Is NZ getting serious on housing policy?

By Leith van Onselen

This time last week I described how the release of the 9th Annual Demographia International Housing Affordability Survey had caused a political storm in New Zealand, with both major parties promising to tackle the issue of housing affordability via reforms to housing supply.

On Friday, New Zealand’s Prime Minister, John Key, upped the ante in a state of the nation speech, where he claimed that a shortage of land for housing, delays and costs involved in gaining building and resource consents, and lack of infrastructure provision, were structural issues putting the price of housing out of the reach of many New Zealanders:

In terms of housing, the Government is itself planning to build more than 2,000 houses over the next two financial years but, more importantly, wants to work with local councils on the underlying problems of land supply, building and resource consents and provision of infrastructure.

We need more houses built in New Zealand, at a lower cost.

That means we need more land available for building, more streamlined processes and less costly red tape.

This doesn’t require the Government to spend a lot of money. We are already a huge player in the housing market and I’m very wary of spending more of taxpayers’ money.

But there are plenty of private sector investors who want to invest in housing – if only we can remove the roadblocks that are slowing down the process and driving up costs.

It’s ridiculous, for example, that developers can wait six to 18 months for a resource consent.

It’s ridiculous that we allow councils to demand almost anything as a condition for the consent.

And it’s ridiculous that we allow them to charge whatever fees they want.

Unless these sorts of issues are dealt with there won’t be more affordable housing built.

Prime Minister Key also made a thinly veiled threat to local government in New Zealand – particularly Auckland council, which has proposed to further tighten its urban growth boundary – that if would intervene to free up land for housing unless local governments do so themselves:

…we want to work co-operatively with local councils and I believe our goals in the end are the same.

In particular we are keenly awaiting the Auckland Council’s Unitary Plan, and I’m expecting it to include multiple options for both greenfields and brownfields residential property developments.

But if councils aren’t able to change their planning processes, then the Government would have to get a lot more proactive, because we are very serious about resolving this issue.

As an aside, New Zealand’s councils have slammed the Government’s threat, arguing that there is an adequate supply of land for housing and that the rise in home prices is simply “the market” at work. The below quote from the Palmerston North City Council highlights the prevailing view (my emphasis):

City planner David Murphy… resisted the criticism that local government was to blame for New Zealand’s housing affordability issues.

While land supply might be a problem in other parts of New Zealand, there was no shortage of land zoned and ready for development in Palmerston North, he said…

“But we can’t control who owns that greenfields land, or when they release it, and what price they ask for it. It’s the market driving that, not council.”

The view of the Palmerston North planner is, unfortunately, typical amongst the planning profession. They think that because they zone, say, ten year’s worth of land for housing that there is an adequate supply. What they fail to recognise is that artificial restrictions on the quantity of land available for development reduces competition from rival landowners outside the zoned area (or urban growth boundary), in turn handing the lucky landowners within the zone quasi-monopoly rights and enabling them to drive-up the cost of land (since there is no alternative).

Moreover, such restrictions on land supply enables developers to effectively ‘corner the market’ by accumulating all of the available zoned land, thus allowing them to drip feed supply onto the market and drive-up its price.

By contrast, in a market with no urban growth boundaries or restrictive zoning (assuming no major physical boundaries are in place), there is always competition from rival adjacent land owners and no developer can capture all of the available land. Any developer that attempted to horde land in order to drive up its cost would be immediately undercut by rival land owners elsewhere, leaving them with inventory that they cannot sell.  Urban land prices remain low because extraordinary profits cannot be captured as a competitor land seller is always available to undercut them.

Meanwhile, on the demand-side of the housing equation, the Deputy Governor of the Reserve Bank of New Zealand (RBNZ), Grant Spencer, on Friday gave the strongest indication yet that the RBNZ would limit loan-to-value ratios (LVRs) on mortgage lending in order to cool demand for housing, mitigate the credit cycle, and promote financial stability. The RBNZ also promised to release a public consultation paper on this issue in March:

A build-up of lending risk can, in some circumstances, leave banks overexposed to a sector where an asset bubble develops and eventually bursts, threatening the stability of the financial system overall. Adjusting risk weights to account for these risks can help build greater resilience in the face of such bubbles and, used early, could help prevent bubbles developing in the first place…

But adjusting sectoral risk weights in this manner is not for everyday use and should be used under very specific conditions. It may be the case that an alternative macro-prudential tool, such as Loan to Value Ratio (LVR) restrictions, could be more appropriate in any given set of circumstances.

The framework the Reserve Bank is currently developing will establish the parameters for using macro-prudential tools. This will include when and in what conditions they might be appropriate, as well as clarifying governance and accountability issues. A public consultation on macro-prudential policy is expected to be released in late March.

It looks like New Zealand’s authorities might finally be getting serious on housing policy.

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Comments

  1. 2 years ago New Zealand had the horse in the stable and the doors closed, but forget the property lobby had a spare key. Nothing will or can happen now! Too many people have been reassured that “property always goes up” ( “See”, the entrenched are saying after the scare of a 10%+ slide of recent times “I told you so….”). The only option left for us Kiwis now isn’t the slow melt we had in train….it’s a full blown Tangiwai of a property nature, not a transport one, that 50 years on is the only option left to the New Zealand economy. Because nothing can save us from our gross debt problem now……For instance : “The manufacturing inquiry launched by opposition political parties is being rubbished by the government, which says there’s no crisis in the sector.” http://nz.finance.yahoo.com/news

    • reusachtigeMEMBER

      This is the exact reason why in both NZ and AU we need the mother of destructive housing busts – the bigger the better!

      • I’m certainly not saying that this melt down wont happen BUT I’m convinced that the politicians and economists with their hands on the monetary levers will do everything in their power to avert such a melt down.

        Unfortunately neither Oz nor Kiwi politicians come from manufacturing backgrounds, so they can do absolutely nothing to expand manufacturing. Even their models of expansion/contraction of manufacturing “at the limit” is highly questionable, especially in today’s winner takes all global markets.

        Nobody starts an export focused manufacturing business because it is marginally attractive, it has to be a slam-dunk.

        So what’s this got to do with NZ housing, directly nothing, indirectly it determines CAD which effects the need for external capital and the cost of this external capital.

        Politicians will support housing, because they understand what voters want. Supporting housing will blowout the CAD, unfortunately the only known cures for CAD blow outs are austerity and exports. Since they don’t understand exports I know exactly what awaits my Kiwi cousins.

          • Gareth’s a guy that I have respect for, so I’m happy to be pulling on the same string as someone of his stature.

            The problem is certainly insidious, in a way it is like a kid born with a silver spoon in his mouth that still considers himself wealthy because the banks have not actually foreclosed on him YET.

            Unfortunately when the banks foreclose he’ll discover that he has absolutely no externally marketable skills. This is in a way what Greece is going through. It really does not matter if the ECB loans them money or not the future is equally bleak, there are no manufacturing industries to ramp-up and tourists avoid war zones like the plague.

            What very unfortunate is that bankrupt banks CANNOT loan money for manufacturing to expand / create products, so a CAD crises removes the very oxygen that manufactures require.

            Personally I’m done arguing for greater export focus in Oz and NZ, I’ve gone over to the Import business side because all the levers available to today’s economists result in short term expansion of the import business, so I might as well be on the winning side for a while.

      • NZ has another problem, basically unregulated foreign investment which drives locals out of the market because of cashed up foreign investors. Foreign investment should be banned to give low income earners a chance. Second, land restrictions should be removed completely and 3rd developers that hold land should have a time limit to build before they start getting taxed at a rate which is increases on a monthly scale to a point that makes holding that land not viable. Foreign students should not have the right to own property either, they are here to study, not buy up housing.

          • Yep, I agree, I want to see the who system completely smashed. I am also thinking of putting up a website with address details of all the prime players in investment, local governors and others who force this on us and make us suffer. Because to me it seems most hide behind a vale in society.

          • Because it needs the path down to be free of government intervention.

            It people are happy to chortle and consider themselves high achievers because of capturing unearned gain on the way up, they need to experience the un-adulterated soothing effect of the reversal of the boom.

            The need to know both sides of the same coin.

            No government intervention should be exercised to socialise the cost of a housing bust.

            Let it take its natural course, which will be a crash.

  2. Meanwhile what will a second bout of flooding in two years do for the SE QLD property market? While 2011 might have been seen as a rogue event this latest bout may well be seen as the new normal and see the value of property in marginal flood areas plummet. Not even LNP cult leader “can-do” campbell can turn back the water now. PF your opinion is welcomed.

    • Funny question on a NZ thread David.

      Don’t worry, we are floodaholics in Qld, we love them and tend to overindulge every year at about this time. It’s just one big hangover. I’m starting an FAA chapter in my suburb.

      Personally I’m over the moon because this year my house didn’t flood, and no one else in the surrounding suburbs seems to have had an issue, but towns like Bundaberg are really copping it.

      I would rather have occasional floods than annual bushfires – if you look at the cost in human lives – generally bushfires win hands down, if you can call that winning.

      If we have in the past built our towns on rivers where the settlers had access to fresh water and port facilities for rural produce, it’s natural that we are at the mercy of floods, same in NSW.

      Perhaps though it’s time to look at the relocation of households who occupy perennial flood properties like they did at Grantham. They are often lower priced homes for obvious reasons, and so the cost of relocating now could save many $billions in the future. That would also have a future benefit as those areas could become parks with a much better run off rate, and that might reduce flooding to surrounding properties.

      OR – the authorities could ask people to raise the level of their houses and yards, as a lot of the flooding is caused by reverse flow in stormwater drains – eg Rosalie, Milton, Auchenflower.

      Why don’t you ask your audience David. Whatever happens they will be the ones to pay for it, but it will be cheaper in the long run if we come to grips with it now. You will remember how much they whinged about sacrificing a cup of coffee every month if they earned $100K pa

      • Oh and as for prices – flooded homes are marked down, and flood free properties are marked up.

        Eventually after a prolonged period all properties rise again, although perhaps not to the original height – each property will be treated differently by the market depending on how it has been affected in the past.

        The BCC have some stunning data on flood levels now. In the past they charged for access to the data, but Cambell Newman changed that – so everyone can check flood levels very accurately.

        Have a look at this data for this flood – http://www.brisbane.qld.gov.au/community/community-safety/disasters-and-emergencies/BRFFS/index.htm

        They know the exact height of the highest and lowest part of every block of ground in Brisbane – it’s stunning information for the home buyer.

        • “…..as for prices – flooded homes are marked down, and flood free properties are marked up….”

          Yep, Christchurch post-earthquake is more expensive than ever – for the houses that are standing and signed off by engineers.

  3. the sad thing is the govt is only starting to address the issue as its gone beyond the point of stupidity and there are votes in it as even the sheeple realise they have been duped. It will be sorted out by fair means or foul, but sadly too late for a generation either stuck on the sidelines or who having bought face a lifetime of debt servitude. The saddest thing about the govt response is they are not focussing on reducing the demand side that is exacerbating the problem (ie easy bank lending, ludicrously high immigration, generous tax incentives …. you know the same old stuff that Aus, Canada and NZ have in common and which gives them pride of place at the global housing speculation table)

    • Ones that have brought into debt Squirell should simply walk out on that debt, not pay it back, go to Asia and teach English for the rest of their lives, it’s pretty easy these days, even with children. I have never understood why people fear walking out on debt. Asia is fast becoming in many ways a better place to live for low income earners if you have something to offer, such as English teaching.

      Anyhow, all I say is just leave the debt, if you have nothing to be taken, then you have nothing to loss. If it affects your credit rating who cares, most low income earners can only get pathetic high interest loans from HaveyNormans etc…. so their credit rating does not mean much anyhow.

      • Agree, transfer the pain to the bond holder, and take away your productivity and tax dollars from the country.

        Let the status quo here implode upon itself.

        • Mining BoganMEMBER

          ooohhh…I know two of these bankrupt property developer types living in Oz. Love a day at the races too.

          See you can be a waste of space and survive anywhere. There’s a lesson in that kiddies.

          Hide your money!

    • “the sad thing is the govt is only starting to address the issue”

      You’re being unfair.

      Obviously the politicians needed some time to sell all their investment properties first.

  4. As I have been saying for years:

    Government has done something very bad to the supply and demand of starter homes which has led to outrageous prices of starter homes, and supported much higher prices of better homes. In short, government has poked the demand and choked the supply of starter/marginal/extra homes.

    Poking Demand:

    * Government brings in many immigrants

    Choking Supply:

    * Government rations permission to build extra housing on the fringe or extra units in the city, and new cities
    * Government adds taxes, charges and levies to extra housing
    * Government requires onerous compliance with regulations
    * Government creates delays in approving dwellings.
    * Government neglects transport and other infrastructure which reduces the area in which well-located and well-serviced homes can be built

    • There is a basic reason that “the supply of starter homes” has been choked off.

      This is that the LAND component in the price of housing is what has been inflated.

      Consider the options in an affordable market: Fringe McMansion; $40,000 for land, $120,000 for house; $160,000 total.

      “Fixer upper” in older suburb closer to city core: $40,000 for house, $80,000 for land (being at a more efficient location), $120,000 total.

      Redeveloped rowhome near city core: $40,000 for land (high value, small amount), $80,000 for home; total $120,000.

      Now look at what happens when the land price is inflated:

      Fringe McMansion: $240,000 for land; $120,000 for house; $360,000 total.

      “Fixer upper” in older suburb closer to city core: $40,000 for house, $480,000 for land (being at a more efficient location), $520,000 total.

      Redeveloped rowhome near city core: $240,000 for land (ultra high value, small amount), $80,000 for home; total $320,000.

      In the AFFORDABLE city, the old fixer-upper and the rowhome are both CHEAPER options compared to the already-cheap new fringe McMansion. In the UNAFFORDABLE city, the fringe McMansion is “the LEAST unaffordable” and the traditionally more affordable option of the old fixer upper homes are even LESS affordable. And the “rowhome” is simply appallingly bad value for money even for the small enough family who might fit in it.

  5. City planner David Murphy… resisted the criticism that local government was to blame for New Zealand’s housing affordability issues.

    While land supply might be a problem in other parts of New Zealand, there was no shortage of land zoned and ready for development in Palmerston North, he said…

    “But we can’t control who owns that greenfields land, or when they release it, and what price they ask for it. It’s the market driving that, not council.”

    City planner David Murphy is completely wrong and is to blame for the problem.
    He should place a time limit on land he has zoned residential. If not built on within X years, then rezone it parkland and rezone some other person’s land residential.
    See what that does to THE MARKET. Fix it would be my guess.

    • “He should place a time limit on land he has zoned residential. If not built on within X years, then rezone it parkland and rezone some other person’s land residential”

      +1. Use it or lose it.

      • This is where a land tax would help too. But ultimately, greater competition is needed in the land market. Developers (and pre-existing land owners) must not be allowed to ‘corner the market’ by buying-up (holding) all of the available zoned land and then drip-feeding this to the market in order to raise its cost (and fatten their profit margins). Removing zoning (except where absolutely necessary for social/environmental reasons) and improving infrastructure provision (so more land is accessible) would ensure that there is always a large number of potential land sellers, thereby lowering its cost and preventing monopoly-style profits accruing to land owners.

        • Re infrastructure for competitive automobile based development, much of the hinterlands of NZ cities are covered with a surprisingly high density network of roads already, to service the rural sector. Furthermore, the rural sector frequently has substantial supplies of water already laid on.

          Nevertheless, centralised, planned infrastructure monopolies are frequently a massive obstruction to the “most efficient” provision of infrastructure for each development. One of the reasons things are so efficient in so many US cities, is that the developer has maximum flexibility to get the infrastructure he needs by the most cost-effective way; not the way that maintains a centralised bureaucratic empire.

          Where the water comes from, where the waste goes to, where drainage goes to, etc; can frequently be done far more cost effectively than what the bureaucrats with a monopoly insist on; not to mention the speed with which it can get done.

          On site treatment of waste is looking competitive these days, after which it goes out a small pressurised pipe instead of a huge gravity feed pipe running miles to some centralised treatment plant.

    • Here is the basic flaw with the idea that “X years supply of land has been zoned”.

      The zoned amount is NOT the amount that NORMALLY WOULD COME TO MARKET ANYWAY IN THE NEXT “X” YEARS. It is the TOTAL quantity of land within the zone.

      To REALLY have “X years of supply”, it would be necessary to include in the zone, enough land that the quantity that IS “X years supply” WOULD come up for sale anyway in a normal rural market, at normal rural prices. This would mean a zone with about ten to twenty times as much land as “X years supply for urban growth”.

      The land comprising “X years supply” by the planners standards, is being used for something already and no owner of it has any inducement to sell it at the value that it is worth IN ITS PRESENT USE. But having become aware that they are part of a newly created oligopoly holding of the next “X years supply of land for urban growth”, they cease to think in terms of rural land values at all, and start thinking like investors/speculators.

      None of them will be satisfied with a 10% capital gain, or even 20%. Expectations of gains become a reason to HOLD land and NOT sell it. So the planners “X years supply” becomes a LOT LESS than “X years supply” purely because of typical investor psychology. The planners have REDUCED the likelihood that any one land owner within the zone will in fact sell the land within the “X” years at all.

      The fact that no-one involved in modern urban planning advocacy has ever shown any evidence of having thought of this, is just a sign of how grossly unqualified they are to be dictating outcomes at all in the first place. This stuff was far better understood decades ago, when the original experts who devised the UK Town and Country Planning System included compulsory acquisition of land in the proposed system.

      Compulsory acquisition of land, or taxes that are a nearly-as-powerful inducement to sell, are essential. But then “property rights” is used as an argument against these things. This is a perversion of the principle: the owners of land OUTSIDE the zone have already been denied THEIR property rights to do what they like with their land, not to mention the rights of young people to be allowed to get an affordable patch for themselves. Compulsory acquisition of land at the value that applies outside the zone, merely redresses the imbalance between the two sets of property owners, and prevents inequitable wealth transfers from riddling the entire property market.

      Then, of course, we could simply not “restrict” urban fringe growth in the first place…….

      • Excellent post, PhilB. Maybe you should write a letter to the editor of whatever newspaper Palmerston North has, pointing out this fundamental error.

  6. Hugh PavletichMEMBER

    Great work Leith !

    Further constantly updated reporting / information on the New Zealand situation at Cantabrians UNITE facebook ( http://www.facebook.com/cantabriansunite ).

    My view is that there is now sufficient pressure and momentum underway for substantive change in New Zealand now, for 3 major reasons –

    First – A TV One Colmar Brunton poll 3 December found 62% of all and 75% of young New Zealanders want affordable housing – and that the Government make this happen.

    Second – While the Labour Party 100,000 new build Government led “KiwiBuild” proposal is idiotic and unworkable, in political terms it is providing essential pressure on the Government to finally perform on these issues. The Government cannot afford to have this as a “negative issue” this time next year in the lead up to the election November.

    Third – Local Government…The Great Inertia Sector… has been sufficiently softened up and lost the will to fight. They have capitulated to the extent of saying the housing fiasco “is not our fault” and they will work with Government now (Lawrence Yule, President). It was these arrogant and incompetent clowns who went out of their way to sabotage the implementation of the Resource Management Act (moving from old style British Town & Country Planning) in the early 1990’s and other essential reforms.

    Further background information is available at my archival website Performance Urban Planning ( http://www.PerformanceUrbanPlanning.org ).

    Hugh Pavletich
    Co author
    Annual Demographia International Housing Affordability Survey
    Christchurch
    New Zealand

  7. To answer your headline question Leith-the answer is a clearly “yes”. Hopefully the RBNZ discussion paper to be released in March will facilitate a more detailed discussion of the the topic of macro tools here on Macrobusiness.
    The tools for tackling the control residential land are much more difficult to envisage.NZ is small and frequently half a dozen major players can lock up land and release it on the drip feed to maximise value to the vendors.Pity Marxism has gone out of fashion really.

    • Hugh PavletichMEMBER

      Terry – with respect, whatever the RBNZ does will only be a sideshow, as people just make other arrangements on the financing front.

      Former Governor Bollard was well aware of this.

      The Mortgage Consumer Protection legislation has little influence in Texas I understand. This has been pointed out by Texans to Leith as well.

  8. Well that is a very important question Hugh that needs careful analysis and debate.The RBNZ can keep prices under control through flexing risk weightings and imposing LVRs-but of course it cannot increase land supply and drive prices down. I suspect the only solutions in that area involve heavy interventions from central government that most NZers would baulk at.It is largely an oligopoly problem in my view made worse by the fact that local governments have an incentive to support the oligopoly because it maximises revenues(rates, developmnet levies) for them.

    • In which case it cannot really be addressed.

      Every household that forms will have a need for housing. Implementing LVR restrictions and increasing interest rates effectively delays the problem, but never solves it. In fact it may well make it worse in some years time. Only policy response can solve it, and that won’t be forthcoming.

      • credit restrictions are not a cure all, but can dampen the ill effects of an underlying problem. Its a bit like gun control. If we were all sensible, happy and well adjusted there would be no need for it. The fact is, we will never get rid of underlying problems completely, but we can certainly avoid pouring fuel on the fire.

      • Land tax increase on all vacant land zoned residential in excess of last 5 years’ sales.

        Land banks would be sold down to 5 years and if they didn’t just increase the tax next year, and the year after etc.

        Make holding undeveloped vacant residential land a liability.

        Alternatively just make it a condition of zoning that x blocks be built on by end of each year until estate fully built.

    • Terry McFadgen, have you and your colleagues ever looked into the relationship between LVR’s and housing prices in South Korea?

      Don’t underestimate how high house prices can go even if young people are saving towards a rising, supply-strangled target rather than borrowing towards it. The advantage of the South Korean approach is that there is nothing like the same credit bubble, in fact the savings of the young people chasing the rising target represents a significant pool of national savings.

      But of course people in cultures other than South Korea may not be prepared to work and save as hard and for as long, in the face of a rising target, and may just join the ranks of the excluded and disaffected.

      • It is probably also fair to say that when the underlying problem is rationed land supply, a similar size cohort will be excluded from home ownership regardless of demand side factors such as credit. Whether they are unable to save as fast as the rising house price target under strict LVR conditions, or unable to qualify for a loan even under loose credit conditions, the same size cohort simply “will not make it”.

        This issue really exposes whether a pundit actually cares for “the battler” and the disadvantaged, or not.

        • The shortage determines how many miss-out. The amount of credit determines at what price they miss-out.

    • Hugh PavletichMEMBER

      Terry…many thanks for your comments.

      These “obstacles” are well understood.

      Be assurred there is much
      “furious thinking” going on about how best to deal with them.

      When the Berlin Wall came down, a few “experts” were a little surprised too as I recall.

      Im reminded too of the words of the great American Judge Richard Posner “Law that goes not mirroe markets will ultimatelu fail”.

      I just feel like Im providing some of the narrative on this journey of inevitable channge really.

  9. I repeat: Having re-confirmed over the last 2 years to New Zealanders that ‘property always goes up’ the Government and associated entities have no show of creating any sort of affordable housing anywhere in New Zealand. It will now be gobbled up by those reassured that the mantra of the last 40 years has been proven correct with the means to do so, leaving those for whom it is intended no more able to access ‘affordable housing; that they are today – in fact less so. The horse has bolted; the gates are wide open and only shooting the horse is now going to stop it……

  10. Hugh PavletichMEMBER

    The Australian and New Zealand Local Government cultures have been very heavily influenced by the sick British one…for decades.

    The Canadians were more fortunate, in being influenced by the Americans. This is why in large measure, Canadian housing is generally more affordable than ours here in Australia and New Zealand.

    Around 3 years ago, the UK Daily Mail did investigative work on a London Council…and reported with THE GREAT INERTIA SECTOR…It is an enlightening and entertaining read…

    http://www.dailymail.co.uk/news/article-1289702/Public-sector-inertia-council-office-employees-month-sickies.html

    Culture is of critical importance.

    Systemic changes are essential in dealing with this, as I outline within CHRISTCHURCH: THE WAY FORWARD…

    http://www.scoop.co.nz/stories/AK1206/S00251/christchurch-the-way-forward.htm

    In short – there are two types of Local Government in this world – the small and the bad.

    When they get too big and bureaucratic, they lose the capacity to meet their infrastructure responsibilities to their communities and cope with normal growth. This is the core issue of the housing mess.

    Hugh Pavletich

    • Yes, Canada’s house price bubble is like the US one, where they still have some affordable cities, but a few “save the planet” mania smart growth cities are their “California”.

      I have always expected nations with NO affordable cities at all to have a harder landing ULTIMATELY, even if their policy makers use every trick in the book to keep the bubble inflated for as long as they can. This can’t last, because inflated land and housing prices are a cost to the productive part of the economy on which everything ultimately relies.

      I THINK the NZ government has finally become convinced of this and various other macroeconomic arguments in favour of low urban land costs. It is getting harder and harder to deny the evidence that the USA’s LOW density cities with low urban land costs, are actually extremely productive urban economies, AND with very high democratisation of urban land ownership and other attributes of housing, compared to the general cross-section of long-time growth-constrained urban economies in the UK especially.

  11. In the race of life, always back the horse called “Self Interest”.

    If properties did start to fall in value, the owners would exert tremendous influence on the government to fix the problem.

    My prediction is that the polls saying otherwise will reverse within months of prices falling 10%.

    If 65% of adults own their own house (even if paying a mortgage) they don’t want it to fall in value and won’t like a government that lets it fall in value.

    Even long slow real melt becomes very unpopular after a few years.

    Three years of 3% inflation in wages and rentals and flat nominal house prices is 10% fall in real values anyway.

    If there is a 10% fall in nominal values over the same 3 years you now have a 20% fall in real value over 3 years. Wouldn’t that be enough?

    Why do we need the devastating effects or a crash? We don’t.

    • I have for some time seen something promising in the fact that NZ in the 1970’s had a volatile spike up in house prices (caused by the socialist Kirk Govt throwing absurd subsidies at the “demand” side) followed by years of flat nominal house prices and high inflation.

      This meant that no-one was left in negative equity yet house prices reverted to their historic trend relative to incomes. And there was definitely no electoral backlash from property owners about the falling REAL “value” of their properties.

      NZ economist Rodney Dickens called this “washing away our housing bubble sins in a tide of monetary inflation”.

      Inflation is probably going to swamp every economy in the world anyway, what with so many major economies having their money supply base inflated so massively via QE. We might as well utilise the coming inevitable imported inflation for something useful.

  12. I do not expect crash in property market in OZ. I think there will be stagnation, long lasting, when average house will cost $500 000 and average income will increase due to inflation plus I see end of the strong AUD.
    So in five years time you still be bying house for $500 000 but your salary will be around $90K-100K, USD will cost you 1,5-1,6, 1L of petrol 2,5-3, electricity, gas double, etc. Forget the USA style of market recovery. Australian property market is not a free market driven by demand-supply it is driven by government. Land prices, negative gearing, etc.

  13. A Royal Institute of British Architects study has found new houses in the UK are not just expensive they are also the smallest in Western Europe, the average new home is just 76 m2. This is even in comparison with countries of equally high population density, such as the Netherlands and Germany.

    http://www.architecture.com/Files/RIBAHoldings/PolicyAndInternationalRelations/HomeWise/CaseforSpace.pdf

    BRITAINS HOUSING CRISIS: THE PLACES PEOPLE LIVE (PICTORIAL)…by James Heartfield of Audacity UK for New Geography…

    http://www.newgeography.com/content/003432-britains-housing-crisis-the-places-people-live

    This is what the “planners” assure us will restore “affordability” when they force urban land price up: “density”. So how come median multiples in the UK are still severely unaffordable even with the least housing space per person in the OECD?