Tag: land supply

Econ Duel: Why Is the Rent So Damn High?

The key role of housing costs in disaster recovery @ericcrampton @JordNZ #nzeq

The evidence abroad after earthquakes, hurricanes, flooding, tornados, and wartime bombing is that for growing cities, disasters, including carpet bombing and atomic bombs, are only temporary set-backs with few long-run economic and population consequences. A few years after a disaster, these cities even recover the industries they had before their calamities.


For growing cites, the loss of housing and other destruction does not affect the underlying demand from workers and businesses to be at the location. Florida has prospered despite over twenty hurricanes striking since 1988 and five of the six most damaging Atlantic hurricanes of all time striking since 1988.

Cities that are already in decline drop down onto an even faster downward population and economic trend after a major natural disaster. A large scale destruction of housing takes away the one compensating feature of these declining cities, which was cheap housing.

Housing prices in declining cities are usually well below construction costs. Low living costs partly offset the relative lack of local economic opportunity in these cities. New Orleans is an example of a declining city that did not recover fully from a disaster for this reason.

After Hurricane Katrina, New Orleans had much higher costs of housing because of flood damage but there were limited local economic opportunities to attract back old and new residents. About 20 per cent of the Katrina evacuees did not return.

Natural disasters be they earthquakes or hurricanes turn declining cities and towns from a dump with cheap housing to a dump with expensive housing. They can be a killer blow.

The main policy enabler of growing cities in the USA has been the avoidance of land use regulations that raise housing costs. Over the past 20 years, the fastest growing U.S. regions have not been those with the highest income or most attractive climates.

Flexible housing supply is the key determinant of regional growth. Land use regulations drive housing supply and determine which regions are growing. A regional approach to enabling increases in land and housing supply might reduce the tendency of many localities to block new construction.

When did a house become an investment? 40% price crash has happened before!

The Resource Management Act was passed in 1993.


Source: Elizabeth Kendall, New Zealand house prices: a historical perspective, RESERVE BANK OF NEW ZEALAND / BULLETIN, VOL. 79, NO. 1, JANUARY 2016.

Note that there is considerable regional variation in housing prices in New Zealand.


Source: Property Prices in New Zealand | New Zealand Real Estate Prices.

How will @nzlabour @NZGreens ration their 100,000 affordable homes?

The Labour Party (and Greens) both plan to build 100,000 affordable homes and sell them within a specific price range. In Auckland, where houses cost in excess of $800,000 on average, they hope to enter the market at the $550,000 point with still quite reasonable housing.

What I ask you is how will Labour and the Greens make sure the affordable houses both are proposing are not snapped up by well-to-do buyers rather than families currently locked out of the market? What will the rationing mechanism be?


Source: KiwiBuild – New Zealand Labour Party.

How will Labour  and the Greens ration these desirable houses given that they are priced well below the competition? If two buyers both offer $550,000 for the house, which bid will be accepted?

If the next best available house in Auckland is worth more than that because it is not sold by the proposed Housing Affordability Authority, the first bid for these houses will be $550,000 which is the maximum the government under a Labour Party is willing to accept? What happens then? 

It is basic economics that if you price at less than the market clearing rate which in Auckland is somewhere near $800,000, people will queue to buy what you have unless you raise the price. The exercise of building 100,000 affordable houses makes no sense unless the purpose is to undercut what the market currently supplies.

As the houses are to be sold by a government agency, there can be no black market nor dilution of quality to even up supply with demand. How will a deadlock in price bids be resolved if the maximum bid for an affordable house starts at $550,000?

Labour acknowledges the possibility of flipping by restricting resale for 5 years. But what stops investors just waiting 5 years as there is any significant price gap between these affordable houses and the private market alternatives.

What stops more affluent buyers living in these houses because they so much cheaper than the competing options in Auckland? If you miss out in bidding on one affordable home, do you go back to the end of the queue for the next that is built or get some priority?


Where will land come from 4 @NZGreens housing plan? @GarethMP

The Greens are at it again proposing to build 100,000 affordable houses without ever explaining where the additional new land will come from.


There would have to be an amendment to the proposed Auckland unitary plan to free up more land for there to be a net increase in the supply of land in Auckland.

Unless there is that such amendment, a government plan to build 100,000 affordable houses in Auckland and elsewhere will simply be competing for the same fixed supply of land. If the supply of land is constrained from expanding by 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.