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Opinion: Housing bubbles and market sense

Posted in News

"But academic economists are (experts). And with very few exceptions, they did not predict the crisis either. Some warned of a housing bubble, but almost none foresaw the resulting cataclysm. An entire field of experts, dedicated to studying the behavior of markets, failed to anticipate what may prove to be the biggest economic collapse of our lifetime. And now that we are in the middle (or is it the start?) of it, many admit they are not sure how to prevent things from getting worse." "As a result, there's a sense among some economists that, as they try to figure out how to fix the economy, they are also trying to fix their own profession". By no means however, did the economics profession have a monopoly on "housing bubble blindness". Michael Lewis, author of Liars Poker wrote recently within a Portfolio com article The End of Wall Streets Boom - most within the finance and investment sector, appeared to be oblivious to the existence of housing bubbles and even less aware of their consequences. As Michael Lewis explains "“ during late 2004 - only a few, such as Steve Eisman, Ivy Zelman and Meredith Whitney understood that the core problems were the inflating housing bubbles "“ "At the end of 2004, Eisman, Moses and Daniel shared a sense that unhealthy things were going on in the housing market. Lots of firms were lending money to people who shouldn't have been borrowing it. They thought Alan Greenspan's decision after the internet bust to lower interest rates to 1% was a travesty that would lead to some terrible day of reckoning. Neither of these insights was entirely original. Ivy Zelman, at the time the housing market analysis at Credit Suisse, had seen the bubble forming very early on. There is a simple measure of sanity in housing prices, the ratio of median house price to income. Historically, it runs around 3 to 1, by late 2004, it had risen nationally to 4 to 1.'All these people were saying it was nearly as high as some other countries' Zelman says "˜ But the problem wasn't just that it was 4 to 1. In Los Angeles it was 10 to 1 and in Miami it was 8.5 to 1. And then you coupled that with the buyers. They weren't real buyers. They were speculators'. Zelman alienated clients with her pessimism, but she couldn't pretend everything was good. "˜It wasn't that hard in hindsight to see it'she says "˜It was very hard to know when it would stop'. Zelman spoke occasionally with Eisman and always left these conversations feeling better about her views and worse about the world. "˜You needed the occasional assurance that you weren't nuts' she says. She wasn't nuts. The world was." Funds Manager John Paulson of Paulson & Co also read the situation accurately and took enormous market positions and boosted his funds by $US15 billion as the markets teetered in 2007. It was during mid 2004 the writer of this article (Performance Urban Planning) became concerned again (I had had some political success in dealing with this issue in the mid 1990's in New Zealand) - initiated and teamed up with Wendell Cox of Demographia to generate the Annual Demographia International Housing Affordability Surveys, based on the Median Multiples, of the major urban markets of the English speaking world (2005 1st Edition; 2006 2nd Edition2007 3rd Edition2008 4th Edition; 2009 5th Edition release date Monday January 26, 2009). The political, industry and professional responses to these Annual Surveys in the early stages could be diplomatically described as "cool" "“ and the "thaw" only began when the New Zealand Planning Institute strongly supported the Annual Demographia Surveys in early 2007 "“ and I responded soon after. Globally - the other key professions besides "economics" involved with urban economics "“being property appraisal / valuation and urban planning "“ have had surprisingly little to say publicly with respect to these crashing global housing bubbles, which in turn almost collapsed the global financial system. Their "sorry performance" during these events needs to be urgently examined by leaders within these professions, political authorities and the wider media as well. Within a recent Forbes article Alan Greenspan, ''Savant Idiot'' , Michael Thomas harshly assesses the performance of the former Chairman of the US Federal Reserve, Dr Alan Greenspan "“ who with the current Chairman Dr Ben Bernanke (refer Bernanke: There's No Housing Bubble to Go Bust - Washington Post), appears to have been equally oblivious to the existence of the current global housing bubbles. This explains why they have been panicked in to "splash economics" "“ without even beginning to articulate the urgent need to deal with the structural issues that created the problems in specific urban markets at the local level and the regulatory and disclosure problems at the national level. Within his Greenspan article - Michael Thomas - in speaking of what a sound tertiary education should be all about, quotes John Alexander Smith, Professor of Moral Philosophy at Oxford University message to new students during the early years of the 20th Century "“ "Gentlemen "“you are now about to embark on a course of studies that will form a noble adventure"¦..let me make this clear to you"¦nothing that you will learn in the course of your studies will be of the slightest possible use to you in afterlife "“ save only this "“ that if you work hard and intelligently, you should be able to detect when a man is talking rot, and that, in my view, is the main, if not the sole purpose of education." Yet "“ seasoned long term property market developers and investors (not the "bubble bunnie" variety) were well aware of the housing bubbles "“ and indeed "“ many non property people with common sense and market sense, knew well that "there was something seriously wrong" with the inflated bubble values. Most successful property developers and investors have no formal tertiary qualifications in property studies, planning or economics. Generally "“ they are "educated"with practical experience in other fields "“ where they are constantly exposed to "risk management" to refine these skills, prior to moving in to the property field. The products of the tertiary institutions are generally employed by these people for clerical type duties "“ as they more often than not lack the practical training, entrepreneurial aptitude and will to be wealth creators. An excellent brief article Perhaps Economists Should Be Picking Vegetables by Efrain Rojas, outlines the story of his poor parents, who were smart enough to avoid the bubble prices of California - only recently purchasing two houses there with no mortgages. Mr Rojas states "“ "It was abundantly clear to them that the housing market was insane and due for a catastrophic collapse, based upon the anecdotal evidence they saw around them i.e. half million dollar homes in places where people were lucky to make $10/hr. If you were an economist and did not see this coming, you should seriously reconsider the value of your education and maybe do something with a tangible value to society, like picking vegetables". The question that needs to be asked is "“ why have Mr and Mrs Rojas (largely un schooled farm laborers of Southern California) more "market sense" than Dr Alan Greenspan, Dr Ben Bernanke and the vast majority of "schooled" economists, urban planners and property appraisers / valuers? Have the standards at many social science tertiary institutions slipped to the extent that they are essentially "rot factories" today, churning out people disabled with degrees, incapable of adding value to society? The major problems with respect to the training of economists have been known for at least the past two decades, as outlined within Mark Skousens article The Perseverance of Paul Samuelson and Alan Ebensteins article The Poverty of Samuelson's Economics. Ebenstein states "“ "There is in academic economic theory a growing unease, an unease that the entire approach of the field may be in error. The unease is reflected in the growing criticism of the prevailing method of "˜doing' academic economics "“ the great emphasis placed on complex and difficult formulas to express economic activity." "Paul Samuelson is still perhaps the pre-eminent representative of the contemporary approach in academic economic theory. Is Samuelson's mathematical method of presenting economic theory of value, or should it be placed in the trash heap of history?" "There is a difference between intelligence and relevance of intellectual academic output. The most brilliant individuals "“ individuals whose intelligence far outstrips the rest of us "“ can be completely wrong in their factual appraisals of the world"¦"¦"¦In short, Samuelson is a great mathematician, but he knows little about economic activity. He does not understand how the market works". The 5th through 11th Editions of Samuelson's hugely influential standard textbook "Economics 101" incorporated a graph showing that economic growth in the Soviet Union was catching up on the United States. The 1988 12th Edition provided a table declaring that between 1928 and 1983, the Soviet Union had grown at a remarkable 4.9% annual growth rate, illustrating that GDP per capita would soon surpass that of the United States. The Soviet Union and communism collapsed within 12 months. It was subsequently learnt that the Soviet Union's GDP was smaller than that of the Netherlands. Just another serious Samuelson blunder "“ one that should have sent shock waves through the profession of economics 20 years ago. We should therefore not be surprised that the finance sector is currently "agonizing" over the flaws of the Value at Risk Models, as outlined within RISK Mismanagement - What Led to the Financial Meltdown - NYTimes.com. As these current unnecessary global housing bubbles are in the long and destructive process of wiping out something in the order of $US100 trillion to $US200 trillion of bubble asset values globally(the equivalent of 2 to 4 times Annual Gross World Product), it will be interesting to observe whether the economics, planning and property appraisal / valuation professions, have the internal capacity to make the necessary changes "“ or - have it forced on them, by public and private employers increasingly recognizing that there is little value in many of the current crop of courses. What seems certain is that people with valueless degrees and without the capacity to "add value"(in the widest sense of the term) both within the public and private sector, will no longer be employable within their chosen fields. It would appear that the United States (and other countries too) can look forward to growing numbers of vegetable pickers with soft social science degrees. National / State Governments must with urgency - pragmatically develop and make the necessary changes to put in place a "performance based relationship" to suit local conditions with Local Government, as outlined within the writers paper Getting performance urban planning in place, to ensure that the current structural impediments to the provision of affordable housing are dealt with as soon as possible. Professor Edward Glaeser of Harvard University puts forward most constructive suggestions within a recent article Two Ways to Revamp U.S. Housing Policy - Economix Blog - NYTimes.com . Professor Glaeser states "“ "The only path towards widespread affordability is to build more, which requires reducing NIMBYist regulations. Localities tend to put their own interests ahead of the national interest by restricting building in order to keep prices up and reduce congestion. The federal government should increase its efforts to counter this tendency. After all, stopping building in one area just leads to building and more congestion somewhere else. In other settings, when groups try to increase prices by restricting supply, the government sends in the antitrust police." The simple reality is that peoples housing should not exceed three times their annual household income. For urban markets housing to be at or below a sustainable three times annual income "“ new supply must be allowed on the fringes at 2.5 times the median annual household income of a particular urban market. There will be no economic recovery until the residential construction sector is allowed to provide new housing at or below three times household income "“ allowing the finance sector to participate with confidence as well. * Hugh Pavletich runs Performance Urban Planning

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24 Comments

Thank you Hugh, his article

Thank you Hugh, his article is an absolute cracker. I have been studying public policy part time for the past 3 years which includes study of the 'political economy'. I have considered doing some extra 'standard' economics but have hesitated because I was unsure of the use of study in that area. Great article, it has helped me make up my mind.

If the argument is that

If the argument is that "new supply must be allowed on the fringes at 2.5 times the median annual household income of a particular urban market" and say the median household income is roughly $70,000 - the objective suggests a new build price of $175,000 all up (i.e. dwelling and land) is needed.

Is this price point possible for single unit dwellings given the cost of materials - or is the author suggesting the new wave of urban planning that NZ local authorities should be facilitating is a type of multi-story housing project "on the fringes" of our main urban centres?

To put it in planning terms - presently the trend is for local authorities to define their medium density housing around transport nodes, or within urban centres - rather, is the author wanting to see medium/high density housing in outlying, or rural areas?

B&T sales figures for 2008

B&T sales figures for 2008 are now out, showing 4.7% decline in Auckland prices for the year. Link to press release here: http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1055...

Paul Krugman was among those

Paul Krugman was among those who called the housing bubble several years ago: http://www.nytimes.com/2005/08/08/opinion/08krugman.html?_r=1

Krugman's a devout lliberal economist, his article was most likely a stab at conservatives who disagreed with him: http://www.powerlineblog.com/archives/2005/08/011131.php

The failure of most economists to foresee the wider effects of the burst in the bubble was mainly due to their ignorance of the shadow or parallel banking system and its connection to the real economy. Some might argue that the expansion and significance of this system was due to the de-regulatory thinking in Washington over the last several years, exactly the type of thinking liberal economists like Krugman argue against.

This recent paper from Glaeser

This recent paper from Glaeser and Gyourko out of the USA is essential reading:

http://www.aei.org/docLib/20081205_RethinkingFedHousingPol.pdf

Firstly - I would like

Firstly - I would like to say that we are extremely fortunate in having people of the ability and integrity of David Chaston, Bernard Hickey and the others of the www,interest.co.nz team. One has to work internartionally as I do - just to appreciate what a great little country this is.

Kate - may I suggest you go to my website and read in particular the recent letter to Bill English and the articles Land Use Mythology and How Urban Planning Degrades Housing Construction Productivity. I set out the way forward with these issues - as I see it - within Getting Performance Urban Planning in Place. Rather long winded - sorry Kate - but I am a property developer after all!

Matthew - Im pleased to learn the article has got you thinking - question everything I say as well - and rely on your own best judgement.

I would urge the academics to seriously consider the weaknesses of "modeling" - and with respect to urban markets - focus on the "nuts and bolts" structural issues. I do hope going forward that there is far better communication between academics and practitioners - so that the academic institutions generate leaders and wealth creators - and put old fogies like me out to pasture!

Hugh Pavletich
performance Urban Planning
www.PerformanceUrbanPlanning.org
Vjhristchurch
New Zealand

Has this website become the

Has this website become the "Hugh Pavletich Promotion Channel " or something???
It seems to me that its being used to self promote a certain individual's point of view and website. Maybe I could start advertising my company and website here too

Seems to me you have.I

Seems to me you have.I say live and let live Mr New Urbanist.

I beats me how economists

I beats me how economists seem to think that economic growth can (and should) continue for ever.
_
Some economists saw the housing bubble for what it was eg Dr Kurt Richebacher
(and the folks at Daily Reckoning)
http://www.dailyreckoning.co.uk/lessons-from-history/an-unprecedented-sp...
_
You say nothing about net migration yet we have a globablised property market and government can make it easier for anyone with sufficient funds to migrate (Harcourts -Shanghai etc) . [We can assume that the $14B and (20 Corporates) Property Council can and does use its resources to influence political parties]
_
(4) The current practice of charging capital contributions is grossly inequitable and inefficient "“ as the subdivider and builder pass them on with profit margins to the end purchaser. The end purchaser in turn is required to add these costs to the house mortgage and pay it back over an unnecessarily short period of just 20 to 30 years. The infrastructure provider should have the capacity of appropriately debt financing this over a considerably longer term and at a lower interest rate.

I don't get that.
_
NIMBYism: protecting quality of life. In about 187? my Great Grandmother related to her children:

"My next home was at "*** town" in **** Bay, but I may as well confess that, having been brought up to farming at home, I had no intention of rearing my children shut up in a back-yard."

"I often looked across the harbour and thought how I would like to live there and eventually I discovered that a cottage and...."
and (eg)
"Your father went to work in the ballast quarries along the shore and brought in some hard earned money while I tried to get things into shape in and around the house. Barrels and then tanks were obtained to hold the rain-water but on washing days I had to take clothes to the creek and happy days those were, among the native trees where the children chased the tame little bush birds or gathered flowers."

and her story finishes with:
" By then you were all grown up and able to take over the land and let your father and myself take a few years rest. I am as happy now, lying down blind in my own home, where I started twice with only four pence, as I was the first night I came here fifty three years ago, as I know my children and kind friends are round me and that my work is completed. I have no illness but must bow down to sheer old age."

and now a lot of wealth has been *created* at that spot as you can imagine.

Love the vege picker anecdote

Love the vege picker anecdote - very apt.

The Land Tax -- A

The Land Tax -- A Planning Tool

http://www.cooperativeindividualism.org/shepstone_land_tax_planning_tool...

The message of the Michael Lewis article is that the incentives behind Wall Street were wrong (greed) and the same problem applies to developers (capital gains).

Private ownership (rather than "conditional private property in land" ) prevents a coordinated urban renewal rather than ugly consolidation where sites are compromised for profit. ?

"Most successful property developers and

"Most successful property developers and investors have no formal tertiary qualifications in property studies, planning or economics. Generally "“ they are "educated"with practical experience in other fields"

Very prominent in the climate science debate. :wink:

I disagree with Glaeser that

I disagree with Glaeser that the answer is to build more houses in unending urban sprawl. That has other consequences rendering this model now obsolete. The market is free of charge making housing much cheaper, eg Los Angeles and many other US cities are 30-40% down in residential property values in the last 12 months, with further falls of 25% again this year possible.

Yes, Hugh rather long winded!

Yes, Hugh rather long winded! That was an answer a bureaucrat would be proud of !!!!! :-)

Clifton - the numbers speak

Clifton - the numbers speak for themselves. it was the strangled urban markets, providing the foundation for these housing bubbles to get underway, that created the problems, almost bringing the global financial system to its knees.

Ask yourself - why did the urban markets of Texas stay at around 2.5 times annual household income during the era of easy money - while California exploded out to around 9.0 times annual household income and New Zealand and Australia some 6.3 times income?

As expected - these housing bubbles are proving to be hugely destructive - and I am sure that as this destructiveness becomes more apparent - policy changes will be put in place to ensure they domt get underway again.

Kate - thank you for reading "Getting performance urban planning in place". iI was necessary for it to be rather longwinded, so that (hopefully) adequate reasoning was provided, why we need to get a "performance based relationship structures" in place with Local Governments at National / State level, as soon as possible. This was outlined within the recent brief Open Letter to Bill English as well.

Hugh Pavletich
Performance Urban Planning
www.PerformanceUrbanPlanning.org
Christchurch
New Zealand

Hugh, I argued the same

Hugh, I argued the same issue regards LG performance based management within the context of the LG Rates Inquiry. So I agree wholeheartedly with you in theory, but your proposal to establish yet another quango as a means to achieve that seems counterintuitive. I'd prefer to reduce bureaucracy, and hence it's costs, as opposed increase it via over-sight from a quango.

I also think the issue of affordable housing (which is really an issue about affordable land) will be resolved by the market correction we are going through. I'm already finding provincial centres with a great deal more offerings under $200,000 for house + section - with new builds in the same areas at around $330,000. Land subdividers are going to have to bring down their price expectations accordingly.

Good legislative reform IMO is what is needed from here. The LGA 2002 was not good legislative reform, as it actually increased not only the demands on bureaucracy (and hence the costs) but also set the scene for LG expansion into social infrastructure and social capital initiatives - costs compounded on top of the already existing core infrastructure deficiencies.

I really wonder whether the RMA needs another amendment like a drunk needs another drink. All the past amendments which were aimed at increasing performativity, also served to increase costs - tighter timeframes as a means to improve 'efficiency' was responded to by hiring more staff. And none of this served to improve outcomes for any stakeholders: be they public, business or environment.

I think it's time for a complete re-think on the LG sector and the corresponding legislation that it is responsbile for.

Kate - many thanks for

Kate - many thanks for your considered thoughts and I will attempt to respond to them as briefly as possible.

The major issue to consider I think is the "political culture" of individual countries / states and how best to tailor changes suitable to the local environment. i susoect the reason why we have had such major problems moving from the old TCPA to the RMA was because the change was abruptly transformative. This is why I favour the evolutionary approach - in where we build on whats there - refine whats required and dispense with whats not required.

In the broad sense - I have come increasingly to the view over the years, that the relationship between Central / State and Local Government, needs to be one based on performance - with real teeth. I would not see what I am suggesting with a Local Government Performance Authority being an additional quango - but to see what should be folded in to it, with some of the present agencies being dispensed with.

We know that "the Law' is not enough when it comes to Local Government.

We cannot ignore the land issues just because bubbles are currently deflating - but instead need to enasure that the necessary changes are made so that these artificial scarcities do not occur in the future. Im not aware of any $30 - $40,000 sections / lots on rthe fringes of our major metros. Thats where the pricing should be - even through a boom.

I agree the LGA 2002 General Competence Amendment needs to be dispensed with as soon as possible, so that Local Government responsibilities are prescribed and limited.

It needs to be borne in mind too - that we are a very small country with just 4.3 million people - where Parkinsons Law has been allowed to run rampant over the past decade. There is likely enormous scope to rationalize at Central, regional and local level.

Hugh Pavletich

Thanks for the response, Hugh.

Thanks for the response, Hugh. I am interested to understand which agencies you consider might be folded in/dispensed with in terms of the establishment of the new LG Performance Authority?

To get to the $30-40K price point, I understand you have an assumption in there that Development Levies would need to be charged to the ratepayer, as opposed to the developer in order that these costs are not passed on in the price of the section. Is that right?

Kate - with respect to

Kate - with respect to your first point - what should be folded in to the suggested Local Government Performance Authority? I would need to do considerably more research on this prior to coming back with a considered response. i will aim to do this during early February when time allows. I will be rather busy through to the end of the month - with the international release Sunday Jan 25th of the 5th Annual Demographia International Housing Affordability Survey.

the general idea is that there is a real need for a "performance based relationship" between Central Government and Local Government. I would welcome readers and your further ideas on this as well via this forum or by email or phone,

Regarding your second point above - its firstly to ensure adequate fringe land supply so that the current "artificial scarcity values" are done away with as soon as possible. And secondly - the appropriate debt financing of infrastructure - using the United States Municipal Utlity Districts (MUDs) structures as a guide. Bear in mind the current arrangements are not "developer levies" at all (the developer is simply the intermediary) but "end purchaser with margins" levies. For obvios reasons of efficiency and inter generational equity, the current structures are quite inappropriate.

i trust this brief response is adequate.

Hugh Pavletich

Old Fart - Are people

Old Fart - Are people here suggesting some sort of Local govt greed at subdivision time? I do not see a problem with the developer pays scenario, and I cannot see how providing the services to deal with the effects of growth can be done that much cheaper to have any sigificant effect on affordability. Te kind of planning Hugh is talking about would however, I agree. Lumping it into loans to Local govt means future pays, I bet that sounds good to everyone living now. Perhaps some of the old school thinkers, and history lessonists need to look at things a bit differently, perhaps we are now measuring cost of effects on resources more accurrately, and thats a good thing. If I have to pay more to live in a great place, thats fine, we all have choices. In my city I can live in a suburban neighourhood for $150k, or out at the beach for $500k. I like the choices we have.

Yes, an interesting article, well

Yes, an interesting article, well researched and pithy. The profession of economics does not claim inerrant certainty in its conclusions, nor does it claim to be infallible when predicting or assaying human nature. The practice of medicine was not shucked when thalidomide backfired.

The real issue with bubbles is the lack of collective memory. We have a generation of folk who have never lived through a high interest rate environment, or had their gratification to acquire tempered by the scarcity of credit. The discipline and necessity to save are not part of their life experience. Couple this with young bankers with no real-world-lived-through-the business cycles experience, and voila!

Hugh - thank you for

Hugh - thank you for an article - and discussion - that is confirming my common sense reasoning I got from my healthy parental guidance in my youth - rather than all the education i've got later on.
Livnig in Croatia, but working for the US multinational(s), I experience both worlds, and I agree that the housing bubble has been fed by infinite speculations on housing prices in the past decade. I believe that the "oh so appraised " and famous population mobility in the US, and moving around all the time as soon as the opportunity comes by - is to blame for this as well. By moving around so much, people don't get a chance to grow roots in any environment, domestic as well as professional, and as a consequence - they don't care for any well being - except that of their own.
If there was a limit on owing the house for let's say 7-10 years before selling it, with penalties involved, I think that this would end many of the problems regarding the economic bubbles, because people would get more responsible towards their professional and domestic surrounding.
Croatia is relatively young country and the only housing bubble we notice is that in the major cities, led by speculations and all of the above mentioned. In the province, the housing prices are unchanged, all the time of the crisis.
This, along with providing more houses, would make people worry and focus on much more important things, and let many enjoy their lives.
I know it sounds unreal, but its just because we still tend to think inside the borders of the "economy laws" we all agreed to be surpassed as we know it.

So what Hugh is saying

So what Hugh is saying is ...good old fashioned common sense leaned sitting on grandfathers knee has been of far more use than a PhD in economics.
We started consolidating back in early 2006...just by following basic grandfather advice from the late 60s.

"Yet "“ seasoned long term property market developers and investors (not the "bubble bunnie" variety) were well aware of the housing bubbles "“ and indeed "“ many non property people with common sense and market sense, knew well that "there was something seriously wrong" with the inflated bubble values."

Surprisingly Hugh doesnt mention the Queen asking the question why her Domain experts did not see it coming....Something not mentioned is the Royal family finances, how they have done has not been reported as far as I know.
Also no mention by Hugh about the consistent comments from the NZRB and Cullen that the boom could not continue...
And no comment on Bernard's early warnings, or the many links in these blogs to utube and web sites of the so called 'crack pots' predicting doom

It all started with removing many of the tools from the RB...deposit ratios savings to lending ratios back in the 90s...and not just NZ.

We saw the same hype and greed back in the 80s with the share markets..

And the "seasoned long term property market developers and investors " how are they doing...looking at the property stats I have kept over the yrs, espec those since Feb 2007...they are doing very well, often picking up bargains and reselling within months at 12 to 18% profits.

Hugh doesnt go far enough thu, it is not just property where the bulk of 'educated experts' have created a blind mentality/bureaucracy/empire building and loss of good old common sence...it goes far deeper into education, DoC, health, RMA, OSH, local body Government. Energy.
I think the current Education going back to national stds and the attitude of many teachers/principals now feeling threatened...rather than the interests of the children and educating them to the standards and requirement of the future needs of NZ being the priority.

Im no Fan of Hugh....he does talk sense ...sometimes loll

The run-up in housing prices

The run-up in housing prices (at least in the US) was primarily confined to those markets considered to be most unfriendly to new development. My firm did due diligence for several prominent real estate investment banking firms during that time frame. When I brought up the fact that the markets they were investing in were rapidly becoming unaffordable, they replied that it didn't really matter - that the restrictions on competitive development would keep prices high. They focused on the fact that there was (and still is) a chronic housing shortage in California, without considering effective demand (the classic willing and capable buyer) for housing.