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Opinion piece by Hugh Pavletich
2 September 06
The
Housing Affordability Issue in
New Zealand
– Change is on the way
During
late 2004, I felt there was an urgent need for a credible and
easily understood housing affordability “measure” and came
to the conclusion that the “median multiple” method -
being how many years of annual median household income it
would take to purchase the median priced house within
individual urban areas - was the most appropriate. We needed
this “measure” as a foundation to gauge affordability
levels in specific areas and internationally, so that
constructive public discussion could take place. As a
developer for the past three decades, a former industry leader
and one with a keen interest in policy issues, I had an
obligation to contribute to this important debate.
I
knew that
Houston
,
Texas
, was an open market without zoning and was interested in
learning what its “median multiple” was. I was fairly sure
that it would be at or below three and was somewhat delighted
and probably relieved to learn that this was so. It was then
that Wendell Cox of
St Louis
,
Illinois
,
USA
and I communicated and the Annual Demographia Survey was born
(click on the website www.demographia.com
to
view the survey).
Wendell
Cox as a global expert on urban issues is well known to many
New Zealanders involved with urban policy. He has visited here
often and is in fact a keynote speaker at the forthcoming
“Paths to Sustainability” Annual Conference of the
Resource Management Law Association in
Auckland
Friday 6 October. This will provide an excellent forum for
debate and discussion on whether it is best to open or close
our cities. Both Wendell Cox and I are strong advocates for
opening our cities. There is no reason to close them – as
just 1.4% of
New Zealand
is urbanised. We have plenty of land.
It
would be fair to say that this Annual Demographia Survey has
had some considerable influence. Since the release of the 2006
Survey on 23 January some seven months ago, 150,000 have been
downloaded from the webpage and rather surprisingly, it is
still being downloaded at the rate of approximately 4,000 a
week. Many are of the view in
Australia
, that this Survey has reignited the housing affordability
debate there. It has certainly stimulated much discussion
within political, property and planning circles in
New Zealand
as well.
For
example, in this year’s Demographia Survey,
Houston
’s median house price is $145,100 with a median household
income of $50,400 – therefore the house price is 2.9 times
(the median multiple) household earnings. Currently
Wellington
is 5.2 times earnings,
Christchurch
5.9 and
Auckland
a whopping 6.6 times earnings. Kiwis – we have a massive
problem!
Most
importantly, the Demographia Surveys have dulled many
people’s enthusiasm for urban consolidation. The fancy new
name today for urban strangulation or consolidation is Smart
Growth, which in reality is anything but “smart”. Its
proper name should be Dumb Density – because it fails on all
three fronts – economic, social and environmental. Dumb
Density simply artificially inflates prices, creates
unnecessary housing stress and degrades our urban environments
by turning them in to concrete jungles. No wonder our home
ownership rates are plummeting as well.
Prior
to this Survey being generated, most people (including
property people) were not aware just how unaffordable our
urban markets had become in this part of the world. And
further, just how affordable most urban property markets are
throughout middle
North America
, where urban consolidation policies are not in place.
Somewhat
surprisingly, we are only in the early stages of understanding
the detrimental impacts of artificially inflating urban
property markets – in social, environmental and economic
terms. For too long, economists have stood aside from this
important subject of “urban economics” and planners have
been more than happy to fill the void - and indeed, keep
economists out of the field. This is particularly surprising,
when one considers that our urban areas are the powerhouses of
the modern economy. We all know how few economists there are
employed within the land use regulatory field. For example, I
don’t know one local authority in
Australia
or
New Zealand
that actually employs an economist to research the impacts of
their Plans.
Now
however, the economists are on the march! Whilst no doubt the
Demographia Survey will stimulate quite a few of them to focus
their attention on urban issues and develop the sub specialty
of “urban economics”, they are not likely to be in any
hurry to admit it. They are a proud and noble breed, who would
likely never admit that they were influenced by a property
developer from
Christchurch
and a demographer from
St Louis
,
Illinios
,
USA
. But with economists of the stature of Harvard Professor Ed
Glaeser leading the charge, Ms Kate Barker of HM Treasury and
Dr Oliver Marc Hartwich, Policy Exchange of the UK, Dr Alan
Moran, Institute of Public Affairs, Australia and Dr Arthur
Grimes, Motu Research of New Zealand joining the fray, we can
expect to see many others participate before too long.
As
the irrefutable evidence has built up, policymakers and the
wider public are increasingly recognising the damaging
consequences of strangling the powerhouses of the modern
economy – our urban areas. We can therefore confidently
expect to see our urban areas open up and over a reasonable
time, move to affordable levels of three time’s household
earnings - where they were some 20 and 30 years ago.
Australia
is well on the way in addressing this issue.
New Zealand
cannot afford to lag.
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