How house prices and income have changed since 1990 by country




Housing prices since 1996 in New Zealand



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.

New Zealand leads house price to income ratio across the OECD


Source: IMF Global Housing Watch

But @EleanorAingeRoy child poverty has not changed much in 20 years

Today in the Guardian writing on trends in family poverty New Zealand, Eleanor Roy said that

The fact that twice as many children now live below the poverty line than did in 1984 has become New Zealand’s most shameful statistic.

Roy goes back to the 1980s as her base because child poverty has not gone up or down by that much since that sharp rise in the late 1980s.

Child poverty among single-parent households has doubled since 1990 and tripled since 1988. Poverty in families with two parents present is not much higher now than it was in 1988. 


Source: Bryan Perry, Household Incomes in New Zealand: trends in indicators of inequality and hardship 1982 to 2014 – Ministry of Social Development, Wellington (August 2015), Table H.4.

Child poverty rates among single-parent families that live with other adults is one-quarter that of single-parent families who live alone. The reasons behind that should be explored more by those concerned with child poverty.


Source: Bryan Perry, Household Incomes in New Zealand: trends in indicators of inequality and hardship 1982 to 2013 – Ministry of Social Development, Wellington (2014), Tables F.6 and F.7.

The evidence is overwhelming that the main driver of the increases in the child poverty since the 1980s is rising housing costs.

In the longer run, after housing costs child poverty rates in 2013 were close to double what they were in the late 1980s mainly because housing costs in 2013 were much higher relative to income than they were in the late 1980s.

– Bryan Perry, 2014 Household Incomes Report – Key Findings. Ministry of Social Development (July 2014).

Any policy to reduce child poverty must increase the supply of houses by reducing regulatory restrictions on the supply of land.

Rather than blame the callousness of government in accepting higher rates of child poverty, Roy should blame its inability to take on the restrictions on land supply in the Resource Management Act that drive up housing costs for the poor. Increased child poverty in New Zealand is a by-product of housing unaffordability.

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.

@metiria house prices won’t drop 40% by raising taxes, banning foreigners

Just increase the supply of land. Extending the capital gains tax and banning foreigners from buying land will do no good. An average house price 10 times the average income in Auckland is not a demand-side problem.

Source: Is Your Town Building Enough Housing? – Trulia’s Blog.

There are plenty of examples of US cities with different land supply restrictions but common national surges in demand for housing such as prior to the GFC. Cities with liberal land supply experienced only small increases in house prices.

Source: Regionally, Housing Rebound Depends on Jobs, Local Supply Tightness – The Long-Awaited Housing Recovery – 2013 Annual Report – Dallas Fed from Federal Housing Finance Agency; Bureau of Economic Analysis; “The Geographic Determinants of Housing Supply,” by Albert Saiz, Quarterly Journal of Economics, vol. 125, no. 3, 2010, pp. 1253–96.

The Greens should follow ACT and the Labour Party in calling for the abolition of the Auckland urban limit and changes in council finances so they can fund the necessary infrastructure quickly.

#MorganFoundation wants frontal attack on NIMBYs

Morgan Foundation wants the National party-led government to take on NIMBYs not only with more high-rises and urban intensification but congestion charges too!  There is only so much courage you can expect in one term of government. Relaxing the Auckland urban limit, which will hopefully cause housing prices to stop rising in Auckland was not enough.

No softly softly catchy monkey here. No concept of winning the battles you can win.

Jason Furman on residential housing supply, NIMBYism, and economic growth

@PhilTwyford fantastic @nzlabour policy breakthrough on housing affordability

Labour yesterday announced an excellent policy on housing affordability. The reforms proposed by Labour stress increasing the supply of land and improvements to local government finances surrounding infrastructure investments for new housing:

Labour will free up density and height controls to allow more medium density housing and reform the use of urban growth boundaries so they don’t drive up section costs. This will curb land bankers and speculators.

Labour has struck at the heart of two major constraints on urban land supply New Zealand: restrictions on density and height of new developments, and much more importantly, the use of urban growth boundaries to drive up land prices. These proposed regulatory reforms could not be more welcome.

The other shoe of Labour’s housing affordability reform proposals is improving the incentives for local councils to support new housing developments:

The other new element is changing the way we fund infrastructure for new developments. Currently those costs are either subsidised by the ratepayer or passed by the developer onto the price tag of a new home. That makes houses much more expensive. It also means they are paid off through mortgages at expensive bank interest rates.

Our new policy will see infrastructure funded by local government bonds, paid off over the lifetime of the asset through a targeted rate on the properties in the new development. This will substantially reduce the cost of new housing.

The reforms proposed by Labour to local government financing will reduce the financial burden on existing ratepayers of the local government funded infrastructure necessary to support new land developments.

Source and notes: International House Price Database – Dallas Fed June 2015; nominal housing prices for each country is deflated by the personal consumption deflator for that country.

These Labour Party reforms are fantastic because the main party on the left-wing of New Zealand politics has faced up to restricted land supply as a key reason behind housing unaffordability. I wonder what the New Zealand Greens will think of these major new reforms.

Of course, nothing is perfect in the art of policy development. New Zealand Labour continue to want government to build 100,000 affordable houses and scapegoat foreigners for high housing prices.

A few more sensible economic and fiscal policy announcements such as those today by the New Zealand Labour Party and it will start looking like a credible alternative government.


Increase in real New Zealand household incomes since 1982 – before and after housing costs

It is those below median household income that are suffering more from rising housing costs in New Zealand since 1982. Those on low incomes in particular have suffered the most.


Source: Bryan Perry, Household Incomes in New Zealand: trends in indicators of inequality and hardship 1982 to 2014 – Ministry of Social Development, Wellington (August 2015), Tables D3 and D4.

The data for the lowest decile is somewhat unreliable because there are so many implausibly low and zero incomes in that decile.

@AndrewLittleMP @jamespeshaw @BillEnglishMP Real housing prices New Zealand, Australia & USA: 1975 January quarter – 2015 June quarter

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Source and notes: International House Price Database – Dallas Fed June 2015; nominal housing prices for each country is deflated by the personal consumption deflator for that country.

New Zealand housing prices were pretty stable until the passage of the Resource Management Act in 1993. After that, prices took off New Zealand and didn’t slow that much for the recession subsequent to the Global Financial Crisis.

American prices just had a bubble because of loose monetary policy by the Fed and loose lending criteria by banks at the behest of regulators. Real housing prices in the USA started to rise again last year after a dramatic fall.

Australian prices were rising steadily until about 2000 but then took off with a strong economy and the usual restrictions on land supply by local governments at the behest of the existing homeowners.

@nzlabour @metiria It’s impossible to build affordable housing

The Labour Party and the Greens both plan to build 100,000 affordable houses as a way of offsetting soaring housing prices in Auckland and other New Zealand cities. These plans were announced in the 2014 Election in New Zealand.

A trite but insurmountable objection to the proposal to build 100,000 affordable houses is there are no plans to increase the supply of land. That would require RMA reform which both Labour and the Greens oppose. They oppose RMA reform partly for ideological reasons and partly to cultivate middle-class home owner votes.

Unless there is an increase in the supply of land in Auckland and the other New Zealand cities, the government under the plans of the Labour Party and the Greens are building houses the private sector would have built anyway but for the government bought from the same new supply of land released every year by local councils.

The proposals of Labour and the Green to build affordable houses simply changes the identity of who builds the same number of new houses in New Zealand. There is no net increase in this supply of houses so there will not be any improvement in housing affordability.

If the supply of land were to be increased through RMA reforms, there be no need to for the government to build the houses. This is because the market will take care of building the houses on the additional land released by local councils if there is a demand for them and they’re obviously is.

Attempts by a Labour and Green Government to build affordable houses is no more than displace the efforts of private developers to supply houses but in configurations more closely aligned with market demand in terms of the quality and size of the house.

Another insurmountable but still minor objection to supplying 100,000 affordable houses is Friedman’s second law of economics: you can’t give anything away for free because people will queue up for access.

If the government is selling cheap houses to ordinary families, people change that circumstances to make themselves more eligible for the house, which presumably will be targeted by income. Easiest way to do that is to fund a low income family member such as a student to buy the house and sell it to you. Alternatively, you could make an advanced of them against their inheritances as a way of them buying a house.

The classic New Zealand example of the inability to give anything away for free was the introduction of school zoning. People now pay hundreds of thousands of dollars more for a house if it is in a favourable school zone.

A more serious objection that can never be overcome is as soon as the lucky ordinary family buys the affordable house, they will renovate it to the proper standing reflecting the underlying value of the land. Affordable houses under the plans of the New Zealand Labour Party and the Greens is to build a cheap house on expensive land in Auckland. Land in Auckland is 60% of the price of a house. Land use to be 40% of the value of the house in Auckland.

Source: New Zealand Productivity Commission (2013).

Plenty of people are in the game of home renovation; some do it as a full-time occupation. They buy an old rundown house on good land and a good location and renovate the house to match the value of the underlying land and location.

The possibility of subsequent renovation to the cheap house on the good land is the death knell of any attempt to sell affordable housing in Auckland or the other New Zealand cities where house prices are spiralling upwards because of restrictions on the supply of land.

Building 100,000 affordable houses were simply present 100,000 renovation opportunities to entrepreneurs. The families who are lucky enough to be first to buy the affordable house will get a marvellous windfall. There will be no long-term impact on the price of land in Auckland because you can’t give anything away for free. Any undervalued good as quickly resold at a profit by budding entrepreneurs after renovating the house to bring it up to market standard given the value of the underlying land.

If the Labour Party and the Greens want more affordable housing, they must support RMA reforms that will increase the supply of land. They won’t do out of sheer political expediency. Labour and the Greens want to win the votes of disgruntled National party voters who already own homes.

Will Auckland become like San Francisco?

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