High house prices: a blunder of our governments

The comment by Frank McRae was to the point of some hurdles we still face in the residential division of Auckland.

Of note that workshops and mediation for the Residential Zones in the Proposed Auckland Unitary Plan start in late June and late July respectively

croaking cassandra

That was the title of an address I did to a group of several hundred investment management professionals in Auckland this morning.  The organisers wanted snappy titles: mine was inspired by the book, The Blunders of our Governments that I wrote about a few weeks ago.

The essence of my story is in this summary I gave them for the programme.

High and rising house prices in Auckland hog the headlines.  The tax regime and bank lending practices are largely irrelevant to what has gone on.   Instead, increasingly unaffordable house and land prices result from the collision of two, no doubt individually well-intentioned, sets of policies.  Tight restrictions on land use crimp the supply of the sort of properties most people want to live in, while very high target levels of non-citizen inward migration persistently boost demand for housing.  One or other policy might make sense, but together they represent a blunder that is enormously costly to the…

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One thought on “High house prices: a blunder of our governments

  1. And my response to Frank McRae on CroakingCassandra Blog, was:

    The problem is that intensification has two different effects depending whether the city is growth-constrained and “rent extractive” (I mean economic rent) or whether it is free-sprawling and has a low, flat urban land rent curve with site values derived from “differentials” relative to the exurban rural land values.

    During decades when sprawl was uninhibited, economists came to some broad assumptions, such as that more intense housing resulted in more affordability. This simply ceases to be true when you have a growth boundary – no “housing”, no matter how intense, ends up cheaper than what the median home USED to be under conditions of freedom of sprawl. Site values end up elastic to density – they rise according to how many households you can put on them, and the amount of economic rent you can “extract” from each household tends to be HIGHER the smaller the average home is. Hence HK with 66,000 people per square mile, has a median multiple equivalent of 17.

    But in Houston, not only is the median multiple below 4, and decent family homes are available for $200,000, but CBD apartments are absurdly affordable in their rentals too – and Houston CBD is far more of a powerhouse than Auckland where the apartments are absurdly expensive!

    And in the boundary-contained city where the “differential” derivation of site values is lost, “sites” are turned into a speculative commodity like gold, rather than a resource that the market allocates to best use.



    That second item should be compulsory reading for all urban planners and urban economists whose theories are out of touch with the way urban site markets actually work when distorted by land rationing policies.

    Alain Bertaud agrees with my argument about “site rents” and the total supply of land available to the urban economy. We have been corresponding for years. He is an “out AND up” advocate, not an “up is is good as out” advocate – which is plain wrong. Ed Glaeser in particular should know better, and there are plenty of his professional counterparts who disagree with him.

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