How housing became unaffordable

The NZ Initiative is launching tomorrow a report by Michael Bassett and Luke Malpass called “Priced Out – How New Zealand lost its housing affordability”. Dr Bassett is a historian and former Minister of Local Government. Luke is a Research Fellow at the Initiative.

Their 42 page report looks at what has changed in New Zealand since the 1960s and 1970s, to make housing so unaffordable for many. There will be a further report in a few months, looking at how other countries have achieved more affordable housing.

Major findings from this report are:

• New Zealand is suffering a shortfall of houses caused by anti-development attitudes, tighter building regulations, and artificial restrictions on land supply.  
• New Zealand’s new house building is lagging with a shortfall of at least 10,000 new houses annually – a shortfall that is continuing to grow.
• The number of new houses built dropped from a record 34,400 in 1974 to about 15,000 in 2012.
• New Zealand’s historically high rates of home ownership were due, at least in part, to subsidised house building. This was a key plank of the post-War welfare state.
• Capitalisation of the family benefit and 3% State Advance Corporations loans for new house building were extended to 7,500 applicants annually from the early 1960’s to the mid-1970s.
• Less than 1% of New Zealand is built upon even after including landfill and roads. Fears of ‘using up all our farmland’ are grossly exaggerated.
• This fear of ‘urban sprawl’ has resulted in urban limits and restrictive and prescriptive zoning, which have conferred a virtual monopoly market power on landowners near the city fringes.  
• The experience of Auckland’s Metropolitan Urban Limit (MUL) is similar to that of Portland, Oregon, with land outside the city limits costing nine times less than within city limits.
• As New Zealand has become more prosperous, green agendas of more affluent New Zealanders have trumped traditional egalitarian social aspirations, such as suburban homeownership.
• Although a slim majority of New Zealanders now think rising house prices are undesirable, the current policy quagmire has created a situation where the interests of those who are lucky enough to own property are often opposed to the interests of non-owners.
• Expectations have also changed. Since the 1980s, houses in New Zealand have not only become more expensive but they are also much bigger with a better fit-out. As a result, many first-home buyers now have an unrealistic expectation of what standard of house is available at what price.

The point on expectations is a useful one. We sometimes focus too much on the median house price. The median house price is not where first time buyers should or will be. It would be useful to also get regular data on say the 25th percentile prices, and/or the median price for first time buyers.

I’ve previously blogged on land issues, and the Productivity Commission has also stated that it is the number one cause (but not only cause) of inflated house prices. It isn’t a silver bullet, but no action on land supply will mean any other measures will be ineffective.

The challenge is getting the incentives right. It is unfortunate that the interests of those who already own property are now opposed to those who are yet to buy.