Tuesday, January 27, 2009

Planners still stitching up home-owners: NZ cities world’s second-most unaffordable [updated]

Despite the recession, houses in New Zealand cities are as unaffordable as they’ve ever been – that’s the conclusion of the fifth annual survey [pdf] by international organisation Demographia, who’ve found that the average price of houses in NZ’s eight major cities are still more than 5.7 times the average household income in that city.

In the parlance of the study, this makes the New Zealand housing market seriously unaffordable – just as it has been for the last decade. The survey of English-speaking countries finds that UK, Ireland, Australia and New Zealand have no affordable major urban markets, while Canada has 10 (of 34) and the United States 77 (of 175). There are no moderately unaffordable urban markets (at and below 4 times household income) in Australia, New Zealand, Ireland and the United Kingdom.  Reports NBR:

    The 2009 Demographia study of international housing affordability found Australia has the most unaffordable housing at 6.3 times annual household earnings.
    New Zealand was second on 5.7. Ireland registered 5.4, the United Kingdom 5.3, Canada 3.5 and US 3.2.
    None of the eight urban markets in New Zealand covered by the survey are considered to be affordable. Seven were severely unaffordable and Palmerston North was considered seriously unaffordable.
    A figure above five is regarded as severely unaffordable.
    Auckland is the least affordable larger market, with a median multiple of 6.4, while Christchurch (6.1) and Wellington (5.9) are also severely unaffordable.
    Tauranga-Bay of Plenty was the least affordable market, with a median multiple of 6.6. Out of the eight New Zealand markets only Palmerston North is not severely unaffordable on 4.9.

Just to clarify what this degree of unaffordability means, this is unprecedented both historically and geographically – so simply saying that young couples need to hunker down and save like their grand-parents did is not even the beginning of the whole story.   Outside the current period, at no other time in NZ’s history has this price-income multiplier been so high.  And outside New Zealand, only Australia has a higher price-income multiplier.

The reasons for contemporary NZ cities being so seriously unaffordable compared to other cities (and to other times in NZ’s history) can be deduced, if you’re smart enough, from the policies of those cities at the upper end of the Demographia survey. 

The reason for some cities being more unafforable than others is not just the excessive demand created by loose credit in recent years, since that loose credit operated across all markets; it’s not just the increased cost of construction in recent years (although that hasn’t helped the level unaffordability), since (especially across the US) those increased costs have been imposed across all markets; it’s not just the increasing attractiveness of these unaffordable cities, since domestic migration figures for most of these cities are showing either strong outflows or decreasing inflows from (and to) these cities; and it’s not like some of the world’s most unaffordable cities are running out of land: there’s no shortage of land in the likes of British Columbia, California, Victoria, or the deserts of Western Australia (and nor is there in NZ).

No, to see why some cities are more unaffordable than others you have to look at the differences between those cities, and the biggest difference is in how the cities regulate land. 

In Tauranga, for example, 'planners' have enthusiastically embraced the anti-development 'sustainable' philosophy of so called 'Smart Growth'. At a multiplier of 6.6, Tauranga has the country's most unaffordable houses. At a multiplier of 6.4, Auckland has the second most unaffordable housing – and for years Auckland’s planners have rationed the land supply, ring-fenced the city, and restricted the range of urban housing.  No wonder.  If you ration supply while demand stays the same (or increases), then you’re going to ensure prices go through the roof.

And in the most unaffordable places land is being rationed.  Ring-fencing cities to slap down “sprawl” is squeezing the supply of land in those cities; heavily regulating land-use and subdivision in cities is squeezing the supply of land in those cities.  The fact is, as I’ve pointed out before, that the world’s most unaffordable cities are almost without exception those cities who cite themselves as being the most “sustainable” –- another example of the price of fashion.

But in this case the fashion victims are us.  And even as the followers of fashion defend their advocacy of land-rationing – an imposition that all of us get to feel --  the evidence from around the English-speaking world is clear: that "smart growth" cities are unaffordable cities.

Graph from Demographia 2009 survey, pg . 26

Frankly, both ring-fencing around cities and enforcing lower densities within them are the twin causes of the problems (and it’s 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-- 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.

For further information, read all PC’s posts on …

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5 Comments:

Anonymous Anonymous said...

Sorry but i don't want fucking bogans building on the green belts around my house.

Housing affordability will sort itself out when the property market crashes down - your figures show that prices need to drop to around 40% of their peak values, basically back to around 2000. I bought a house then so I'll be fine.

Other than that, well frankly Singapore & Hong Kong do good jobs with housing: the idea that bluding scum or civil servants should be allowed a half-acre (or a whole-acre) paradise is just disgusting.

If you're real worker, working on an exporting business, then you should be able to live in and own a house. That's only something like 20% of Kiwis. The rest don't deserve anything like that.

Adjusting those expectations is the first part of solving this problem

1/27/2009 09:46:00 am  
Blogger Clunking Fist said...

"Sorry but i don't want fucking bogans building on the green belts around my house."

Simple, anon: cast your economic vote by buying the greenbelt around you. Oh, I see, you quite LIKE the way the city council owns the belt that you enjoy, but which is paid for by ALL ratepayers, whether they ive near the green belt or not...

1/27/2009 01:18:00 pm  
Anonymous Mark.V. said...

"Simple, anon: cast your economic vote by buying the greenbelt around you. Oh, I see, you quite LIKE the way the city council owns the belt that you enjoy, but which is paid for by ALL ratepayers, whether they ive near the green belt or not..."

Actually Clunking Fist, a person living near a green belt has effectively paid for his share of it as the green belt has increased the value of his house and continues to pay for it every year through his higher rates.

Should a Council remove a greenbelt and make it available for housing every resident around the greenbelt would have to be compensated for the resultant reduction in the value of their properties.

1/27/2009 03:51:00 pm  
Blogger Clunking Fist said...

"Should a Council remove a greenbelt and make it available for housing every resident around the greenbelt would have to be compensated for the resultant reduction in the value of their properties."

You reckon? Is that after deducting the cost of maintaining the greenbelt for the last X years?

1/27/2009 08:22:00 pm  
Anonymous LGM said...

Anonymous likes the idea of being a member of the new land holding aristocracy. None other than he should have property rights- according to him. Somone should invite a gang to move in directky next door to him. After all the gang have far more money and they do run a productive phamaceaurtical export busineess...


LGM

1/28/2009 06:48:00 am  

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