Tuesday, February 12, 2008

WARNING: White noise on housing (updated)

HLA-NZ-2yr Fascinating to see that in today's speech to parliament outlining her election-year programme, Helen Clark has signalled that her government will be making crown land available for new housing.  This is Clark's first genuine salvo in the battle with increasing housing unaffordability, and a bid to outflank John Key's platititudinous four-point plan for housing affordability announced at last year's National party conference. 

If the Clark scheme does manage to spike one of U-Turn Boy's key 2008 campaign guns, it will only be like spiking a pop gun -- even if the powder of Clark's own scheme is as wet as I expect.  On its face the idea is a good one and I look forward to the details, but I expect that we'll be looking at a similar sort of scheme proposed by the British Labour government last year -- one that that British writer James Woudhuysen called "a kind of Army Surplus approach to housing."

‘Public sector land use’ ... turns out to be barracks, canals, railway sidings, and turf owned by the National Health Service (NHS) or by local councils. Here we are asked to scrape the bottom of a very small barrel. In effect, the [government] searches for the public sector bits of the 5.5 per cent of England’s surface that is brownfield land.

In effect, as Woudhuysen says, this amounts to little more than a little massaging of existing "ultra-restrictive land provisions" in the addled expectation it will have some effect.  It won't. 

The hope is that a tiny relaxation of planning constraints will encourage the private sector ... and numerous hybrid housing vehicles, state monoliths and quangos to build more homes, especially homes that are ‘affordable.’

That approach won’t work. It will mean some extra homes are built, but it will not make proper home ownership cheap. It will provide jobs for – and protracted quarrels amongst – many happy middle-class people: planners, architects, building employers and environmentalists. Yet precisely because what it is proposing amounts to a job-creating exercise in changing jurisdictions and diffusing authority, the government will find that all its eye-catching, bullet-pointed initiatives will not lower the sale price, the rent, the maintenance costs or the buildings insurance attached to a real home.

houseprices1 It's impossible to say without seeing Clark's own eye-catching, bullet-pointed initiatives, but I suspect her proposal is little more than election-year white noise.  Even if Bernard Hickey is right that house prices will drop by up to thirty percent over the coming year, something more radical is needed.  Woudhuysen has such a proposal, one on which both Clark and U-Turn boy should sit up and take note.  I paraphrase his proposal for a New Zealand audience:

Real homes will only become affordable if, in principle, everyone can go to a farmer, buy a hectare of land for $30,000, and freely build a house there at a cost, perhaps, of just $100,000. That kind of transaction would lead to significantly lower prices than the $390,636 average asked for a home in NZ today. The state should stop preventing deals like this from being done. It should step back, and instead provide the infrastructure to let that house-on-a-freely-bought-hectare thrive.

That such deals can't be done, and won't be done as a result of either Clark's or Key's announcements is a measure of the overbearing powers of the state in relation to the land.

Ever since the Town and Country Planning Act of 1927, to buy that $30,000 hectare of land and build on it has been illegal. The nanny state, not the popular will, determines who may build where. The state essentially retains a complete monopoly over what land can be developed for housing and what cannot. To end house price inflation therefore, Britain must end its state-imposed scarcity of land.

The lack of affordability that characterises Britain’s housing market is not about too many people – single-person households, divorced families, immigrants and their children – chasing too few homes. It is not simply an economic question of supply and demand. The housing market is profoundly distorted by the political intervention of the state, which imposes drastic limits on land that can be developed upon. Only a similarly drastic counter-attack on state controls, amounting to a veritable bonfire of National's Resource Management Act and the country's forty-odd District Plans will allow housing in NZ to acquire a semblance of either rationality or efficiency.

What's needed in other words is not massage or spin, but a planning revolution -- one that sees the country's planners joining the shortened queues of the unemployed.

UPDATE 1:  The bureaucrats have obviously been given their talking points this morning ahead of the Prime Minister's speech this afternoon

Government  building 'experts' BRANZ (the chaps who okayed the cheap Tuscan claddings on nineties housing) for example have two chaps talking up Clark's bullet points in advance.  Ian Page is an economist with BRANZ, and if you find yourself wondering what sort of economist would want to work for this sort of organisation, then you only need to read his analysis to find out it's a very poor one.  Burgeoning land prices are affecting housing affordability, says a 'report' co-authored by Page, while developers are controlling ample supply.  Says 'research strategy manager' Chris Kane of BRANZ, the problem is not the state's restrictions on land development but greedy developers who are keeping their land off the market. Wellington City Council urban planning director Ernst Zollner followed on the talking points by "confirming" there were "huge tracts of land in Wellington zoned for housing ... but that doesn't mean it's available. In Wellington the land is tightly held by a few men," he said.

All this is a miasma of bureaucratic bullshit, as just a moment of thought and a sprinkling of real fact is enough to show. 

First of all, New Zealand's cities are among the least dense in the world, and land in them amongst the most expensive compared to income -- it's the planning restrictions put on land by councils themselves that makes them so.  And as with Auckland's planning gurus boasting about "releasing" land (ie., taking some rules off land owned by you and me), the amount 'released' is nowhere near the amount of land that's needed under current planning rules.

Second, and with all New Zealand's major cities ring-fenced by zoning, there's a rent-seeking bonus for any land-owner who owns land just outside the ring-fence or in a lower density area if he can sit tight until the zoning changes (or if he can wine and dine the planners and councillors and encourage them to change it). With the holding costs of empty land, you're only going to keep it empty if there's a huge windfall profit at the end of it -- such profits only come when plan changes rezone land from higher densities, which is what those developers are waiting for, and one reason they have such good budgets for wining and dining*.

Frankly, both ring-fencing around cities and enforcing lower densities within them are the twin causes of the problems (and its the state giving planners power to do both that needs to be expunged).   There's no problem with sprawl if the ring-fencing were relaxed (New Zealand's urban areas account for less than 1 percent of the total country, one quarter of that in the Auckland region. If all of NZ's 1,471,476 existing households were to be rebuilt on an acre of land -- which was the sort of thing proposed by Frank Lloyd Wright in his Broadacre project, right-- we'd all fit in an area less than one-quarter the size of the Waikato , and just think how easy it'd be to thumb a lift out to Raglan!).  And there's really no problem with higher densities within cities if the planners are muzzled, if the private sector gets to offer buyers what they want, and if the state is barred from building the sort of thing the state always likes to build -- which is building the slums of tomorrow.

What it comes down to is choice.  If people were only left free to live in the way they wanted -- however apoplectic that made all the many enemies of choice -- the problems of housing unaffordability would disappear overnight.
                                                                                        * * * * *

* As James Woudhuysen explains the point,

A housebuilder once typically took out an option with farmers so that he could buy their greenfield land at an agreed price in the event that he secured planning permission. However, once state policy shifted decisively toward high density, brownfield development, housebuilders found options on urban land much more expensive than the old sort. That made them build up their own stocks of land, whose price they could rightly expect to appreciate very nicely over just a few years. Land banking is a symptom of the inability of the housebuilder to deal with farmers through options, [and] because the state has decreed that low-density suburbia can no longer be his core business.

UPDATE 2:  Owen McShane told Leighton Smith the BRANZ report itself is one of the best he's seen, and says nothing like what's been reported -- which if true means it's the reporters who are following the Prime Minister's talking points, and those like me who relied on the reporters' integrity have again been misled.

What the report does show, says McShane, is that in Auckland for example it's the ring-fencing of the city by Auckland Regional Council planners that is causing land prices to explode.

UPDATE 3:  McShane also warns that Clark's speech and the talking points foreshadowing it are likely to see the announcement of a new policy from Team Red allowing the taking of private land by the state, to be given to other developers who suck up to nanny.   If true, this  presages the worst violation of property rights ever in this country, and shows what happens once respect for property rights is dead.

And there'll be no opposition at all from the blue corner, since it's a policy already announced by John Key in his point 2a of his "four-point plan" announced last year.

UPDATE 4:  Regarding that speculation about new laws to be introduced by the Clark Government allowing the involuntary acquisition of private property by the state, I could have said its introduction would effect the worst property rights violation proposed since National's U-Turn Boy proposed it himself last year ... or I could have said it will be the worst legislative attack on property rights since the National Party introduced the Resource Management Act in 1991 ... or I could have said that it presages the worst property rights violations since those empowered under the Public Works Act, which was introduced by the National Party in 1981...  Do any supporters of the National Socialists see a pattern here?

As it is, Helen Clark and the Red Team will simply be completing the path of property rights destruction begun by the Blue Team.  Remind me again why anyone would think the National Socialists are the answer?

UPDATE 5:  Helen Clark's speech is here.

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3 Comments:

Blogger Eric Olthwaite said...

Christ National are useless. It would be nice to have a (major) party that opposes Labour's policies and doesn't just believe that the solution is to have their people implementing them.

2/12/2008 04:58:00 pm  
Blogger Rebel Radius said...

"Sprawl is not the enemy. Lack of choice, and lack of imagination are."

I would include "space", or a concept of space to your statement.

2/13/2008 11:48:00 am  
Blogger PC said...

"I would include "space", or a concept of space to your statement."

I'm not sure what you mean, RR. Do you mean this passage wasn't enough:

"There's no problem with sprawl if the ring-fencing [around NZ's cities] were relaxed (New Zealand's urban areas account for less than 1 percent of the total country, one quarter of that in the Auckland region. If all of NZ's 1,471,476 existing households were to be rebuilt on an acre of land ... we'd all fit in an area less than one-quarter the size of the Waikato."

2/13/2008 12:21:00 pm  

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