Thursday, 22 October 2015

Housing: Penny, the Productivity Commission & price signals

The Productivity Commission suggests using price signals to help solve the housing unaffordability problem—rising prices in rural land, for example, being rezoned residential once a certain price point it triggered.

It’s not stupid. If you must zone people from the top-down (and for that particular imbecility there’s no decent argument), then this is one way of alleviating some of the top-down control that’s restricting land supply—and a surprisingly supple one.

Auckland Council deputy mayor Penny Hulse however is “cool” on the idea.

She does not want the council to lose power over large-scale planning, and is worried about the potentially patchy nature of development.
"We can't have random areas looked at to say, look, the difference between zoned land on the urban boundary and the farm next door, it's suddenly reached such a high threshold that we want you to rezone it.
"That's kind of crazy and the cost of random growth like that would be huge. I don't think that's what the Productivity Commission were envisaging."
She said using price as a single trigger to re-zone rural land for development did not make sense.
"It sounds like a pretty blunt instrument to me, and the subtleties and the complexities of what drives cost and land value, particularly in a high-growth area like Auckland, is huge, and to simply look at when land reaches over a certain amount of value to trigger development in that area I think misses the point entirely."

Subtleties. Complexities. “Blunt instruments.”  There are certainly blunt instruments being presently applied that ignore the subtleties and complexities of an organic city—one huge one being the imposition of top-down zoning, of which Ms Hulse is such a fan.

Yet the use of price signals, were she to understand them, is precisely the opposite of a blunt instrument. They are a prodigiously fertile means by which a market easily and simply puts resources to their best, most highly-valued use—as measured by those who actually do value them—just as long as people are left free to exercise it.

In a dispersed division-of-labour economy, price signals are the preeminent form of conveying important information right across a market: for those who are alert to them they convey the information, from moment to moment, of what is most highly valued by buyers—and they offer the extra profits that encourage more sellers to supply more of what is most demanded most, and less of what is demanded least…
    This is  the “prodigiously ingenious mechanism” of spontaneous order by which people's wants are supplied and great cities are fed and watered, a process which to some people still appears to be a miracle. If it is, it’s a miracle that is the product of human action, not of human design.

Price signals themselves embody all the subtleties and complexities of life in a division-of-labour society—they embody them, and build them in, offering both information and an incentive.

When prices of a piece of land rises to significant levels, that’s a clear signal that land is highly valued. And should be highly sought after. Far from being random, this the product of human action, not of human design.

If she were to understand anything about price signals, she might try to understand that much.

Mind you, if the first sentence in the report above is correct (and it is, you can check the audio), it’s possible she does understand them, and has another reason to object: 

She does not want the council to lose power…

NB: There is much more to be said about the Productivity Commission’s proposals to alleviate Auckland’s unaffordability problem, not all of it good. But not right now.


  1. Shame, so you are in favour of people having their property rights taken from them for the benefit of others then?

  2. No. Very much no. That's among the most outrageous of the proposals. Hence my last comment.


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