Zealand.

Those not operating in good faith – or at least much more interested in other agendas than a) widely affordable housing, and b) property rights (individual and collective) – would no doubt hate it. And, for the moment, they have the momentum – National and Labour last year rushed through legislation that stripped away many existing restrictions, and as a technical matter the government can if it likes force individual city councils to do as it insists. But governments can lose elections too, and if we are serious about much lower sustainable real house prices – and it isn’t clear how many central or local government figures are – we need durable models. The Houston model has proved to work, both in managing the politics and in delivering a city with widely affordable housing, and a wide range of available housing types. And if greenfields development is once again made easy – as distinct from say Wellington where the regional council is currently trying to make it even harder – urban and suburban land prices would fall a lot, and stay down.

One of the arguments some mount for over-riding local community preferences is that “people have to live somewhere”, suggesting that it is unacceptable (even “selfish”) for existing landowners (acting collectively) to protect their own interests and preferences for their own land. But that argument rests only on then unspoken earlier clause “because we will make it increasingly difficult to increase the physical footprint on cities”. Allow easy development, of all types (internalising relevant costs), and there is just no reason to ride roughshod over the collective interests of existing groups of landowners, providing they can restrict things only for their own group of properties.

Some might push back and argue that there is nothing to stop groups of landowners forming private covenants now on existing properties, and I gather that is legally so. But coordination issues and transactions costs are likely to be very high, and people seek to use political channels instead. How much better if we provided a tailor-made readily enforceable collective action model, and then got politicians right out of the business of deciding what sort of houses can be built where.

And, to be clear, as someone living at the end of a hillside cul-de-sac I would have no interest in a Deed Restriction for our property. My interest is ending the evil that is Wellington price to income ratios of 8x or more, and enabling ready affordability for the next generation.

26 thoughts on “Arbitrary Lines

  1. Here, here – that last sentence reflects my underlying interest as well – but additionally, so many are in dire straits right now, let alone in a generation or two. The Salvation Army recently stated in the media that the ‘housing crisis’ under the Key government had turned into a ‘housing catastrophe’ under Labour. I watched the Sunday programme on Rotorua’s emergency housing and decided I would go public with a proposal for regulation of the rental market (a proposal I’ve been working in the background on previously). So, I registered a petition with Parliament.


    • Struggle to see how regulation of the rental market is going to increase supply. Investors have been exiting the market in response to many anti-investor initiatives over recent years. Presumably you mean rental controls – and we all know how that works over time.


      • Not controls, but regulation. It is a market just like any other. I tested my formula over a two-month period on the Hutt Valley rental market. Made up a spreadsheet of every property advertsied over the period – one of the things I research/documented was the date of purchase by the current owner and the price paid. 75% of the properties had been owned for more than 10 years by the current landlord/owner. Many 20 years+. The balance, of course who bought more recently, would need to sell. I appreciate that in all market change there are winners and losers. I wish it hadn’t got so out-of-control too, but NZ can ill afford the $2billion+ (and growing, growing) per annum cost of the accommodation supplement.


      • As you argued in Superdiversity myth :
        The distinctive feature of the New Zealand economy is that land is an important input into
        the productive process. This is obvious with the agricultural, fishing and forestry sectors but
        it also applies to international tourism. In a simple model of the New Zealand economy
        where the supply of land is fixed, and New Zealand’s isolation means it is not a ‘natural’
        location for the production of a broad range of internationally traded goods and services,
        then an increase in the labour supply through large scale immigration will reduce the
        marginal product of labour. As a result:
         Real wages will fall
         Owners of land will benefit
         There will be an outflow of ‘native’ labour in search of higher wages in Australia
         The economy will be bigger, but average incomes will fall
         Resources will flow into low value service production.
        A developer (I think it was Hugh Pavletich) wrote in a comment that the key to development was getting the land price right. So while we wish for lovely development with effects we just get Williams Corp because quality isn’t affordable?


  2. More regulation Katharine? Isn’t that which has resulted in the present catastrophe? In part at least consent fees, reserves contributions, development levies, inspection fees, etc., represent substantial parts of the end costs of section and therefore house prices. Each cost, plus of course the original subdivision costs, (council planning, public consultation, etc., etc., )may each have their individual logic, but taken overall I suggest most of them simply represent ” council income” , needed (we are told) to run the whole ponderous bureaucratic monster paying “living wages” to council minions and the startlingly high salaries of the middle and upper management sectors.
    Surely, somewhere in New Zealand, we could have been trialing a subdivision based upon minimum statutory controls combined with the sort of owner focussed model Michael is suggesting? Then even if it was an objectively assessed failure, we would at least have established some base line to compare with our NZ wide “one size fits all” model designed by bureaucrats to suit bureaucrats.


    • Yes, Ross I understand your point very well. But as Michael asked in the opening – he hadn’t seen anything proposed yet to successfully unwind the mess. To me a part of that mess is the accommodation supplement (the subsidy paid to landlords by taxpayers) – and as a nation under Lange/Douglas they unwound/removed many, many government subsidies overnight, and some of the industries survived, others didn’t. We need that kind of bold action on the housing market now, to my mind.

      Liked by 1 person

    • I have been promoting the Texas MUD model for years, and the ideal place to try it would be in a regional city that was looking to grow. In theory, it can be easily done but would need councils to be a proactive invisible guiding hand as I’m sure Adam Smith was alluding to, rather than the command and control ‘look at me’ hand they want to be.

      Further, because the rest of the local market would be selling under the old model, any MUD-type model would only have to alter their prices by a fraction less to be competitive, not the full amount they could, so they don’t and would just take the super profit.

      And lastly, even if the developer was so inclined, the council being the next most restriction in the system would try to claim the bulk of the savings, as they are trying to do with many developments.

      In a restrictive system, all savings anyone else tries to make, will within one build cycle be captured by the most dominant restriction.

      That’s why the Levitt Brothers even had nail factories as they knew that any restriction that enabled a monopoly pricing increase to incur in any part of the system would negate savings elsewhere.


    • I’m sure there are none, as posed. Simply allowing greater density within existing urban boundaries will tend to raise land prices, while the effect on dwelling prices is indeterminant ex ante. Bigger cities do tend to be more dense that smaller ones, but when the greenfields option is also readily available we would expect land prices across the board to be pretty low (approximating that for the best alternative non-housing use).

      Liked by 1 person

    • I and others over the years have looked and we can find no examples, but then it is really not the question to ask. The question to ask is, ‘when a housing crash happens why don’t they then at the bottom of the crash make changes so it does not happen again?’

      We will all remember John Key making promises for affordable housing prior to his election, and then having the ‘luck’ of the GFC giving him a low on which to enact policy to achieve that, with little risk of any further downside. But he did nothing.

      Thus the follow-up question is, ‘what changes do we have to make to prevent another boom and bust repeat?’


      • Yes, prevention is key, and you are so right, better those changes are made when the ‘pain’ associated with transition can be minimised. I’ve lost faith in our regulators – too many of them are on the multi-house bandwagon as their means to a comfortable retirement.


  3. Did the Productivity Commission really ” take a very dim view of covenants”? The 2015 report, Using Land for Housing, covered the issue of covenants. It listed examples of covenants applied in subdivisions in NZ. These included such things as: no further subdivision permitted, minimum dwelling size of 180m2, specified size and materials of the letter box, minimum value of dwellings, owners may not object to developer’s future activities etc. The report noted that covenants generally reduce flexibility of land use now and in the future and add to construction costs, but may also encourage development by reducing risk for buyers and developers. The recommendations were to review legislative provisions relating to covenants with an eye to reducing the proportion of landowners required to agree to covenant changes from 100% to a super-majority and to introduce a statutory sunset period on restrictive covenants in the range of 25 to 30 years.

    Houston certainly has much lower cost housing than we are unfortunately accustomed to. Construction costs are astonishingly cheap by NZ standards (scale, standardised and modular design & build etc all contribute). Land is also cheap – but for good reasons. It is flat, expansive in every direction and not especially attractive for agriculture. Surveys of residents tend to show householders feeling isolated and lacking in services. The city is very car-centric.

    Christchurch has some of these attributes – but mostly by accident. Land is available in neighbouring districts giving homebuyers options when CCC gets too restrictive with its planning laws.


    • The reasons for Houston’s cheap land prices are not for the reason you mention. If flat land was a proxy of lower cost then Australia would be giving it away.

      Bringing bad flat ground to a good building standard in many parts of Christchurch makes it many times more expensive than on a slope with good ground. The same with Houston as it too was built on a marsh.

      Even high-quality flat Dairy land in NZ is only circa $50,000 per ha, not the 20x plus it suddenly becomes just because of pre-zoning.

      The main reason for the competitively priced land in Texas, in general, is that they have few restrictions as to which land can be developed next so at any one time there is more land available for supply than demand, and thus no ability for land bankers to monopolize what gets developed next. Thus land to be developed can be bought close to its next best economic use price which is normally its agricultural value.

      If we had the same policies in NZ, developers would be able to buy land close to the Dairy price, ie approx. $50,000 per ha.


      • We have seen examples in NZ of developments outside of the usual urban/rural boundaries ( Pegasus, Pauanui, Whitby) with developers providing the necessary infrastructure. Each has still required some local govt consenting process. In its 2017 Better Urban Planning report, the ProdCom recommended that the necessary policy and legal frameworks be developed to encourage such developments in order to facilitate more a more competitive market for development land.
        On your other point that flat land is not a proxy for lower cost, of course restrictive planning rules can make even flat and otherwise low value land expensive, and we’ve seen plenty of that. But it is quite clear that geography also matters.


      • Good examples, Murray. I believe they all still apply restrictive covenants to the sections being sold within those developments. What I wish we’d see somewhere is just bare-land build what you want subdivisions.


      • Murry. I was extensively involved in Pegasus. It took over 10 years t get consent on pretty non-descript land, with the Council managing, by their monopoly powers, to gouge much more than their fair share in fees and comprise from the developer.

        And for all the excellent work the Prod Comm did on their housing recommendations, nothing has happened to make housing truly affordable.


      • Clearly housing here remains outrageously expensive. The causes of, and solutions to, that are many – the first report done by the ProdCom in 2012 was on housing affordability & the coverage was pretty comprehensive. It spent a lot of space dealing with planning constraints and the impact of limiting access to land. That report kicked off a number of initiatives around the public sector, but none were pursued vigorously enough to make a major difference.

        It seems to me that urban and regional planning are inherently challenging – it is where competing property rights/interests collide. Dropping a sizeable new community into the countryside (such as Pegasus) will always generate strong & highly political reactions with objectors grabbing for every lever they can find to block the proposal. Of course, 10 years is far too long for the resolution of those conflicting interests. So the question is how to design regulatory regimes that do the risk analysis and risk apportionment, hear and assess the various opposing views and come to a decision. It is worth remembering that plenty of local governments have had their fingers burnt by developers whose ambitions have run ahead of their ability to deliver – and it is generally the local council that picks up the tab. of course they will be risk averse in those circumstances. I reckon the Prod Com’s analysis and recommendations on urban planning provided a pretty smart pathway through these issues. Randerson seemed to be drawing on that report quite heavily initially, but in the end, not enough.


      • Katherine. You do realize that the Deed Restrictions Michael talks about in his article are our covenants.?

        The reason developers add covenants is that they add value by protecting amenities that are of value to the target market. If there was an advantage in selling by having no covenants, then developers would do that.

        Having said that, there are some poor covenants written by developers because they don’t really understand what they are doing. Let’s face it, with demand exceeding supply, you can build poorly, have poor covenants, at half the size of what they build in Houston, and still sell for a lot more.

        This whole issue of Govt. decreed height and density increases, and the backlash against it is because those zonings to which they are applying it do not have covenants.


      • Yes, I understand restricted covenants as currently applied in NZ. And yes, I assume that the new MDRS/Intensification legislation does not over-ride existing restricted covenants – so newer subdivisions (such as Whitby) are not subject to these standards. In an earlier blog that Michael linked to in this blog entry, I re-read my comments at that time, and my opinion on their use in the NZ context hasn’t changed. That blog is


      • DAS, also worth noting that the “government decreed height and density” provisions as you refer to them, do have any number of qualifying matters that councils can choose to use in relation to their plan changes intended to implement the new standard. They are (as I read them) reasonably flexible and in some places (e.g., areas subject to hazards) would be wide-reaching. Intensification makes a lot of sense in certain areas and many councils had already implemented such precincts in their existing plans. Therefore, the exercise for planners should have been to review their existing provisions for height/density precincts and then determined whether or not these were/were not adequate – using qualifying matters to exclude such development in areas where densification was not appropriate. I’ve looked at a few of the Plan Changes notified – some are good/making good use of the qualifying matters – others go too far (i.e., fail to implement appropriate qualifying precincts, and thus exclude intensification where it is not reasonable or warranted). Don’t misinterpret me as supporting this new legislation – I as ‘blanket’ type planning legislation doesn’t work, to my mind. You cannot just build anything anywhere, some planning has to be done.


    • “very dim view” is probably unfair. I haven’t gone back and reread your original report, but my 2015 description (in here suggested i interpreted the PC as not exactly looking with favour on the widespread use of covenants, and the proposed sunset clause would have dramatically eroded the usefulness of the instrument (at least with options for renewal by supermajority).


    • Bertaud points to a pseudo-scientific policy in China that mandated that every apartment unit receive a minimum amount of sunlight,

      throw some people under the bus

      On the Auckland Transport Blog (Greater Auckland Frank McRae’s post?) an architect argued against the governments plan (Daylight Robbery) with accompanying design; some properties loosing all their winter sun and living rooms looking into bedrooms. Brendon Harre. Stu Donovan and others of that persuasion were scathing. There seems to be an odd ideological drive there.

      The evidence is fairly clear as to how humans like to be housed.
      Preferring or Needing Cities? (Evolutionary) psychology, utility and life satisfaction of urban living

      Down in Queenstown you have good (or a good) developer – John Darby and the legacy of Warren Cooper “the market will tell us”. I fact people experience the place from a bus “oh look they have a happy hour! Who is going to be last out of the shower?” Or people who haven’t actually stood out in an open space such as Eglington Valley.

      The bottom line (I think) is our economy is driven by skills based migration: an amorphous blob (“the economy”) needs “skills”. In fact the spending and investment of people fleeing a degraded environment and landing at the top drives the economy and lowers the living standards of the average person. Ninety percent of the discussion is justifying the status quo?


  4. A Nation of Public Housing

    Neal Peirce / Jun 30 2012

    For Release Sunday, July 1, 2012
    © 2012 Washington Post Writers Group

    SINGAPORE — If you hate government, want it out of your hair and held at bay, Singapore should be pure hell.

    One government agency manages 80 percent of the housing stock — all called public housing. It checks your age and whether you’re married to decide whether and when you’re eligible for an apartment. It decides what you’ll pay to occupy your flat, which local services will (or won’t) be provided. It even checks your ethnicity — every housing area has a set balance among the leading local ancestries — Chinese, Malay and Indian.

    So unless you’re affluent enough to own a private home — and few Singaporeans are — the government’s Housing and Development Board is your all-powerful landlord. Ignore its rules and you’re out in the cold.

    Sounds oppressive?

    Well, consider the bargain that’s offered — a clear path to personal financial solvency if you’re a citizen of Singapore and play the game as the government wishes.

    Given specific entry rules, you’re entitled to an apartment.

    There are hurdles. First, you have to have been employed continuously for at least one year — call it public housing if you will, but no freeloaders welcome here!

    Second, you have to be 21 or older and forming a “family nucleus” — already be married, or plan to marry. Wedlock and flat acquisition seem to go hand-in-hand. (Are gay couples eligible Unambiguously no, even though one hears Singapore does have its own gay community.)

    Single men or women can apply for the housing, even in groups — but not until they’re 35 or older.

    Plus, there’s a moderate income ceiling and a strict rule: you can’t own any private housing.

    What’s notable is that once you agree to this social engineering, and you’re “in” — you’ve made a down payment, signed what amounts to a mortgage agreement — you have a choice of different apartment sizes. You’re actually an owner. The monthly payments are a modest 20 percent of your family income. And as you build value, you can actually sell your apartment and move to a higher-grade unit.

    When Singapore won its independence in 1960, subsistence hut-like buildings housed most of the people. Today, across the crowded citistate, one sees arrays of high-rise public housing towers, symbols of nationhood and rootedness won by conscious, consistent effort. Singapore has every right to boast that it’s “the only country in the world to achieve almost full homeownership status” — no slums, no squatter communities. And “not just public housing, but homes people can be proud of.”

    Plus there’s a constant pattern of demolishing older apartment complexes, replacing them with new. To undergird community solidarity, residents are invited to move en bloc with their neighbors to brand new apartments.

    It’s easy for outsiders to say there’s government-enforced conformity in Singapore. And indeed, a nationwide set of government-underwritten social clubs provides constant recreation and educational activities, targeted at age groups ranging from little children to elders on canes. The conformity and government sponsorship might concern Americans. But the delivered, year-in, year-out services, clearly enriching Singaporeans’ peoples’ lives, far outshine those in all but the most affluent most U.S. communities.

    Plus, Singapore is redefining public housing design in a dramatic fashion. Standing at ground level, one gasps with amazement at the height and drama of the new Pinnacle housing project, opened in 2009 on a prime center-city piece of land.

    And why? Soaring upward from ground level are no less than seven 50-story apartment towers. And “not just towers” — the seven as actually linked, made a single community and project, because they’re connected by skybridges. One, on the 26th floor, offers residents a children’s playground, an outdoor gym, and a quite amazing 800-meter long jogging track. And on the 50th floor, there’s a sky garden and 360-degree viewing deck.

    It’s in the nature of high-rises to be far more impersonal than communities of more human scale. But of one plans high-rises with care — social as well as physical — the results can be highly positive. And as the world — Asia a prime example — adds billions more people, attractive and livable high rises can make a dramatic difference.

    Touring the Pinnacle, noting kids at play, joggers on the run, classrooms and varieties of stores, enjoying the spectacular views and sense of safety, I suddenly had a flashback. I recalled the ugly and forbidding, ultimately high crime zones of America’s post-World War II public housing. I remembered visiting the ghastly Pruitt-Igoe project in St. Louis before it was abandoned, blasts of dynamite reducing it to rubble.

    So it’s obvious: government can make dire mistakes — as we Americans indeed proved with our callous placement of public housing in isolated neighborhoods, deprived of connections and services. But as Singapore illustrates, government can perform social and physical miracles too. Ultimately the issue’s not government — it is us.

    Liked by 1 person

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