Yesterday’s Herald featured an editorial and an op-ed by Productivity Commission chair Murray Sherwin on housing affordability. They followed the release of the Commission’s draft report on this issue. It’s a useful contribution to public debate, identifying the problems of the (artificial) shortage of land and heavily prescriptive regulation, and discounting the argument that the tax treatment of housing could explain the large rise in section prices. The Business Roundtable made many similar points in its submission to the Commission.
The report’s key recommendations include:
- Urgently opening up of more land for housing, especially in urban areas. (Sections now contribute on average about 40 – 60% of the cost of a house).
- Improved processes for consenting, to speed up the service and lower costs.
- Improving how local council development charges for infrastructure are calculated and applied, including making them reviewable. The Commission found the current model has too much regional variation and is not transparent.
- Reconsideration of Auckland’s draft spatial plan. Auckland faces significant housing affordability challenges and the Commission found its current plan, with a target of accommodating 75% of new homes within existing urban boundaries, will be difficult to reconcile with affordable housing.
The Business Roundtable’s submission on Auckland’s spatial plan made the same point in reaching the conclusion that it was bound to fail.
Spending on housing, including homeownership and renting, is the single biggest chunk of expenditure for most New Zealand households and comprises the lion’s share of households’ assets and debt.
Last month an article in the UK magazine The Economist, indicated that home prices are overvalued by about 25% or more in Australia, Belgium, Canada, France, New Zealand, Britain, the Netherlands, Spain and Sweden. The same article linked to an interactive chart that allows New Zealand house prices to be put into an OECD context on a number of different measures. For example, it enabled us to prepare this chart that indicates that New Zealand and Australia have experienced similar house price inflation relative to average incomes since 1986.
The median house price to median income ratio in the US is 3, which is the ratio we were at in the early ‘90s. The median house in New Zealand now costs 4.7 times the median wage. In Auckland the ratio is around 6.7 times the median wage, which puts owning a house out of reach for a great many hard-working New Zealanders.
There is no shortage of land in the greater Auckland region and the artificial regulatory restrictions on its availability to meet basic human needs have not been adequately justified in overall cost-benefit terms, presumably because they can’t be. Keeping section prices inside the city cordon high might be in the interests of existing property owners, but that does not make it serve the interests of Aucklanders overall.
Earlier this year following a visit to Houston, Texas, Roger Kerr talked about the large flow of people and firms escaping from over-taxed and over-regulated states like California to the business-friendly, people-friendly lone star state.
Texas has no state income tax and Houston has no zoning, ie land regulation as we know it. And guess what? You can get a very nice four bedroom, double-garage family home in a pleasant, leafy neighbourhood for as little as US$200,000 (about NZ$268,500).
Acting Executive Director