New QV figures show Auckland house prices are up a massive 16.1% on last year, now estimated to reach $1m by Aug '16. http://t.co/DwAU79ozCy—
New Zealand Labour (@nzlabour) June 09, 2015
What will Labour do about the supply of land in Auckland?
12 Jun 2015 Leave a comment
in politics - New Zealand, urban economics Tags: Auckland, housing affordability, land supply, RMA, zoning
The principle of competitive land supply – Anthony Downs
16 May 2015 Leave a comment
in applied price theory, applied welfare economics, economics of regulation, urban economics Tags: Anthony Downs, green rent seeking, housing affordability, land supply, land use regulation, NIMBYs, offsetting behaviour, RMA, unintended consequences
Housing affordability trends in New Zealand and the case for a capital gains tax
14 May 2015 Leave a comment
in applied price theory, economics of regulation, Public Choice, public economics, rentseeking, urban economics Tags: Auckland, capital gains tax, housing affordability, RMA
If the affordability crisis in New Zealand is demand side driven requiring capital gains tax to temper that demand, why is the affordability crisis so marked in one city? Does that make a case for a capital gains tax only on Auckland or suggest the capital gains tax is trying to solve the wrong problem.
via demographia.com
The economic forces underpinning the housing affordability crisis
12 May 2015 2 Comments
in applied price theory, economics of regulation, politics - Australia, politics - New Zealand, politics - USA, urban economics Tags: housing affordability, land supply, land use regulation, RMA, zoning
The key point is that increases (declines) in demand can bring sharply rising (falling) house prices when supply is constrained. However, when land supply is not regulated, it adjusts to demand and house price volatility is reduced.
As long as commentators focus primarily on the demand side of the housing market, whilst ignoring supply-side constraints, they will never fully understand the drivers of housing bubbles and busts. The resulting incorrect diagnosis will inevitably lead to poor policy prescriptions and outcomes.
Land use regulation knocks 10 points of US GDP!
10 May 2015 Leave a comment
in economic growth, economics of regulation, income redistribution, macroeconomics, politics - New Zealand, politics - USA, rentseeking, urban economics Tags: Enrico Moretti, Green Left, housing affordability, Inner-city Left, labour mobility, land supply, land use planning, land use regulation, NIMBYs, regional mobility, RMA, zoning
Bloomberg Business highlighted a great new study by Enrico Moretti on power of the regulatory restrictions on land supply to destroy wealth.
Moretti focused on the impact that restrictions on land supply have on the ability of workers to move to higher productivity cities. Moretti is the second best urban economist working at the moment. The best is Ed Glaeser. Moretti concluded that
A limited number of American workers can have access to these very high-productivity cities
He concluded that a more efficient distribution would be “a general benefit for the entire economy.”
The secret of his analysis was to look at how different US cities, the high productivity cities, contributed to national economic growth. He then explore the implications of fewer and fewer workers been able to move to these cities to take advantage of the great productive potential. The barrier to them moving was high housing prices and high rents.
For example, labour productivity grew quickly in San Francisco, New York and San Jose overt 45-years. All of these cities are famous for their human capital-intensive industries including technology and finance. These cities weren’t America’s growth engine:
The reason is that the main effect of the fast productivity growth in New York, San Francisco, and San Jose was an increase in local housing prices and local wages, not in employment.
Despite the large difference in local GDP growth between New York, San Jose, and San Francisco and the Rust Belt cities, both groups of cities had roughly the same contribution to aggregate output growth.
The drivers of US growth between 1964 and 2009 were southern U.S. cities and 19 other large cities. These cities attracted many residents because of good weather and abundant supply of cheap housing.
The lesson both the US and for New Zealand, and Auckland in particular, is this reallocation of population away from the expensive cities with restricted land supply reduced national output because these population movements bring workers to cities "where the marginal product of labour is low."
In a technology boom town such as San Francisco, it is now what like New Zealand will be as Generation Rent runs its course – 65% of residents are renters:
Over the past year, the City and County of San Francisco boasted the second strongest labour market in the nation, adding 25,000 new jobs. Yet only 2,548 new housing units were permitted and even fewer were built.
Just think: 25,000 new workers and their families have been knocking on San Francisco doors, but there are new units for less than 10 percent of them. It is not surprising that apartment prices get bid up.
Housing unaffordability in New Zealand, 1988–2013
29 Apr 2015 Leave a comment
in politics - New Zealand, urban economics Tags: housing affordability, land supply, RMA, zoning
There has been a steady decline in housing affordability in New Zealand. The position is critical of the bottom 20% of the income ladder with now four in 10 of them spending more than 30% of their disposable income on housing costs in relatively good economic times.
via Statistics New Zealand, New Zealand Social Indicators, Housing affordability.
% spent on housing as a share of disposable income, OECD members, 2014
28 Apr 2015 Leave a comment
in politics - Australia, politics - New Zealand, politics - USA, urban economics Tags: housing affordability, RMA, supply of land, zoning
New Zealand is pretty much on top of the world as to the amount of income that households must spend keep a roof. That success is a product of local council restrictions on the supply of land and national and local regulations such as under the Resource Management Act (RMA) that increase the costs of bringing lands in the market.
Source: OECD Better Life Index.
Note: Household net adjusted disposable income is the maximum amount that a household can afford to consume without having to reduce its assets or to increase its liabilities. It’s obtained, as defined by the System of National Accounts – SNA, adding to people’s gross income (earnings, self-employment and capital income, as well as current monetary transfers received from other sectors) the social transfers in-kind that households receive from governments (such as education and health care services), and then subtracting the taxes on income and wealth, the social security contributions paid by households as well as the depreciation of capital goods consumed by households.
The rapid emergence of Generation Rent in the UK and New Zealand
17 Apr 2015 1 Comment
in politics - New Zealand, urban economics Tags: Generation Rent, housing affordability, land supply restrictions, UK politics, zoning
I thought I should reproduce this chart for New Zealand to show the extent to which a Generation Rent has emerged in New Zealand in the last 10 years.
Source: 2013 Census QuickStats about housing.
Might be more interesting to breakdown the pie charts as a single time series for 25 to 29 and 30 to 34 year-olds as the latter are more likely to be settling down and buying a house.
Source: 2013 Census QuickStats about housing.
The number of New Zealanders who own or partly owned their residence in the really 30s has dropped from almost one in two falling towards one in three since 2001. Generation Rent is very much the majority of New Zealanders aged 30 to 34.
For those New Zealanders aged 25 to 29, instead of one in four at least partly owning their residences, as was the case in 2001, the number of those aged 25 to 29 buying or owning their own house has dropped to less than one in five.
Generation Rent for those aged 25 to 29 has gone from a majority tendency to the dominant state for those in their late 20s. In both cases, the emergence of Generation Rent has sped up since 2006.
The emergence of generation rent coincided with a sharp increase in prices in real terms in New Zealand while housing prices against rents became far less competitive.
HT: Global house prices: Location, location, location | The Economist.
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@NZNationalParty housing policy defies the laws of supply and demand for land
05 Apr 2015 1 Comment
in applied price theory, economics of regulation, politics - New Zealand, urban economics Tags: housing affordability, RMA, supply of land, zoning
If homebuyers access additional lines of funding because they can tap into their KiwiSaver retirement savings, they will use this to bid up the price of housing and land.
If the supply of land is fixed or otherwise constrained from expanding much, such as by the Resource Management Act and the metropolitan urban limit in Auckland, the only thing that will happen is that the price will go up with more money chasing the same amount of land and housing.
The price of land and housing must go up in the absence of some reforms that increase the supply of land. Rather than increase access to housing among those with don’t own a house, allowing homebuyers to access their KiwiSaver retirement savings entrenches the prospects of Generation Rent.
Sorry @WJRosenbergCTU the class war has been based on a measurement error! The real class enemy is the RMA and restricted land supply – updated again
21 Mar 2015 Leave a comment
in applied welfare economics, comparative institutional analysis, Marxist economics, politics - Australia, politics - New Zealand, politics - USA, poverty and inequality, urban economics Tags: Class war, Generation Rent, housing affordability, housing prices, land use regulation, RMA, Thomas Picketty, top 1%, wage stagnation
The other day, I replied to a rant by Bill Rosenberg about the decline in labour share of national income and its implications for income inequality and the great wage stagnation. The labour share of national income has dropped by at least 5% in most countries including New Zealand.
New data from the USA has found that the entire declining the value of the share of labour of national income is due to home ownership:
…the net capital share has increased since 1948, but when disaggregated this increase comes entirely from the housing sector: the contribution to net capital income from all other sectors has been zero or slightly negative, as the fall and rise have offset each other.
The capital share is rising because of the increased value of housing in countries with widespread home ownership. The concentration of capital ownership and wealth in the top 1% was a misplaced concern based on measurement error.
https://twitter.com/EconBizFin/status/581047721836060672
Piketty assumed the returns to capital were increasing across the entire economy. Rognlie found the trend to be almost entirely isolated to the housing sector. His 23 page long conference paper at the Brookings Institution started as a comment on a blog post on Marginal Revolution.
When Rognlie adjusted for the rapid depreciation inherent to investments in capital such as computer software, most of the rest of the increase in the capital share in recent decades in the USA and six other countries has came in housing.
A single sector such as housing is not the force that is shaping past and future of inequality as Piketty and others such as Bill Rosenberg in New Zealand have assumed. They attributed a growing share of income going to capital across the board as Tyler Cowan explains.
In the simplest version of the Piketty model, wealth grows more quickly than does the economy as a whole and thus the picture changes. The relative losers are no longer low earners but rather anyone who is not a capitalist. Any disparity is due not to their shortcomings in labour markets but rather to their lack of a high initial endowment.
The main driver of inequality is the tendency of returns on capital to exceed the rate of economic growth and company shares, businesses and other capital are owned by a narrow section of the community, and in particular by the top 1% of income earners. Trends in housing prices and the comings and goings of intangible capital is not part of that story.
Investment and depreciation of software and other intellectual property is not well handed, or even well measured in current national accounting systems as Edward Prescott has shown in a long research programme dating back 10 years. Intangible capital produced and owned by businesses is known to be big part of all investment in the economy but nearly all of it is recorded as an expense and therefore most is not part of GDP as currently measured.
Source: Edward C. Prescott and Ellen R. McGrattan (2014)
Prescott estimated the value of intangible capital to be equal to about 60% of that of tangible capital in the US economy. Incorrect treatment of investment in intangible capital seriously underestimates investment, output, fluctuations in labour productivity and movements in the capital shares. The graph above shows that the recently introduced intellectual property classification in the US national accounts is both large and volatile relative to equipment and structures investments over the last 40 years. The graph below shows that including intangible capital completely changes the predictions of real business cycle models about trend US labour productivity in the 1990s.
Labor Productivity, for the Model, With and Without Intangible Investment (Real, Detrended) 1990-2003
Source: McGrattan and Prescott, 2005, “Expensed and Sweat Equity,” Research Department Working Paper 636, Federal Reserve Bank of Minneapolis.
This depreciation adjustment for software investment is important because you can’t eat depreciation, as a shrewd observer noted. The rapid depreciation of software is depreciation – it cannot be redistributed from the top 1% to the downtrodden workers as some sort of income. Others have also earlier argued that Piketty’s claims rest on the recent increase in the price of housing.
The main reason for increases in the price of housing in New Zealand and elsewhere is restrictions on the supply of land by local councils. They are the real class enemy.
The metropolitan urban limit in Auckland increases land prices by 9 fold just inside that limit. As Tim Taylor said today:
The rise in capital income as a result of a long-term rise in land and housing prices across the high-income countries is a phenomenon that isn’t easily crammed into the usual disputes over whether capital owners are exploiting wage-earners.
The role of the housing sector and restrictions on land supply driving up housing prices in recent decades in shaping the future of inequality is perhaps underplayed given the many discussions of Generation Rent.
Housing affordability is a real crisis in New Zealand and many other countries with the younger generation no longer able to buy a house. They are condemned to decades of renting a house. They may never be able to afford a house on one income and perhaps two ordinary comes.
The future of inequality is between those who can and cannot afford a dream and a right for their parents and grandparents, which was to buy a house and pay the mortgage off within a couple of decades.
Young people used to buy a house shortly after leaving university and paid it off by their middle age when I was in my 20s and 30s. Back then, which was not all that long ago, ordinary workers could aspire to take out a mortgage and buy a house in the suburbs.
Unless there is a major deregulation of the supply of land in the big cities, home ownership for most in the community will really be a dream, rather than a dream of aspiration achieved by most by their 30s, if not often earlier through working and saving. The grandchildren of the baby boomers will become and perhaps already are Generation Rent.
Edward Glaeser on regulation and housing prices
24 Feb 2015 Leave a comment
in urban economics Tags: Edward Gleaser, housing affordability, land supply, land use regulation, zoning
When fighting child poverty, don’t mention housing costs
22 Feb 2015 Leave a comment
in labour economics, liberalism, politics - New Zealand, poverty and inequality, urban economics, welfare reform Tags: child poverty, housing affordability, land supply, Left-wing hypocrisy, RMA, zoning
New low for economic analysis of NZ opposition leader and Dominion Post editorial on housing affordability
22 Jan 2015 Leave a comment
in applied price theory, politics - New Zealand, urban economics Tags: Andrew Little, Dominion Post, economic literacy, housing affordability, media bias, rational irrationality, Resource Management Act, zoning
The editorial in today’s Dominion Post about the proposed reforms in New Zealand to the Resource Management Act to increase of urban land supply and make housing more affordable actually supported some absolute nonsense economic analysis by the Leader of the Opposition, Andrew Little:
Labour leader Andrew Little says part of the problem is in fact low and in many areas stagnating wages.
That is correct, but this merely points to a huge problem that successive governments have failed to solve. Nor is this Government likely to do much by way of living wage reforms or other non-market solutions.
The alleged professional journalist who wrote this editorial is ignorant of the most basic workings of the economy which he could pick up as an ordinary consumer and home owner.
If consumers become wealthier because of higher wages, they will use this increased income to demand more housing and land.
If the supply of land is fixed or otherwise constrained from expanding much, the only thing that will happen is that the price will go up with more money chasing the same amount of land and housing.
This will benefit the existing home owners in New Zealand. Workers who don’t own homes will simply have to pay more of their now higher wages to buy houses. Once again, the Labour Party betrays the interests of the working class to win middle-class home owner votes.
Utopia, you are standing in it! 
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