“How to fix a crisis: An Auckland housing manifesto” [updated]

 

There’s no excuse for it, but the housing crisis has now badly affected people’s brains. This morning on air, for example, the supine Bill English was attacked by Guyon Espiner, a sadly-impaired thinker apparently under the illusion that the finance minister decides how all the money in the country is spent, and who personally goes round putting children into cars every night. (You should listen [from about 6:10] -- it’s sadly and unintentionally amusing.)

Fortunately, some clearer thinking about the crisis has emerged this week from the unlikely pen of an economist. A fellow called Eric Crampton. He’s overlooked two legs of the whole cause-of-the-housing crisis trifecta – the fact that two-thirds of new money in New Zealand is borrowed into existence by the billions just to buy existing housing – and that the law (the RMA) removes property rights from home-owners who do know their own desires to give powers to planners who don’t -- but this explanation of who and what to blame for Auckland’s escalating housing crisis is otherwise authoritative.

Just look at the mess in Auckland where a developer wanting to build housing for 1500 households in an old gravel pit at Three Kings, turning much of it into parks and open spaces, has bought almost a decade’s worth of objections and processes and hearings. How can anybody build anything to scale under those conditions? In the middle of a housing crisis, with daily news stories about the number of children having to live in cars with their parents because there are not enough houses to go round, NIMBY activists block new construction.
    Every time a NIMBY cries, an angel has to sleep in a car, or in a garage.

All other explanations need to answer his first, including his two reasons for NIMBYism – because the law as it is gives home-owners no other protection apart from complaining very loudly, and because high infrastructure costs mean council gets no financial boost from new development – which means no real incentive.

So, to make things very simple: 

Q: Why is there a crisis?
A: Because Auckland is adding houses less quickly than it is adding households.

But why isn’t the housing market working properly? Good question.

    Avocado shortages aside, high migration figures haven’t led to shortages of anything else that people buy – and I would not blame migrants for the avocado shortages either. Auckland doesn’t have a barber crisis induced by the tens of thousands more people who need haircuts every month as compared to the same time last year.
    Fundamentally, the problem has to be constraints on supply: either the building industry simply cannot keep up, or the council isn’t zoning enough land for either building up or building out.
    The constraint, so far, has not been the construction industry. When I was at the University of Canterbury, you couldn’t walk between two buildings during the earthquake rebuild without meeting Irish accents in fluoro vests. Markets can scale up to meet demand if they expect that demand to be sustained. Builders can come in from overseas. Cement plants can be expanded and upgraded. Unexpected housing demand can then cause price blips, but you shouldn’t get the years-long rolling maul we’ve seen in prices.
    The series of three reports the Initiative released in 2013, our reports since, and the Productivity Commission’s reports, point pretty strongly to council-level constraints on new building. Pro-density activists made it too hard to expand at the outskirts of town; Not In My Back Yard activists made it too hard to build apartment towers or terraced housing close to downtown. When a city can’t go out or up, prices can only go one way when population increases.

Read that again with one important change in wording: “When a city can’t go out or up, prices can only go one way when population demand increases.” And all the incentives people have make both sides of the equation many times worse (with billions in new money borrowed into existence for new mortages turbocharging demand and making that whole equation even more potent).

There a several red herrings raised against this simple argument that are frequently floated by those who, for reasons of their own, would like to complicate the causes – empty houses, capital gains tax, those darned foreigners, a dearth of state housing, a too-small construction sector; all are thoroughly explained and all summarily dismissed.

So the obvious conclusion is: to flip things around, we must have ourselves much better incentives. Eric suggests six quick-fixes to the law, all of which caught my eye, and a fundamental and necessary change in mindset:

Fundamentally, the country is not going to solve Auckland’s housing affordability problems without building more houses at a much faster rate. That will not happen without changes in zoning allowing both building up and building out. And getting durable changes to town planning likely requires changing the incentive structures within which councils operate. Part of that can involve financial incentives. Part of it should involve changes to the Resource Management Act making it easier to subdivide, easier to change district plans, and harder to block new developments.
    And some of it has to involve a change in mindset. When you buy a house, you aren’t really buying a right to stasis, locking all of the neighbours under thick clear plastic wrap like your grandmother’s living room set. Neighbourhoods and cities have to be able to change and move to meet changing demand. The formal planning structures the government has built, and the financial incentives facing councils, create far too much bias towards stasis, and stasis is the enemy of growing, vibrant cities.
    We are at a crisis, and hopefully a crisis in the best and proper sense of the term: a time for change. Let’s hope that local and central government can make the most of it.

I urge you to read the whole piece: How to fix a crisis: An Auckland housing manifesto.

And I urge that necessary and long-overdue change in mindset – and in law.

.

UPDATE: A few commenters have asked about the Coming to the Nuisance doctrine, mentioned by Eric, that was a feature of common law jurisdictions until partially killed by statute, and all-but euthanased by the judiciary. (See for example Sturges v Bridges.) It lives on, partially, in Lord Denning’s famous decision against a couple bewailing cricket balls coming through their greenhouse after moving next to a cricket oval.  A few posts here on the doctrine:

• “The Coming to the Nuisance Doctrine is the only objective means of determining who has the right to continue using his property in the event of a nuisance. If zoning is to be replaced, therefore, it must be replaced with the Coming to the Nuisance doctrine.”
  The "Coming to the Nuisance" doctrine: The antidote to zoning – CAPMAG
• “… it’s practical to remove the RMA overnight… Here’s how it could be done. FIRST, ENACT A CODIFICATION of basic common law principles such as the Coming to the Nuisance Doctrine and rights to light and air and the like.  
      “Second, register on all land titles (as voluntary restrictive covenants) the basic “no bullshit” provisions of District Plans (stuff like height-to-boundary rules, density requirements and the like).
      “Next, and this will take a little more time, insist that councils set up a ‘Small Consents Tribunals…”
  What would 'Party X' do about the environment? - PART 3: Small Consents
• “What sort of person moves next door to a chicken farm and then complains about the smell?
  The sort of people who live in Inglewood in Taranaki perhaps, who come to the nuisance and then seek to make windfall profits from someone else's destruction.”
  "What nuisance?" And who came to it?
• What I’m going to propose here is another simple modification to law that would allow New Zealanders to once again repair to the common law protections that “The Hammer” had made possible. In particular, the codification of the common law principle of Coming to the Nuisance (seen in palimpsest in point three above), which on its own would a powerful antidote to the zoning that the RMA has entrenched -- perhaps the strongest possible antidote to zoning there is. Supplementary to putting property rights in the Bill of Rights, then, ‘Party X’ could promote the reintroduction of the Coming to the Nuisance doctrine for use as an absolute in neighbourhood disputes.
  What would 'Party X 'do about the environment? Part 2: 'A Nuisance and a BOR'
• “The principle of ‘coming to the nuisance’ was established (and then sadly in some jurisdictions dis-established); as was the principle of a ‘bundle of rights’ being associated with land, and some of those rights being acquired over time by ‘prescription.’”
  Cue Card Libertarianism -- Common law