Thursday, 18 August 2016

When did homes start becoming unaffordable?

 

When did homes start becoming unaffordable? Good question.

From 1957 to the late-1980s the median New Zealand house price was between two-to-three times the median annual household income. Back then they were affordable.(A city’s housing affordability is generally defined as having the median house price less than or around three times the median income.)

By the late 1990s, the average house price had already risen to four times the average household income, and houses began becoming inexorably unaffordable.

It wasn’t until 2008 however that headlines began happening and home-buyers became seriously worried, as prices peaked at a seriously unaffordable six and a half times the median household income in 2008.  

Houses11

They peaked in other places. But in Auckland they just kept on going up. In Auckland now, they’re rapidly approaching a severely unaffordable ten times the median household income.

Houses14

If you're paying for your house out of your average income, I think you'd agree that's a very rapid rise into the territory marked as "severely unaffordable."

Great if you’re a home-owner.

Murder if you're not.

So what happened in the 90s to begin that tick up into unafforability?

Well, the 1992 Building Act is one. Far from being deregulation, as some still risibly claim, it implemented a new multi-volume building code, a new building bureaucracy, and an ageing and failing superbureaucrat to oversee it all. He failed very soon, as it happens, but we are left with the rotting bureaucratic system he left us that adds months to a consent preparation and application, and many thousands to the building cost of every house. (And as costs became higher and profits lower, fewer spec builders bothered to even try building-to-sell the new houses they had previously.)

Another thing that happened in the 1990s was National’s Resource Management Act, introduced by Simon Upton and then administered without change by Nick Smith (yes, children, that Nick Smith now insisting he must change it), an Act that brought about the greatest attack on property rights since the war and, with it, the most severe restrictions on the supply and use of building land ever seen before in this once nearly-Freeland.

So those are two reasons for home-buyers to weep right there. (Three, if you include the thought of Nick Smith.)

And what happened in Auckland around 2011? If you answered “Rodney Hide’s super-fucking-bureaucracy began really kicking in,” I reckon you might just get the prize. The new super-bureaucrats have made the city more expensive, building more difficult, and planning a development infinitely more uncertain – especially with the six-year process of implementing their Unitary Plan, which has created tremendous regime uncertainty1 among property owners and investors.

Even with an earthquake that destroyed most of its inner city and eastern suburbs, Christhurch has done better – which makes Rodney Hide’s amalgamation a bigger bloody housing disaster than their earthquake.

Auckland2

And while the city has always been ring-fenced by the central planners, it is only perhaps in the last few years that the ring-fence has become a serious constraint – one that the new Unitary Plan is reported to retain!

The story remains that unaffordable cities are generally cities that are constrained from building, and constrained from expanding.

More tomorrow.

NOTES:

1. Regime uncertainty is a concept developed by Robert Higgs describing a pervasive lack of confidence among investors in their ability to foresee the extent to which future government actions will alter their private-property rights.
    Higgs uses this concept to explain the seriousness and prolonged duration of some economic crises, like the Great Depression or the current 'Great Recession.‘
    According to Higgs, regime uncertainty explains at least in part the sluggish pace of the current economic recovery.
    Regime uncertainty pertains to more than the government's laws, regulations, and administrative decisions. For one thing, as the saying goes, "personnel is policy." Two administrations may administer or enforce identical statutes and regulations quite differently. A business-hostile administration [such as Len Brown’s] will provoke more apprehension among investors than a business-friendlier administration [sorry, can’t think of one], even if the underlying "rules of the game" are identical on paper.

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3 comments:

  1. Agreed about the effects of the RMA, but is the Auckland problem that the councils amalgamated, or is that the council has been run by Len and a group of counselors that have resisted making any changes to ease land supply?

    I think you could have had the old structure and the current cattle and you would still have the same problem today.


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  2. Uncertanty of regulation
    I watched a video I saw [ Stefan Molyneux ] about the collapse of the Roman Empire. Massive currency devaluation, and regime uncertainty were parallel events with their civilisation collapse. The Denarius coin thing, devalued so much that people traded in gold.
    Housing prices
    My first clinic in Christchurch cost $18,000, in 1980. It was a solid wooden bungalow house, and about 800 meters land, with good frontage to Colombo street. I think a Vet salary was about $6000.
    I knew that builders were doing well on selling these places, even at those prices. So I borrowed money from the old man and set up.
    RMA criminals
    I have reserved a room in the slum over here for Nick Smith. He will live with Sir Geoffrey.
    They will be very unhappy together.

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  3. All true of course - but ratios of income to house price can be a little misleading, because homebuyers expectations have also risen in recent decades. The average new house of today is much bigger, better insulated, and generally of a higher standard than new houses of the late 80's.

    ReplyDelete

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