I moved to Auckland to take up a full-time job in early 2012. Prior to that, I’d spent a few years working in Wellington, a year getting a master’s degree at University of Auckland, and a few months travelling around between jobs.
At that point, I was in my mid-20s. I’d saved money while working, but between study and travel I’d spent most of those savings. I had enough money to put up the bond on a rental flat and pay for necessities while waiting for my first paycheck, but not a lot more. After the paychecks started to come in, I paid down student loans and – like most other young people – saved a big chunk of my paycheck for the future.
10-year-birth cohort average saving rates by age of household head (Treasury)
Up to this point, my experience wasn’t that much different than my parents’. They were just about to start their careers, with about the same bank balance as me (ie very little). But our experiences quickly started to diverge: they were able to buy a home, and I wasn’t thanks to Auckland’s crazy housing market.
Since I started full-time work in Auckland, I’ve saved a large portion of every paycheck. A chunk of the money has gone to Kiwisaver, in anticipation of the fact that my parents’ generation will vote to protect their superannuation and minimise their taxes at all costs while raising my retirement age. But even more money has gone straight into a savings account, both to give me short-term financial flexibility and to save up towards a deposit on a home.
I did the right thing. A lot of other people my age did the same. But society didn’t do right by us. If house prices had stayed at their 2012 levels, I’d be able to buy a home, but as it is, it’s not affordable.
Contrary to the media focus on saving for a deposit, that’s not actually the main sticking point. The problem we face is that rising prices have also contributed to increasing mortgage repayments, which are structurally unaffordable (or at least severely undesirable) for most young people.
Let’s look at the maths. Over the last five years, average mortgage interest rates haven’t budged much – they’ve been in the range of 5.5%. So young people borrowing for a home generally aren’t getting a better deal on debt servicing costs.
In 2012, buying a median home for around $500,000 would mean saving $100,000, or 20%, for a deposit, and taking out a
But in 2017, buying a median home for around $800,000 would mean saving $160,000 for a deposit and taking out a
For most young people (or young couples) paying an extra $340 a week is the difference between a decent savings rate and hardly any savings. Borrowing to buy a first home means committing to saving very little between the ages of 30 and 60.
In effect, young people who want to own a home must now commit to tying up their entire net worth and a huge chunk of their discretionary income over their entire working life in the property. The mortgage eats everything else. Forget starting a business, starting a family, studying to get a new job, travelling, or saving towards an early retirement: that money’s all going towards payments on an overinflated mortgage.
It doesn’t help that the Government just announced that they’re going to raise the retirement age for everybody under the age of 45, while leaving the Boomer generation alone.
I think it’s hard for middle-aged people, most of whom own homes that were bought in much easier times, to understand how challenging this is for young people. I followed my parents’ advice: get an education, start a career, and save hard. But while I’ve been saving, the required mortgage repayments have climbed to stupefying new heights.
This isn’t just bad for individuals: recent increases in house prices have created a social and economic time-bomb. Mortgage payments now compete with other important aspirations, such as starting a family, building a business, or saving for an early retirement. Left unchecked, this will ruin many things that are good about New Zealand, like the laid-back lifestyle, the focus on family and friends, and the opportunity to start up something new in the garage.
We can’t pretend that we can have a decent society for all while property prices stay high or climb even higher. Something has to give.
The other week, BNZ chief economist Tony Alexander put out a statement chastising young people for not saving harder to buy a home. As I pointed out, his argument was based on a pile of untrue assertions and misleading data. Others also expressed similar views.
In a further statement reported by Jenée Tibshraeny, he clarified that crazy house price increases have actually made it harder for young people to afford a home. It’s nice that he’s aware of that, but the rest of his article suggests that he thinks the hole he’s in will turn into a tunnel if he keeps digging.
Alexander’s core advice remains:
Young buyers these days need to make deep sacrifices in spending on other things if they want to purchase a house and if such sacrifices cannot be made home ownership could well remain out of reach…
If purchasing a house is your goal then there is no shortage of things which those who already have purchased sacrificed as they built up their savings, worked at reducing the principal to improve their position, and adjusted when their interest rates and/or expenses went up. Things people have cut out have included…
· Cafe visits
· Going to restaurants and bars
· The latest telephones, games consoles, cars
· International travel
· Weekend and evening leisure time because they took an extra part-time job.
· Hired help like dog washers, landscape designers, etc.
· Subscription tv, gaming, music
· Privacy – by taking in flatmates, student boarders, or renting out space on Airbnb.
And he continues to make blatantly false statements about the saving behaviour of Boomers (who spent their 20s taking on debt) and Millennials (who are saving lots in their 20s):
Baby boomers will understand this need to build savings over many years before seeking a mortgage. But the younger generation used to businesses chasing them continually for their dollar will take some time to cotton on to the implications and figure out how to get to the head of the queue.
As I said last week, house prices have risen significantly relative to the price of just about everything else. In that context, Alexander’s advice to save money by cutting back discretionary expenses, most of which are relatively cheap, is bad advice for the average young person. That might have worked in the past, when housing was cheap compared with overseas travel or consumer electronics, but it doesn’t work now.
Since Alexander hasn’t done the maths on this, I will. H
I’m going to start by making a few simplifying assumptions. First, I assume that people are saving money in bank accounts that offer returns that are roughly equal to inflation, and then I ignore inflation – all numbers are in real terms.
Second, I’m going to make some generous assumptions about future increases in the price of housing. Today, the price of a median Auckland home is just over $800,000, and the price of a lower-quartile home – ie a typical starter home – is around $680,000.
Those prices have risen at double-digit rates for the last five years. But I’m going to make a very optimistic assumption that we get real house price inflation down to a much lower level – say, a mere 3% per annum.
Third, I’m going to assume that first home buyers will still be required to come up with a 20% deposit due to loan-to-value restrictions. Lowering that ratio would probably cause house prices to rise faster anyway, offsetting the benefits for first home buyers.
Finally, I’m going to consider a hypothetical case of a very feckless Millennial who spends money on a whole bunch of unnecessary luxuries rather than prudently saving for a mortgage. Our made-up spendthrift is assumed to:
- Go on one overseas holiday a year at a cost of $4000
- Buy a coffee a day at $4 per coffee, or $1460 per year
- Go out for a $40 brunch every Sunday, which costs $1040 per annum
- Get acupuncture ($80) on a weekly basis, costing $4160 per year
- Subscribe to Sky TV at $600 per year
In addition to all of this self-indulgence, they also hire a cat whisperer to visit their pet while they’re at work and prevent it from developing emotional problems. Cat whispering costs $23 per visit, adding up to an astonishing $5750 per year (based on 250 working days a year).
These savings add up to $17,010 per annum, or around 30% of the average pre-tax income for an 25-29 year old Aucklander with a full-time job (a bit over $50,000). Surely someone saving that hard would be able to afford the deposit on a home in no time?
Well, no. Here’s a chart comparing their accumulated savings with the required deposit. While their savings would eventually exceed the required deposit, it would take:
- 11 years for them to afford a lower-quartile home
- 14 years for them to afford a median home.
In other words, someone who started saving in earnest at 23 wouldn’t be able to afford the deposit on a home until they were 34. Furthermore, if real house price inflation was even slightly higher – say 5% rather than 3% – it would take 23 years to afford the deposit on even a lower-quartile home.
This analysis demonstrates two important things.
First, following Alexander’s advice and saving until it hurts won’t help young people. The only way things will get significantly better is for house prices to fall to a more realistic level.
In Alexander’s world-view, the only two paths forward are for young people to give up everything fun and work three jobs to save for a deposit and pay the mortgage, or for them to give up on home ownership. But that’s a false choice that only applies if house prices stay at current levels. If prices were lower, bank economists wouldn’t be making silly comments about how to save for a deposit by firing your cat whisperer.
Second, this shows that any further increases in house prices are unsustainable for first home buyers. Even if real house prices only increase by 3% per annum, that means that the value of a median home will increase by $24,000 a year, or almost half of the average wage for employed people in their late 20s. The required deposit will in turn increase by $4800, meaning that the average employed Millennial would have to save almost 10% of their pre-tax income just to keep up with inflation in the average deposit.
This in turn means that we have to take a hard look at our baseline assumptions about capital gains on residential property. Although rising prices have been beneficial to some, it’s becoming increasingly apparent that they have a range of negative social and economic consequences. Put it another way: I wouldn’t necessarily buy on the promise of everlasting capital gains.
Last week BNZ chief economist Tony Alexander was in the paper with some stern words for young people trying to find somewhere to live in a city that doesn’t have enough housing to go around. As reported by Susan Edmunds:
Think your parents got an unfairly great deal when they bought their house for $40,000 – or thereabouts – 30 or 40 years ago? Not so fast.
BNZ chief economist Tony Alexander says young people priced out of the market are wrong to point the finger at retirees. […]
“The cost of borrowing to purchase a property has plummeted and because of this structural jump in demand for property prices have lifted. Those Baby Boomers people are dumping on paid mortgage rates in the late-1980s around 20 per cent,” he said.
Older people were turning to property investments because they did not have the stomach for sharemarket volatility, he said. That also drove up prices. Accelerated population growth and the spending power of double-income households played a part, too.
He said young people wanting a house should buy a “dunger or even a meth house to strip, and do it up”. “Basically be prepared to do what the Boomers did in many instances,” he said.
“Start out in a desolate new suburb of clay soil far from work, do up a piece of shite, or build and live in what will become your garage whilst building the rest of the house around you in the following few years.
“And how to finance it? Go to cafes and spend as much on lattes, muffins, frappes, wraps, etc. as often as the Baby Boomers did,” he said.
“Hire as many gardeners, landscape designers, decoration consultants, plumbers, feng shui consultants, window washers, dog walkers, dog washers, cat whisperers and general handymen as they did.
“And hope to hell that when you come to retire you don’t sit looking at your bank statement shaking your head because when you had a mortgage the bank charged you 20 per cent but now that you have term deposits you’re only getting 3.5 per cent all whilst listening to people saying you and your profligate ways are the problem.”
Whoah. There’s a lot in here, and most of it is flat wrong.
For a start, Alexander’s contention that young people are spending too much on personal services compared to their prudent, virtuous elders is contradicted by the evidence. Set aside the fact that young people who are renting and unable to find secure, long-term homes generally don’t bother to hire a landscape designer or decoration consultant. Let’s look at the data on savings rates.
Last year, Mark Vink, a Treasury economist, analysed the savings rates of different birth cohorts of New Zealanders. People who are currently in their late 20s or early 30s are saving at higher rates than their parents did at the same age:
10-year-birth cohort average saving rates by age of household head (Treasury)
Eyeballing the chart, it looks like Boomers – ie people born between 1950 and 1959 – had net negative savings rates throughout their 20s and 30s. They were borrowing more than they were spending. By comparison, people born between 1980 and 1989 – the unfairly-derided Millennials – appear to have saved upwards of 10% of their income in their mid-20s, in spite of the fact that many of them had to borrow to pay university fees.
Vink observes that Boomers’ profligacy and Millennials’ prudence is likely to be due to the fact that Boomers did, in fact, have it easier when they were young:
A surprising feature of the data is that the saving rates of younger generations appear to be generally higher than those of the generations preceding them. To check this result I used a variety of econometric techniques, and all suggested that this pattern is robust. Contrary to popular opinion, successive generations of households appear to be saving at significantly higher rates than earlier generations did at the same age. One plausible explanation for this rise in saving rates, supported by other related research, is that it reflects the precautionary response of younger generations to an economic environment with higher unemployment and less generous public welfare than faced by their parents.
It probably is true that young people are buying a different mix of goods and services than their parents did at the same age. But that’s not because we’re spendthrifts: it’s because the relative price of things has changed over time. Some things that were expensive for young Boomers, like consumer electronics, air travel, and clothing, have gotten cheaper due to globalisation and technological change.
Here’s a chart based on Statistics NZ’s Consumer Price Index. Since 1985, the price of international air transport has declined by 29%. Bicycles have gotten 38% cheaper. (Adjusted for quality, new cars are almost the same price as they were in 1985.) The price of women’s footwear – and apparel in general – did rise in the late 1980s, but it basically hasn’t budged in over 20 years. Adjusted for quality, the price of telecommunications equipment – ie cellphones – has fallen by a staggering 95% since 1999.
Housing is a very different story. According to the CPI, the cost to buy housing has risen by an astonishing 350% since 1985. This outweighs price movements in just about any other CPI category.
Basically, what this data shows is that saving money on discretionary expenditures like dining out or going on holiday is no longer a viable strategy to afford a home. It may have worked 30 or 40 years ago, when the ‘nice to haves’ were comparatively pricier. But today, housing has gotten really, really expensive relative to all the other things that we buy, and a lot of things that used to be luxury goods, like consumer electronics, are now cheap enough to be enjoyed by most people.
In this context, Alexander’s advice to cut back on small luxuries just doesn’t make sense. For instance, the required deposit on an average Auckland house is around $160,000, or 20% of the current median price of around $800,000. In theory, I could save a deposit by never going out for brunch. But in reality, brunch only costs around $20, so it would take 22 years to save up the money, assuming that I would otherwise go out for brunch on a daily basis. (Which I don’t.)
Lastly, it is true that mortgage interest rates were considerably higher in the 1980s than they are today. According to Reserve Bank statistics, the floating mortgage rate for first home buyers peaked at just over 20% in 1987, compared to its current level of 5.7%.
However, buyers in the 1980s didn’t have a harder time paying the mortgage, as high inflation quickly eroded away their debt. Although interest rates were high, this mostly reflected high inflation rather than increased difficulty obtaining or paying off a loan. After accounting for inflation, real interest rates were considerably lower.
That’s illustrated in the following chart, which shows annual consumer price inflation and mortgage interest rates since 1970. The green line on the chart, calculated as the difference between the two series, provides a rough estimate of the real interest rates that people were paying on mortgages. Real interest rates may have been a bit higher in the late 1980s, but they were negative in the 1970s, when many older Boomers bought homes.
Basically, Alexander’s assertions about the savings behaviour of young people are false, his suggestions about ways to save even more money to buy a home are largely useless, and his references to the high mortgage interest rates faced by Boomer homebuyers are misleading. These kinds of articles are inaccurate, patronising nonsense, and it’s high time news outlets stopped printing them.
Edit: Since I wrote this, BNZ CEO Anthony Healy has apologised for Alexander’s comments. Kudos for that.
This is a guest post from reader Brendon Harré, who is based in Christchurch. It was originally published on Medium and has been lightly edited for publication on Transportblog.
Is the secret of Tokyo being affordable that Japan has let its cities be messy?
Last year NZ economist Michael Reddell wrote an article speculating that Tokyo could be an example of a city which undertook successful urban planning reforms to achieve affordable housing. Learning the secrets of Tokyo’s affordable housing has obvious benefits for New Zealand and Auckland in particular, given the difficulty we are having in providing affordable homes for New Zealanders.
Tokyo-Yokohama has a median house price to median household income ratio of 4.7, while Auckland has a ratio of 10.0 according to the latest Demographia 2017 International Housing Affordability Survey.
Tokyo’s population growth is little different to London’s or San Francisco for the period 1995 to 2015, yet house price increases have been significantly different. NB Minato-ku is an inner-city part of Tokyo.
While Japan has a stagnant/declining population, Tokyo is growing and thus its affordable housing is not due to slow growth. Based on a Financial Time’s article, Michael contended that removing planning restrictions in the 1990s – including for intensification – led to housing becoming more affordable.
A recent video made by a Canadian journalist provided quite a lot of good information about Japanese planning rules and comparative housing costs. The video shows the average new Tokyo home can be bought for US$300,000 (NZ$414,000), which is significantly cheaper than a new home would cost in New Zealand, especially Auckland. Usefully it shows video of what these homes and neighbourhoods actually look like.
Removing regulatory constraints on intensification is consistent with advice from my favourite planning theorist, Alain Bertaud. He visited New Zealand in 2014 and wrote the following about how to provide affordable housing, given Auckland’s constrained land supply.
There are two ways to compensate for the constraint on land supply imposed by Auckland’s topography:
1. Increase the amount of land available to developers at the city periphery
2. Decrease the regulatory constraints which prevent a higher density of utilization in centrally located areas where demand is high
I agree with both of these statements and have gone to some effort to advocate for them. In particular, I like to advocate for more of the second option, removing restrictions on building within the city in places where demand is high.
There are plenty of people demanding peripheral growth boundaries be removed to enable the building of more affordable housing. David Seymour for example appears to be advocating for this in a very provocative manner by advocating for house building in the Waitakere Ranges, a set aside wilderness area. As an inner city MP, David Seymour is silent on what regulatory constraints should be removed to enable more housing in places where demand is high i.e. inner city Auckland.
A lot of people advocating for the removal of peripheral growth boundaries do not seem to support removing other housing supply restrictions. I do, as I feel that it is important to advocate for restrictions to be relaxed in both the up and out directions. This provides people with more choices about types of housing (terraces, apartments etc) and types of communities or locations within the city.
The recently agreed Auckland Unitary Plan will allow more intensification to occur. This is important, as Auckland is the city in New Zealand with the greatest housing supply imbalance. I worry though that the Unitary Plan is weighted too much in the direction of high-rise apartments in a few locations and does not allow enough freedom for other types of housing developments.
From a Transportblog Auckland Development Update article which started with the following two sentences. 2017 will be the Year of the Terrace.Terraced homes, built in rows: neighbours on either side, but not above or below. They’re relatively cheap to build, and they’re within the reach of many small/ medium-sized building firms, ones which have traditionally concentrated on detached houses.
I believe that we should give much more freedom for small scale housing intensification in a much broader area of the city. I do not see the harm of leaving more housing decisions – what housing type, what locations – to people on the ground to make. Many Auckland property owners will naturally respond to demand for different types of housing demand. I think this sort of natural, organic process in most cases would have good outcomes and would help us to meet our various housing needs.
Incremental and organic building within a city was the logic behind a proposal I made last year to improve housing supply. I called it reciprocal intensification property rights. This proposal is designed to facilitate co-operation between neighbours to allow more intensification in their adjoining properties. My hope is that reciprocal intensification will be a step towards adding an incremental, bottom-up process to city-building in New Zealand.
Tokyo has taken advantage of similar policies. Japanese planning gives Japanese city dwellers freedom to incrementally upgrade ‘slums’ around government provided infrastructures. In an article entitled “When Tokyo was a Slum“, Matias Echanove and Rahul Srivastava comment that:
According to Metabolist architect Kisho Kurokawa, Westerners misunderstand Tokyo as informal and illogical because of their dualist notion of the city as divided into polar opposites: Urban and rural, formal and informal, order and mess. But Japanese culture, says Kurokawa, accepts that mess and order are inseparable: “The open structure, or receptivity, is a special feature of the Japanese city and one it shares with other Asian cities.” This is why the Japanese are so tolerant of urban forms that the West would see as “irrational” or “messy” — neighborhoods develop and slowly integrate with the larger urban system on their own terms. Tokyo was built with loose zoning rules to become a fantastically integrated mixed-use city, where tiny pedestrian streets open up to high-speed train lines.
Japan’s city-building freedom is not only important for supplying affordable housing – it also facilitates a diverse, broad eco-system of small businesses too. Given the need for New Zealand to diversify its economy, adopting similar city building practices may be beneficial
Some may argue these sort of informal city building processes may be appropriate for high density Asian cities, but would not work for suburban New Zealand. The evidence indicates this is not true. Houston, a low-density affordable US city has also relaxed rules on housing intensification for its inner city suburbs (an area larger than Auckland’s isthmus), which has resulted in significant increases in affordable inner city housing. This can be seen in the before and after pictures of Houston from two articles which questioned whether Washington DC should allow widespread low-rise intensification on more affordable land like Houston allows, as opposed to what they are currently doing, by relying on central city high-rise apartment building.
A similar question of whether to give more freedom to build low-rise intensification over a wide-spread area could be asked about Auckland. Under the Unitary Plan, it is estimated that nine times as many apartment dwellings will be commercially viable to build compared to terrace housing (P.17).
The degree in which a city is free to build up and out are collective decisions i.e political decisions. It is my contention this freedom has a significant influence on housing affordability. If this is correct, the degree that we collectively tolerate unaffordable housing and all its associated ills – homelessness, overcrowding and rising wealth inequality – is also a political decision.
What is the readers opinion on the degree of freedom we need to grant New Zealand cities to build up or out?
[Editor’s note: André Sorensen’s excellent 2001 book The Making of Urban Japan describes the history of post-1980s planning and housing policy in greater detail. I’d recommend it to anyone seeking to understand Japanese cities. Sorensen suggests that planning controls were loosened during the bubble period, and subsequently tightened after the crash, which complicates the causal story about planning reform and falling prices. Nonetheless, zoning controls have always been less restrictive in Japan than in most other developed countries.]
The other week Australian planning expert Greg Vann came to Auckland to talk about his experience developing the South-East Queensland urban growth strategy, ShapingSEQ. A lot of what he had to say was transferrable to Auckland. While Queensland faces different environmental challenges that often result in different decisions about built form, Brisbane and Auckland are both mid-sized New World cities experiencing rapid growth.
(Unfortunately, Greg’s Auckland Conversations talk isn’t online yet.)
Among other things, Greg argued that urban planning had to provide affordable living, not simply affordable housing. Essentially, consider transport costs (including the cost of car ownership) as well as housing costs when assessing affordability.
This is a topic I’ve looked at in the past using Census data on household incomes, rents, commuting choices, and car ownership from Auckland, Wellington, and Christchurch. The data suggests that there is a ‘spatial equilibrium’ between housing costs and commuting costs: While rents tend to decline with increasing distance from the city centre, commuting and car ownership costs rise in almost exact proportion to offset them.
However, there’s a further wrinkle to this: Lower-income households tend to locate further out. This results in a situation where (on average) Aucklanders pay a similar proportion of their household income throughout most of the city:
But where overall housing plus transport costs tend to take up a higher share of household incomes in outer suburban areas than on the isthmus:
Talking about similar patterns in Brisbane, Greg Vann made a really good point that I had never considered before: This pattern of population distribution can have significant effects on long-run wealth distribution.
Cities that encourage low-income households to save money on housing by spending more money on transport (car ownership, commuting costs) encourage them to invest in depreciating assets rather than appreciating ones. Over time, the resale value of cars goes down – eventually to zero – while homes tend to hold their value or even increase in value over the long run.
Consequently, well-off people who live in areas that are rich in public transport and cycling options will tend to save money on car ownership and invest more on housing ownership, while low-income people who tend to live in places without transport choice will do the opposite. Over time, this can contribute to rising wealth inequality.
Here’s a chart based on the data from my 2014 paper. Housing costs, as proxied by median rents, are higher in the inner suburbs (0-10km from the city centre). Households in these areas spend around $1000 more per annum paying the rent than households 20-30km from the city centre.
However, this is offset by higher transport costs in the outer suburban areas: Households 20-30km from the city centre spend around $700 more on car ownership per annum, because they have to own more cars, and around $1300 more on commuting costs per annum.
That extra $2000 a year is money that disappears from household savings and investment. People in the inner suburbs may be paying more for housing, but when they do so they buy an asset.
What can (or should) we do about this?
From my perspective, there are three basic answers.
First, we need to give everybody opportunities to live in locations where they can save money on transport and car ownership and invest it in housing instead. Basically, that means allowing people to build more homes in most suburbs in the city, and especially in neighbourhoods with better public transport, walking, and cycling options. (Other policies may also play a role, such as development of new social housing in accessible areas.)
In a lot of neighbourhoods, this will mean enabling options for ‘invisible density’, like low-rise blocks of apartments, terraced housing, or backyard granny flats. In other contexts, it might mean making the jump to mid-rise apartment buildings. But the point is: if this kind of thing isn’t happening, low-income households and young people will be at the back of a long queue for a limited supply of housing with good transport choices.
Second, we need to significantly expand the reach and speed of the city’s public transport network, as well as complementary options like safe cycling facilities. Giving people in more parts of the city these choices will enable them to spend less on depreciating assets like cars and save and invest instead. As Anthony Downs observed in his tome on congestion, Still Stuck in Traffic, this may be one of the more significant effects of public transport investment:
…public policies should help low-income households spend more on ownership of housing by providing more transit opportunities. (p132)
Getting there isn’t necessarily easy, though, as Auckland is trying to do a lot of things at once in the transport investment space. The Auckland Transport Alignment Project sets out a potentially transformative rapid transit network plan, including committed projects like the City Rail Link, Northern Busway extension to Albany and AMETI busway and near-future priorities like the Northwestern Busway and mass transit (eg light rail) to the isthmus and airport. But we can only build so many of these at a time!
That brings me on to the third point: Transport and land use planning needs to be better integrated. For example, when rapid transit upgrades go ahead, it would also be useful to rezone those areas to allow more housing to get built. This will mean that more people get the opportunity to benefit from increased accessibility and the option to save money by giving up their second (or third) car. Pretty simple concept, really.
What do you think about the impacts of urban form and household location on wealth distribution?
Russell Brown’s Public Address article on the impending closure and redevelopment of the King’s Arms music venue got me thinking. Russell highlighted the importance of certain types of physical spaces for a music scene’s ongoing vitality:
What the King’s Arms and the Powerstation have in common is that they are reasonably large rectangular boxes, which makes them ideal rock ‘n’ roll venues. That’s a hard kind of building to find – and an even harder one to build – in the current environment. While the Wine Cellar and Whammy have done a good job of making the most of their space and Galatos seems to work well, the only real “big box” on K Road is The Studio.
As the article investigates, a confluence of positive and negative trends is putting pressure on spaces for live music at the centre of Auckland. On the one hand, the success of the city centre as a place for both employment and residential living means that redevelopment is spilling out to the city fringes that traditionally served a mix of cultural purposes. On the other hand, the city-wide housing affordability crisis is putting the screws on rents.
As I discussed in another recent post, when rents rise faster than general consumer prices across the entire city, it’s a sign that there is a shortage of housing supply relative to current housing demands. In other words, we haven’t built enough. In Auckland, if rents had kept pace with consumer prices since 2001, they’d be $120 per week lower than they actually are, or $6240 per annum. Here’s a chart:
Russell doesn’t mention it in his article, but rising rents have a second negative effect on the sustainability of a local music scene. They make it more difficult for people to start bands, as the time that would have gone towards practicing, writing songs, and hustling for gigs and recording time goes towards paying the rent instead.
David Lowery (Camper Van Beethoven frontman and one of my favourite musicians) neatly set out the link between low rents and dynamic music scenes in a 2011 blog post about the Santa Cruz milieu that spawned his band:
…music scenes rely on low property values in particular transitional neighborhoods. Neighborhoods that had once had another purpose but now had fallen out of primary use. Cheap space and a tolerance for noise are important commodities for bands.
You could argue that the old beach rentals along the lower end of Ocean street and the neighborhoods clustered around the old harbor qualified as in transition. Too seedy and rundown for beach rentals these houses were subsequently occupied by the more adventurous. Arty students, musicians and other slackers now occupied many of these cottages.
But our cottage was effectively cut off from these neighborhoods by the river levee. In retrospect I now see it was very Dungeons and Dragonsish of the locals to refer to the homeless population that slept in hideaways along the river as “trolls”. Indeed walking to my house at night I learned to steer clear of these trolls as many were quite aggressive or totally insane. You definitely felt penalized after unexpectedly making contact with these folks.
But the isolation was very good for a couple young mathematicians and songwriters. I was able to really dive into the most difficult proofs and songs in that cottage. Later when I moved to a better part of town I found that I had to go to the science library to get any deep thinking done.
If you want a vibrant music scene, you need a combination of young people – university towns are great for this – and low rents. That was the recipe underpinning the Dunedin Sound in the 1980s, and pretty much any other successful music scene.
But this isn’t just about cultural vibrancy. The same factors underpin long-run economic success, as they affect people’s willingness and ability to start and grow new businesses in a city. Entrepreneurship is very important. Economies thrive not by continuing to do the same thing over and over again, with minor refinements and productivity increases, but by generating new ideas and making new goods and services.
Affordable rents aren’t the only factor that contributes to a vibrant startup culture, but they are an important one. In this respect, tech startups are similar to garage bands: in the early stages, they need a bit of cheap space to allow them to experiment.
Apple Computer, 1977
(Other factors that probably matter include an educated population, low levels of corruption, support for primary science and research and development, an active venture capital market, and good access to markets. New Zealand does well on the first two, and iffy on the last three.)
Data on growth in inflation-adjusted mean rents suggests that constraints on housing supply in Auckland over the 2001-2016 period have imposed an implicit ‘tax’ of around $6000 on someone living here and trying to start a business. Possibly more, if you’re trying to pay the rent and rent commercial space for your business. There are obviously other advantages to being in Auckland. It’s got the best international connectivity, access to a large and growing urban market, and a talented and diverse pool of workers.
However, we can’t be sanguine that those advantages will outweigh the ‘tax’ that a lack of housing places on new businesses or creative endeavours in Auckland. Left unaddressed, rising rents will dissuade startups, resulting in a less dynamic, less prosperous economy. (And fewer good bands.)
Fortunately, there are things we can do to address this issue. The most important is to let more housing and commercial space get built, especially in areas that are accessible to jobs and other good urban things, as that’s a key factor in getting rents back in line with consumer prices. The Unitary Plan does quite a bit to enable more construction, but reforming and fine-tuning our urban planning system will be an ongoing challenge.
Improving transport choices is another key priority. The city fringe area is an attractive location for live music because it is both relatively dense (by Auckland standards) and very central. When you put on a show, people can get to it. (And, depending upon when it ends, you can get a drink and still be able to take the bus or train home.) Other parts of the city aren’t as well-connected, which serves as a barrier. Fortunately, we can fix this by improving transport choices throughout the city – more frequent bus routes, more rapid transit corridors, more safe cycleways.
What do you think about the prospects for starting bands or businesses in Auckland?
This is an addition to an ongoing series of posts on the politics and economics of urban planning reform. In an earlier post, I took a look at the costs, benefits, and distributional impacts of urban development. Basically, enabling more flexible / responsive urban growth is a good idea for society – but many of the gains accrue to new entrants to the housing market. But how large are those gains? In other words, how much lower would housing prices be if we had a totally flexible development market?
Answering this question is challenging because housing markets are complex. In economic terms, housing is both a “consumption good” – something you buy to live in today – and an “investment good” – something you buy in the expectation of future returns. Prices are affected by the current balance of supply and demand, but also by interest rates, expectations about the future, etc.
One simple way to disentangle these factors is to look at the relationship between consumer prices, rents, and house prices:
- When rents rise faster than general consumer prices, it indicates that housing supply is not keeping up with demand
- When house prices rise faster than rents, it indicates that financial factors – eg mortgage interest rates and tax preferences for owning residential properties – are driving up prices.
The reality is a bit more complex. For instance, rising prices (relative to rents) can reflect expectations that housing supply will be more limited in the future. So the increase in rents is not likely to fully capture the impact of constraints on housing supply.
With that in mind, here’s some data for Auckland. I’ve sourced mean rents from MBIE’s rental bond tenancy data and median house prices from REINZ data published by interest.co.nz, and deflated both by the consumer price index published by Stats NZ. It covers the period from December 2001 to June 2016. During this time:
- In nominal (ie non-inflation-adjusted) terms, mean rents rose from $288 per week to $512 per week. If they had kept pace with general consumer prices, they would have only risen to $392 per week.
- In nominal terms, median house prices rose from $255,000 to $821,000. If they’d kept pace with rents, they would have only risen to $453,000.
In other words, rents have outstripped consumer prices, and house prices have outstripped rents. Here’s a chart:
A simple take is that supply shortfalls matter, but so do financial factors. At absolute minimum, Auckland’s shortfall in housing supply relative to demand accounts for one-quarter of the rise in house prices over this period. (The true figure is likely to be higher, as recent increases in prices are likely to be driven in part by the expectation that Auckland’s housing shortfalls will continue into the near future.)
However, supply doesn’t explain everything. It’s likely that financial factors, like falling mortgage interest rates and tax preferences for owning residential properties (eg our lack of a comprehensive capital gains tax), account for a fair share of the run-up in house prices since 2001 – possibly even a majority of the increase.
Interest rates seem to have played an important role. According to RBNZ data, the average mortgage interest rate have declined since the 2008 financial crisis – from 8.76% in June 2008 to 5.10% in June 2016. That would have reduced the cost of servicing a mortgage by around 31%, meaning that buyers can afford to borrow a proportionately larger amount.
On the whole, lower interest rates seem to ‘explain’ a bit less than half of the increase in house prices over and above the increase in rents. Between 2000 and 2016, the cost to service a mortgage on a median Auckland home rose by around 87% in real terms – significantly less than the 137% increase in real house prices.
Here’s a chart showing a breakdown of the factors that appear to have contributed to the increase in house prices over this period, based on trends in rents and mortgage interest rates. This suggests that, of the 137% increase in real median house prices from 2000 to 2016:
- 31 percentage points could be ‘explained’ by rising rents, which reflect a shortfall of housing supply relative to current demands
- 44 percentage points could be ‘explained’ by falling mortgage interest rates, which lower the cost of borrowing money
- The remaining 62 percentage points couldn’t be ‘explained’ by either rents or mortgage interest rates – this could be due to expected future shortfalls in housing supply, or other financial factors.
It’s a bit hard to explain the remaining 62 percentage points in this chart, but some other ‘financial’ explanations could include:
- New Zealand’s tax treatment of residential property, and in particular investment properties – unlike many of the countries we ‘trade’ capital with, we don’t have any form of capital gains tax on property. All else equal, this means that we should expect structural inflows of cash into our housing market, driving up prices.
- The impact of ‘cashed-up’ buyers coming in without the need to borrow money to invest in properties – including, but not limited to, foreign buyers.
What does all this mean?
First, we do need to investigate other factors that might be distorting the housing market, like the tax treatment of residential property and the impact of foreign money seeking a safe haven. A large component of the increase in house prices can’t be readily accounted for by rising rents or falling mortgage interest rates. That’s probably a signal to probe deeper.
Second, constraints on housing development still matter quite a lot, even if shortfalls of supply over current demand (as reflected in rising rents) don’t ‘explain’ the majority of the rise in house prices. Increases in rents in Auckland over the last sixteen years have been large in average dollar terms.
If rents had kept pace with general consumer prices, the average renting household would be paying $120 less in rent on a weekly basis. That adds up to $6240 a year, or around 7-8% of the income of the average Auckland household. Large numbers.
That’s a reasonable proxy for the cost to the average renting household of restrictions on housing supply, including zoning policies that don’t allow more homes to be built in locations that are accessible to jobs and amenities. A lot of households would be a lot better off if we took a more enabling approach to development.
What do you make of this data on rents and house prices?
This is a guest post from Brendon Harre in Christchurch. It addresses an issue that’s near and dear to Transportblog: How do we better enable positive change in the built environment?
Solving the housing crisis in New Zealand will require many reforms and much effort. Some of the needed reforms will face opposition and will be difficult to implement. There will be tension between the national concern about improving housing supply versus some local interests in retaining the status quo.
I want to focus on one particular easy to implement policy option, which I think could successfully navigate this political dynamic. The essence of the proposed reform is to establish a nationwide intensification right for situations where neighbours agree. A right to reciprocal intensification will create a new urbanist tool for New Zealand, allowing a better housing intensification supply response, so that people can build in parts of our towns and cities where people want to live.
The first step would be to agree as a country on a height limit that all property owners could construct up to as a right. I would suggest three stories would be reasonable, as this is a similar scale to natural features like trees.
The ‘Six Sisters’, John Street, Ponsonby
Local areas through zoning provisions would still retain existing setback and shade planes rules that determine how far buildings must be constructed from site boundaries. For instance, a shade plane is an angle going inwards, which building height and bulk cannot exceed. It is taken from a certain height directly above the section boundary -2.5 metres in the below diagram. These rules also limit the size of buildings – and hence reduce the number of dwellings that can be built on a given site.
The second step, which is the main thrust of my proposal, is that New Zealand should adopt a system where neighbours can reciprocally agree to drop the shade plane and set back restrictions along their common border. This reciprocal intensification right could be implemented as a national policy statement under the RMA, which local authorities would then be obligated to implement. So in the above diagrams, if there was a section to the north or south and if the two property owners agree, then they would both have the right to build up to their adjoining boundary – utilising the appropriate building code for firewalls etc. If other adjoining neighbours disagreed, then on those boundaries the standard setback and shade plane rules would apply.
Of course there would be many property owners who wouldn’t want their neighbour to build right up to their boundary. But some would see the advantage in co-operating, so they have the option of adding a granny flat or redeveloping their entire site. Making this reciprocal intensification right a choice eliminates the major criticism of up-zoning. Being, up-zoning dictates an exchange of a neighbour’s access to sun, views and privacy for the opportunity to intensify. Some property owners believe they will be worse off if this exchange is codified into the zoning map.
If reciprocal intensification rights were spread across a large enough area, then this would give the opportunity for a lot of intensification – in the form of duplexes if two neighbours agree and European style terrace housing if many neighbours agree. There are 1.8M private dwellings in New Zealand – if just 1% of those properties were intensified from one dwelling to three per site over, say, ten years, that would net an additional 36,000 new homes. I am not sure if 1% and one house intensifying into three are reasonable expectations, but it shows that even with modest assumptions this proposed policy reform could have an impact on the housing market.
The main benefits of a right to reciprocal intensification are:
- It decreases transaction costs for site assembly. The national policy statement would mean no resource consent or property purchase would be required to develop sites more comprehensively. Currently to achieve site assembly, either neighbours would have to go through a complex and uncertain RMA process or a property developer would need to buy up the neighbouring sections.
- It encourages a more desirable urban form as it gives property owners the ability to build across their property frontage so that new housing faces the street. Currently our zoning rules encourage infill housing that goes down the length of the property.
- It gives greater housing supply options for building types with construction costs per square metre comparable to standalone housing. Small apartment buildings tend to be cheaper to build compared to high rise apartments because they can be built as 3-story walk-up units. There is no need for an expensive concrete elevator core, mechanical ventilation, sprinkler systems, underground parking and expensive structural engineering.
- It allows housing supply to respond to locational demand.
- It allows housing supply to respond to housing size demand. There is evidence of an under supply of 1–2 bedroom homes in the property market: The largest increase in household groups are singles and couples, yet very few one or two bedroom homes are being built.
I believe reciprocal intensification will be driven by both supply – in terms of its ability to lower the cost of infill and redevelopment – and demand. Demand will come from urban areas with high amenities – like proximity to employment, easy public and private transport access, markets/shops, entertainment and desirable natural environments like beaches, parks and forest.
In Auckland not all high amenity areas have been up-zoned by the new Unitary Plan. So for the city most suffering from New Zealand’s housing crisis there is an opportunity for reciprocal property right supply to increase housing supply in places where there is a demand for it. Density maps of Auckland indicate that outside of the city centre there is a sudden drop-off to a flat density gradient, unlike similar sized and geographically constrained cities –such as Stockholm. Economic theory indicates density should gradually decline with what is labelled the ‘missing middle’ housing.
Reciprocal intensification rights will not by itself be enough to enable all of the development we need. Other intensification restrictions such as minimum section sizes, minimum car parking requirements, site coverage rules, viewing shaft restrictions, heritage restrictions, secondary kitchens, etc may be as or more significant in the way they restrict the supply of housing intensification options and should also be reviewed by affordable housing policy makers.
However, I think reciprocal intensification rights would be a less controversial first step to intensification compared to widespread up-zoning, which results in some property owners who oppose intensification to fight such measures. These local interest groups which may only represent a minority of locals obstruct reasonable efforts to address restrictions on housing supply.
I believe New Zealand should give greater weighting to the national concern about affordable housing supply compared to the minority local interest in retaining the status quo. It has been my goal with this reciprocal intensification proposal to create a fair and appropriate first step to address this imbalance.
- This article was based on an article for Interest.co.nz titled Brendon Harre and David Lupton set out the case for more, and more variety of intensive housing options in New Zealand’s urban areas and a longer version of the article which also discussed the possibility of larger co-operative neighbourhood schemes.
- There are some architectural slides from a US city that transformed traditional standalone housing suburbs into suburbs of duplexes and terraces by reducing allowable section sizes to a little over 100sqm and by not having side yard setback and shade plane restrictions. The end result is quite pleasing.
- There is an article and podcast of an academic economic discussion of the wider costs to the economy that unaffordable housing imposes, how the various restrictions on house building contribute to this and some possible remedies, H/T Facebook group Market Urbanism.
This is the second post in an ongoing series on the politics and economic of zoning reform. The first part looked at the costs, benefits, and distributional impacts of reforming urban planning rules to enable more development. This part takes a more specific look at the most recent reform to Auckland’s planning system: the Unitary Plan.
Now that the hearings are over, the submitters have been heard, and the politicians have voted, it’s worth asking: What have we gotten from the Unitary Plan? Does it take us in a useful direction, and to what degree?
In order to give a coherent answer to this question, I’m going to have to simplify matters. The UP does a lot to regulate development and local environmental issues – addressing everything from air quality to zoning for factors. But it has the strongest effects are on the city’s housing market. The UP shapes how much housing can be built, where it can be built, and how easy it is to get permission to build it.
Consequently, I’m going to focus on the impact of the Unitary Plan on people’s ability to build more homes in the city. Zoning capacity isn’t the only thing that matters, but it’s important. Cities that have “downzoned” severely, like Los Angeles in the 1970s and 80s, typically experience rising housing prices, while cities that “upzone” significantly, like Tokyo in the 1990s, tend to have an easier time keeping prices under control.
The great down-zoning of LA (Morrow, 2013)
In order to estimate the UP’s impact on Auckland’s capacity to build more homes, I’m going to draw upon “capacity for growth” modelling produced by Auckland Council and subsequently updated throughout the hearings process. As changes to the modelling methodology make a like-for-like comparison a bit difficult, I’m going to have to piece together the overall results.
The 2012 Capacity for Growth Study estimated the number of homes that could be built under the legacy zoning rules that were put in place prior to Auckland Council amalgamation. The modellers estimated a measure of “plan-enabled capacity” – i.e. the total quantity of housing that could be built within the city if everyone (re)developed their site to the maximum permitted under the zoning rules.
This is obviously an implausible scenario, as many people won’t choose to redevelop, at least for a while. So the results are best thought of as a theoretical upper bound rather than a realistic estimate of what would happen in practice. As we’ll see, this was addressed in subsequent modelling undertaken during the hearings.
With that caveat in mind, the modellers found that the legacy zoning rules allowed between 250,000 and 345,000 additional dwellings to be built in Auckland. The lower number reflects the maximum capacity for infill development, while the higher number reflects the maximum capacity for redeveloping residential sites.
The 2013 Capacity for Growth Study used the same methodology to assess the version of the UP that was notified by Auckland Council after consultation on the plan. This showed that the notified UP had only made incremental increases to infill and redevelopment capacity within the city.
The modellers found that the legacy zoning rules allowed between 258,000 and 417,000 additional dwellings to be built in Auckland. The lower number reflects infill capacity, while the higher figure reflects redevelopment capacity. However, it also noted future greenfield areas with capacity for around 90,000 additional dwellings.
Taking the greenfield areas into account, the notified UP would have delivered a 39-47% increase in capacity for housing, relative to the legacy zoning. That difference is shown in the following diagram. Essentially, the Unitary Plan as originally conceived would have been at most an incremental improvement.
Things get a bit more complex when comparing between the notified UP and the final version of the UP that was recommended by the Independent Hearings Panel and approved (with minor tweaks) by Auckland Council. The modelling methodology changed in the course of the hearings, with the focus shifting from “plan-enabled” capacity to “commercially feasible” capacity. In effect, a new model was built to filter out sites that wouldn’t be profitable to develop.
The result was the final numbers presented in the Independent Hearings Panel’s report (and covered, somewhat hyperbolically, by the Spinoff) are lower – but considerably more realistic – than the figures reported in the Capacity for Growth Studies.
You can see that in the following chart. The commercially feasible capacity enabled by the notified UP is 213,000 additional dwellings – only 42% of the full plan-enabled capacity.
The key thing in this chart is the change between the notified UP and the final UP. Feasible capacity has increased from 213,000 to 422,000 dwellings, or a 98% increase. Most of the increase in capacity comes from within existing residential zones, thanks to rezoning and changes to zoning rules to allow people to build more dwellings on the same amount of land.
So if we squint a bit, we can put these estimates together to get a rough picture of the overall outcome:
- The notified UP increased plan-enabled capacity by 39-47% relative to the legacy plans
- The final UP increased feasible capacity by 98% relative to the notified UP
- This implies that the final UP has increased the zoning envelope by around 175-190%, relative to the legacy plans (i.e. 1.98*1.39 to 1.98*1.47).
Equivalently, if we assume that only around 42% of the plan-enabled capacity under the legacy zoning plans would be commercially feasible (a similar ratio to the notified UP), we can put together the following chart:
Is this sufficient? Time will tell. Getting housing, transport, and place-making right for Auckland doesn’t end with a planning rulebook. But the final UP is undoubtedly a large step away from the broken status quo.
As this is a series on the economics and politics of zoning reform, I want to close with a few simple observations that arise from the quantitative analysis in this post.
- The incremental changes observed between the legacy plans and the notified UP reflect the outcome of a political process. Council put out a draft plan for consultation, and then pulled back a lot of the changes in response to criticism.
- The considerably larger changes between the notified UP and the final UP arose from a technical process – the independent hearings.
- Although the IHP recommended, councillors decided. The final UP was voted up by many of the same councillors who had pulled back to a more conservative position three years before.
This in turn raises two questions that I will revisit in future posts in this series. First, why did the political process deliver a more conservative outcome than the technical process? And second, what changed between 2013 and 2016 to obtain a different outcome from the council votes on the plan?
What do you make of these figures?
I’ve written several blog posts talking about challenges facing local democracy and consultation processes. This is an important issue. Harvard economists Daron Acemoglu and James Robinson make a convincing argument that inclusive political institutions, such as broad electoral franchises and transparent policy processes, are the essential element for countries’ long-term economic and social success. Governments that listen to their citizens are better at delivering higher levels of wellbeing. Governments that don’t are seldom awesome.
Consequently, it’s worth paying close attention to the details of democratic and consultative processes. When they are done well, they can provide valuable insight into people’s needs and preferences. But when done badly, they may instead provide avenues for narrow-minded minorities to hijack the policy process.
One challenge in developing a better understanding of people’s values is there is relatively little opinion polling on a lot of major policy issues. This can leave politicians to make policy in a bit of an information void, relying upon anecdotes and comments from people who choose to call or write them. This anecdata might be representative of the general public sentiment… but then again, it might not be.
With that in mind, it was interesting to see the results of two new polls released in the last week.
The first was commissioned by The Spinoff as part of its coverage of the Unitary Plan decision and Auckland’s local government elections. They asked a representative sample of Aucklanders how they felt about the Unitary Plan:
The Unitary Plan, which The Spinoff and others have been banging on about recently, was signed off by Auckland Council with a surprising lack of rowdy opposition last week. It turns out our newly reformed pro-density politicians were channelling the views of Aucklanders at large, with more than a stonking 85% of those who expressed a view broadly supporting the plan – albeit most with some reservations – in an SSI poll for the Spinoff, commissioned with Jennings Murphy.
Asked, “Do you broadly agree with Auckland’s Unitary Plan and its plan to allow for 422,000 new homes in the city over the next 25 years?”, 19.1% of respondents chose the option “yes, great idea” and 55.8% “yes, but have some reservations”. Just 12.4% answered “no” and 12.8% said “don’t know”.
This is a big result. It follows four years of public and sometimes acrimonious debate about the ultimate shape of the plan. What we seem to have got out the end is a planning rulebook that will make a useful contribution to allowing Auckland to build more homes to meet the current shortfall and future growth… and a fair degree of public consensus that doing so is a good thing.
The second poll, which Bernard Hickey reported on Interest.co.nz, asked New Zealanders whether they’d like to see house prices rise, flatten, or fall. The result was resoundingly in favour of lower house prices:
In news that counters assumptions about home owners opposing falling house prices, an opinion poll conducted by UMR has found 60% of Aucklanders and 55% of home owners would prefer that house prices either fell a bit or fell dramatically over the next year.
The poll of 1,000 New Zealanders over the age of 18 was taken from July 29 to August 17 through UMR’s online omnibus survey and found a total of 63% who would either prefer house prices to ‘fall but not too much’ (37%) or to fall dramatically (26%).
UMR, which conducts polls for the Labour Party, found 55% of home owners would prefer house prices to fall a bit (40%) or dramatically (15%).
The poll found 14% of respondents preferred house prices either kept rising rapidly (4%) or at a slower pace (14%), while 17% of Aucklanders wanted house prices to keep rising rapidly (4%) or at a slower pace (13%). A total of 15% of home owners wanted house prices to rise rapidly (2%) or at a slower pace (13%). There were 633 home owners and 331 Aucklanders in the poll of 1,000 respondents.
The poll also asked if there was a housing crisis at the moment and found that 81% of all respondents and 85% of Aucklanders thought there was a crisis, while 79% of home owners thought there was housing crisis. Fourteen per cent of those polled thought there was no crisis and 5% were unsure.
This is a fascinating result. There’s a high degree of consensus that high house prices are currently a major problem (“crisis!”) and broad, although not universal, agreement that they should be lower.
In July, former Reserve Bank chair Arthur Grimes caused a stir by suggesting that we should build a lot more homes in Auckland to cut prices by around 40%. (Remember: real house prices fell by around 40% in the 1970s, after rising rapidly due to a confluence of supply and demand factors. So Grimes is not arguing for something that has never happened before.)
Prime Minister John Key’s response was a bit skeptical… but possibly not very much in touch with the public perception:
“I think it is crazy. Go and ask the average Aucklander who has got a mortgage with a bank if they want to see 40 per cent of their equity disappear.”
Now, it’s one thing to want house prices to be lower in the abstract, and another thing for the value of your own home to fall. So if prices actually started dropping, people might not be so enthused about the outcomes. (Especially if the flow-on effects on consumer confidence and construction activity led to a recession.) But I think we can conclude that:
- New Zealanders are worried about high housing costs, and their ill effects on young people and low-income households
- Policies that enable more housing to get built are popular
- People don’t think current high prices are a good thing and would like to see them change.
This is a good thing: there is public support for solving New Zealand’s housing affordability problems. In a democratic political system, this should translate into policies that better reflect our values. Reasons for optimism…