Tuesday, 24 April 2007

Carter ignores Canute: plans to repeal supply and demand

The legend of King Canute is that his courtiers were so fawning that they thought he was all-powerful, something close to a God. In an effort to demonstrate that he wasn't, he sat at the beach and issued a decree that the tide must stop coming in: hours later, awash in water, he had demonstrated to his fawning followers that the laws of nature are not be be repealed even by the decrees of a king.

Housing Minister Chris Carter has learned nothing from Canute's lesson. Carter, who as conservation minister disgraced himself over his abuse of the Whangamata Marina consent process, now thinks he can repeal the laws of supply and demand.

Meddling with the laws of supply and demand is what's already caused Auckland's housing costs to explode, making it a seriously unaffordable place in which to buy a house. The report on Auckland's housing released yesterday, which I summarised here, demonstrated that increased demand (positive net immigration, higher incomes, higher employment, and increased credit) coupled with serious regulatory restrictions on supply (excessive regulations on both land and construction through the RMA and the Building Act) has caused the cost of both land and new building to go through the roof, even as developers' margins are cut to the bone.

Carter's solution? Canute-like, he intends to issue a decree that housing be made affordable. On top of all the regulatory hurdles already in place for those building new homes, he wants to add one more: he intends to decree that developers, whose margins are increasingly slim, will have to add so-called 'affordable housing' to their developments -- low-cost housing on high-cost land; land made more expensive by the meddling of planners -- leaving any profits to be made from these homes to the purchasers who subsequently onsell them.

This will not result in an increase in affordable housing: it will result in developers' margins becoming even slimmer, and their ranks becoming as a consequence even fewer; fewer developers with slimmer margins will do nothing to decrease demand, but it will help to even further decrease supply (and to demonstrate once again that the laws of economics are not be be repealed even by the decrees of a minister).

Carter has learned nothing from Canute, or from history -- or from the Law of Unintended Consequences. The history of government controls is like the story of the Emperor's New Clothes in reverse: New controls are added all the time in order to fix the problems caused by previous controls, but no one is listening to the little boy who is saying, "Why not just take off the controls altogether, and then you won't need to make up new ones." Why not just get governments both central and local the hell out of the way altogether?

Ever-increasing and ever-higher interest rates designed to squelch booming housing prices; the mortgage levy; the de facto cartelisation of NZ's 'big five' banks; now a decree that more affordable homes be built ... all measures desperately calculated to fix the symptoms of exploding housing costs while ignoring the regulatory causes.

Perhaps it's time to listen to that little boy now? Message to Mr Carter; to the city's councillors and to Carter's ministerial colleagues and to the all the denizens of all the planning departments that you and your predecessors have unleashed to meddle with our land: Get the hell out of the way!


  1. Dont forget the irony that all that extra interest you are paying does diddly squat for the economy. It goes straight to the shareholders of the Aussie bank cartel.

    If he really wanted to do something he should slap a levy on the money leaving New Zealand. Overseas investors either reinvest here or loose a percentage to the levy.

  2. It's worth reading (spooky coincidence, eh?) the link to the article by Rees-Mogg. Same causes, same effects. Severe and protracted unaffordability.

  3. It's either following the legend of King Canute, or he simply has his head up his arse.

    Carter's first INSTINCT was probably to mandate the price of ALL new housing.

    No doubt he is now realizing this namby-pamby "compromise" of only setting the price for SOME housing is just making him look stupid.

    I really think he should trust his instincts. Those instincts seem to to be saying "roger the economy completely". Trust those instincts Chris.

    Then he can decree Labour shall stay in power the next election. And the tide rolls in.


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