NZCPD guest

Hugh Pavletich is a Christchurch New Zealand based commercial property
developer, former President of the South Island Division of the Property Council, Fellow of the Urban Development Institute of Australia and co-author of the Annual Demographia International Housing Affordability Survey.

www.demographia.com

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NZCPD Forum
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.