HOT TOPICS:  Asset bubbles   |   Housing affordability  |  OCR                                     KEY RESOURCES:    Economic calendar   |  Fix or float calculator

The comment stream

Recent comments

Reader poll

What is the single most important topic for you going into this year's election?

Choices

Join the Interest community to be a registered commenter so you can:
- Edit your comments
- Avoid the CAPTCHA
- Vote on comments
Register Here

Already registered? log back in here ..

Forgotten your password? No problem! Click here

Opinion: An open letter to Bernard Hickey on de-leveraging

Posted in News

To; Bernard Hickey, Managing Editor www.interest.co.nz

Dear Bernard,

I read with interest your article where a "“ what I would describe as a "valiant attempt' - is made to explain the deleveraging that's going on. Good on you for having a go at it Bernard!

I'm a little confused though with the general approach of the article "“ and some of the numbers. Before commenting though "“ I'm not competent in commenting on the finance sector deleveraging "“ but am comfortable commenting in broad terms on the deleveraging going on in the property markets. I use the term "broad terms" because I don't have the capacity as a "sole operator", doing this work on a voluntary basis, to refine these numbers.

Dealing with your numbers first. I'm very confused about the "$US3 trillion of borrowed money pumped in to property markets". Its way above that "“ as I see It. Then the Credit Default Swaps at $US600 trillion "adjusted' to $US15 trillion "“ sort of blows the credibility of these numbers out the window. I wouldn't have much of a clue about Credit Default Swaps "“ with even less knowledge about how to assess the value of them.

Then  "“ based on the higher estimate figure of $US600 trillion - these represent "about 534 times NZs annual GDP" (according to your article) "“ after adjusting I suppose the net exposure to about the $15 trillion mark. That would be about 120 times NZ GDP ( that's about $US110 billion).

As a property guy (note my writings at www.performanceurbanplanning.org ) I would come at the whole issue this way"¦"¦.

Number One "“ for bubbles to form there needs to be scarcity or perceived scarcity. The Demographia  Surveys illustrate this. It is clear the middle North American urban markets didn't bubble. Investors / speculators knew full well they couldn't pump prices because developers / builders could easily provide more stock within a reasonable time, to stop bubbles getting underway. Developers are after all the greatest adversary of investors / speculators "“ and this is the major reason why there is tension between the two camps. The investors / speculators are forever groveling to politicians to stop developers supplying housing.

For example "“ by artificially creating land supply scarcities - they managed to crank California up to in excess of 9 times annual household earnings "“ while Texas stayed pretty constant through the era of excess liquidity and irresponsible lending at 2.5 times gross annual household earnings.

A very important point that must be realized is that for the finance sector to participate in the bubble markets "“ such as those of California "“ they SIMPLY HAD NO OPTION OTHER THAN TO ENGAGE IN DISTORTED LENDING IF THEY WISHED TO MAINTAIN / GROW MARKET SHARE. The "root cause" of the problems is the artificially created regulatory land scarcities and inappropriate infrastructure financing .

In my view "“ the finance / business sector (and particularly the organizations that represent them) have generally done an absolutely lousy job at pointing the above reality out to policymakers and the wider public (too busy generally peddling welfare schemes for their own benefit - to politicians). Its well known the "commercial nous" within the finance sector is not strong "“ and their ability to assess risk, could certainly  not be described as spectacular.

I cover this within a recent article Scoop: Housing Bubbles: Learning To Grow Up, where I draw readers attention to a very perceptive article by Michael Lewis on Portfolio Com The End of Wall Street's Boom - National Business News - Portfolio.com "“ which should be read very closely. Note - it was the guys in the finance sector (and very few of them) who realized that housing markets that exceeded three times household income was THE major problem "“ and they wisely took steps to protect "“ and indeed profit "“ from this.

One of the most perceptive writers on these issues, with a solid sense of the significance of deleveraging, is John Plender of the Financial Times. I wrote on these matters last December with Scoop: Housing Affordability "“ The Shift To Reality. It was slightly before this that Herb Greenberg » Blog Archive » Straight Talk on the Mortgage Mess from an Insider was published by Marketwatch as well.

This "misinformation" by the business / finance sector cannot be allowed to persist "“ because it has serious policy ramifications. Policymakers need to with urgency, focus on the real structural issues at the local land use regulatory level "“ and focus on greater disclosure requirements (don't rely on government employees and kid auditors to assess performance) with respect to the finance sector at the National level.

It is interesting Bloomberg is fighting via the Freedom of Information Act "“ and possibly the Courts too "“ to force the US Federal Reserve to disclosure information with respect to commercial paper it has become involved with. Honest dealing doesn't happen in the dark.

We only have to observe the current Madoff fiasco in the United States "“ as an excellent illustration of the capacity of "regulatory oversight" "“ an out and out Ponzi scheme that had been going on for years "“ with red flags everywhere. It certainly won't be the last of them globally. Those who are advocating "increased regulatory oversight" of the finance sector "“ need to think this out more carefully. Grossly inadequate disclosure appears to be the key issue here. Better I would think to focus on that "“ and let the market then assess performance "“ and as part of this - identify the crooks at the early stages.

I am of the view that if all the States of the United States had land use regulatory structures like Texas (or pragmatically modified to suit local conditions and political cultures) "“ we would not have had housing bubbles in the United States "“ and would not have the Global Financial Crisis we are currently experiencing.

Indeed the US economy would likely still be growing. When policymakers "wake up" to the destructiveness of these artificial housing bubbles "“ I am very sure they will put in place "regulatory safeguards" (not allowing artificial scarcities in the main) to ensure they don't happen again. My "suggested solutions" are outlined within "Getting performance urban planning in place".

These "constrained markets" had the foundation in place to allow these bubbles to get underway. The leveraging capacity within these constrained markets, based on what they perceive to be an "ever inflating" situation is "truly enormous". I suspect there is substantially more leveraging goes on within inflating property markets, than there is with stock markets.

Banks are more willing to lend excessively on real estate (and particularly inflating real estate) rather than shares. Real estate to them (the finance sector) has a greater "aura of security" about it! Auras are no substitute for competent and rigorous risk analysis (which is not learnt in schools but only by long, tested, practical experience).

And it doesn't take that much additional debt to pump up constrained property markets. My guess with respect to NZ, is that it only took around $NZ70 billion of additional household debt to pump the housing market up another $NZ350 billion or even more. Overall "“ around $1 of debt to bubble it up about $5.

The 1.6 mil residential units in NZ hit an average price of around $400,000 "“ all up $NZ640 billion. NZ Median Multiple overall is about 6.3 "“ it shouldn't be any more than 3.0 "“ so there is at least $NZ350 billion of bubble value there. That's what's "evaporating" at the moment. Note our puny little stock market was "worth" about $US50 billion at the peak "“ and has come back some 37% - near $US20 billion "“ call that $NZ30 billion.

Our housing market has come back about 7% so far (conservative as the bottom end has dried up "“ understating the actual drop) "“ so from the $NZ640 billion peak "“ that's bye bye to about $NZ45 billion of bubble value. So the deleveraging of the stock and housing markets in New Zealand so far is about $NZ75 billion. Our GDP is about the $US110 or $NZ170 billion mark. That dries up a lot of liquidity "“ and we are only in the early stages.

In very rough terms (note as I said before "“ I don't have the research capacity to thoroughly crunch these numbers) "“ the US with its 127 million residential units ( 10 mil second / holiday, 70 owner occupied, 47 rented) hit an average price (note not median) of about $US320,000 "“ all up about $US40 trillion (or at least $35 trillion "“ being conservative) "“ and it's come back about 20% since "“ suggesting about $US8 trillion so far has "evaporated" out of the United States housing market.

Note the Fed Flow of Funds account at $US20 trillion for housing only deals with owner occupied housing "“ some 70 million res units (even that is understated I think). By my calcs the US residential market is "overcooked" by about $US13 trillion "“ so there is probably about another $US5 - $US6 trillion to further "evaporate" out of it.

United States household debt peaked at about $US13.5 trillion "“ with around $US11 trillion of mortgages "“ with about $US7 trillion of this "securitized" I understand. The mind boggles if the "securitized stiff" is only worth about 10 to 20 cents in the dollar. I can fully understand the finance sector lending out to in excess of 11 times annual household earnings in California "“ offloading it as fast as they could to Europeans and others!

As another "rough guide" residential stock should not exceed about 1.5 times GDP. Houston for example at a Median Multiple of 2.9 residential stock is worth less than 1.3 times its Gross Area Product.

Interestingly - condo / apartment values in the US overall "“ according to the US National Association of Realtors "“ are worth slightly more than stand alone housing.

California with its population of 37 mil people and 13 mil residential units "“ hit a median price of at least $US550,000 "“ suggesting an average of close to $US700,000 "“ so in total bubble value terms it peaked at about the $US9 trillion. It's come back about 40% so far "“ so that would suggest that about $US3.6 trillion has evaporated to date. This would suggest that of the bubble value wiped out of the US housing market so far "“ about 45% of it has occurred in California.

California of course was the "big trigger" for the tanking of the global economy.

I think the US stock market capitalization at its peak was in the order of $US18 trillion "“ it's since come back from this by about 40% - some $US7.2 trillion. So in the US "“ on the housing and stock market fronts about $US8 trillion has evaporated out of the residential stock - some $US7.2 trillion out of the stock markets "“ a total of about $15.2 trillion so far. The US GDP is about the $US14 trillion mark.

The US is about 25% of the global economy. This suggests to me that globally possibly something around $US60 trillion has evaporated out of stock / housing markets so far. Bear in mind the last Demographia Surveys illustrated that the US residential market overall was by no means the most inflated.

This year's 4th Edition Survey (based on 3rd Quarter 2007 data) found that the average Median Multiple for the countries surveyed (refer Graph Page 11) was Canada 3.1; United States 3.6; Ireland 4.7; United Kingdom 5.5 with Australia and New Zealand both at 6.3 times gross annual household earnings. Understandably "“ other than in "basket cases" such as Vancouver "“ Canada is adjusting normally.

The above is without considering other asset classes (the financial ones you discuss "“ commercial property, shipping, rural property - you name it). These are very big numbers "“ and I don't think for a moment Governments / Reserves / Treasuries can do a thing (other than waste money in the main with poorly considered bailouts "“ prolonging / aggravating the situation).

In reading the media "“ one would think these bailouts are "costless" "“ it's incredible. Indeed they could well be worsening the situation by diverting scarce capital resources down big holes "“ never to be seen again "“ drying up liquidity even more. To say nothing of the other distortions they are creating "“ the US stock market seems to be barely holding up "“ being persistently propped up, as they lurch from one bailout to the next. The "aura of security" again!

So my rough guess is that globally "“ we are seeing something in the order of $US 100 to $US 200 trillion of bubble asset values evaporate (something like 2 to 4 times Gross World Product at about the $US54 trillion mark) "“ probably at the higher end.

By the way "“ your article Real Estate Institute of New Zealand House Prices Report last Thursday on www.interest.co.nz was very good. You will note I made about 7 contributions to this within the "˜comments section" "“ and that in how easy it is to encourage people to consider the issues we are all dealing with "“ if they are provided with clear information. You will be aware that I'm rather keen to see the New Zealand Government get itself focused on dealing with these issues.

Note also what's going on in the State of Victoria with land releases so far this year for about 250,000 additional lots / sections "“ enough for 650,000 people. Currently starter housing (on a house / land package basis) is being put in on the fringes of Melbourne for in the range of $A230 - $260,000 (I expand on these matters in commenting on your Thursday Interest Co Nz article "“ hyperlinked above). It's about time the New Zealand media informed the public of what's happening in the State of Victoria, Australia. It has enormous consequences for New Zealand.

I trust these few thoughts are of some assistance Bernard. Other researchers / commentators will get copies of this, to hopefully stimulate further constructive public discussion as well.

 

With best regards,

Hugh

 

Hugh Pavletich

Performance Urban Planning

Christchurch

New Zealand

 

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment in the box on the right or click on the "'Register" link at the bottom of the comments.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.

23 Comments

In fact the data you

In fact the data you seek for the de-leveraging of the US economy has recently been up-dated. Thus up to the end of Q3 2008, US household networth has declined a spectacular $7 TRLLION in 12 months (second half of this article):

http://money.cnn.com/2008/12/11/news/economy/flow_of_funds/index.htm

Clearly in Q4, because the housing market decline has continued (it actually seems to have picked up speed again), and because of the continued pressure on the stock market in this quarter it is likely that there will have been losses of maybe another $2Trillion in Q4, making a total of close to $9 TRILLION in 15 months (a bit less than you estimated but still amazing stuff).

Concensus opinion is for the US housing market to fall a further 15% from here so you can keep adding to that score - the stock market is still not discounting a the biggest global recession since the 1930's so ditto that input for 2009.

It is an impossibility that losses of such magnitudes will not flow through into crushed consumer demand etc (we are of course already seeing this effect), which thus leads through to higher unemployment, and thus back to more downward pressure on house prices in a vicious positive feedback loop. Don't forget that many, many Americans used thier houses as ATMs and used Mortgage Equity Withdrawal schemes to take out equity that no longer exists.

Such losses put the scale of Obama's so called rescue investment plans for jobs and boosting the economy so far outlined into some kind of perspective (at rather less than $1 Trillion, he better hope he gets many, many bangs for his bucks).

Hear, hear, Hugh. One of

Hear, hear, Hugh. One of the local aspects of the land lock-up is that fees for 'infrastructure growth' are (as well as being baked into the land prices) also an ongoing revenue item for Councils. The infamous HUE (housing unit equivalent). Just as millions of TEU's (the shipping container type) are being parked up on the hard overseas, as freight volumes drop (check the Baltic Dry Index to see just how spectacular this is), the HUE is about to suffer a Big Dry of its own. And with LTCCP's all coming up for their 2009-19 Review, what better time to question the whole shonky edifice?

Thanks Andy and Waymad for

Thanks Andy and Waymad for your comments. The major reason for writing this "Open Letter" was to build on Bernard Hickeys effort - by attampting to illustrate the quantum of "bubble value" thats likely to evaporate. And my estinate could not be considered comprehensive.

So people can line up these numbers I have sketched out - and if they are comfortable with them - ask themselves if the Authorities have the capacity to significantly influence the current asset deflation and the consequences of it.

Under stress - the political and commercial establishment will generally do all it can to protect its own interests - while dressing it up that they are doing it all "in the public interest". My view is that this is currently a major problem in the United States and United Kingdom and somewhat less so in Australia. And whatsmore - these "patch protection" interventions are extremely costly and not likely to work. The media and the public need to be vigilent to ensure that the "establishment" is acting in the wider public interest.

There is no point in behaving like Bernie Madoffs clients. Thats just being....um....mad!

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

The old "Greenies locking up

The old "Greenies locking up the land" as dicsussed here;

http://www.planetizen.com/node/34208

Is never ending sprawl really

Is never ending sprawl really classed as "performance" urban planning? What about continental Europe which has experienced little or no property bubble and have extremely tight land use regulations? This is such a minor factor IMO.

The main driver of this

The main driver of this situation is artificial inflation of the credit/money supply. In the new de-regulated market all the US banks employed incredible leverage, which sent funny money flooding into global asset classes of every kind. The staggering rise and collapse of the price of oil is a case in point, along with most commodities, shares and all sorts of opaque synthetic financial instruments, now worthless.

The massive bubble in NZ farmland is another example- it's not just residential property, and as far as I know there aren't as many restrictions on farmland.

Personally I would support reviewing the controls on urban sprawl only if there was a government and developer commitment to building fast public and private transport networks, water, electricity, communications and other dedicated infrastructure FIRST. The houses need to be built to have a life of at least 100 years and there needs to be a focus on low energy use- oil and electricity are going to be scarce and expensive in years to come. We need to ensure that any distant satellite suburbs have a future; unlike the exurbs in California which were done on the cheap and are now being abandoned after never being lived in- a breathtaking waste of resources!

I wonder what lobbyists for

I wonder what lobbyists for developers make of it all Hugh?

anybody have a comment on

anybody have a comment on strategic finance loaning a developer 31millionto buy land in queenstown after they had stopped making interest payments on their debentures?you would think sections on Mars would have more chance of selling in todays market.

Hugh I'm a little mystified

Hugh

I'm a little mystified as to how you reconcile "Smart Growth" with opening up the city fringe, I have no doubt that it would reduce the housing cost, but at what long term cost? Auckland has a very low pop density, 19 per hectare, the same as it was in 1911, this is not surprising because it sprawled in the era of the private motor vehicle.

The problem with "town planners" is that they don't actually plan or this mess wouldn't have happened. Their answer was to allow developers to slap up vertical slums in the CBD. The next wave of social do-gooders, the greenies, are equally misguided, they will propose that all will be fine if we get on a bus, but at the population density (or lack thereof) in Auckland this is a myth.

If something is to be done, smart growth or re urbanization it has to deal to the existing infrastructure, not just tack in on around the edges.

You wax lyrical about the US, but they consume twice as much energy per capita than we do, this is the basis on which their McMansions were built, but this is coming to an end as no-one will lend them the money to continue to fund this level of consumption.

So my challenge to you is justify opening up the city fringe when you can't afford to run a car and the supermarket is 10K down the road, work 40k away and you are not on a bus route (which is a subsidized social service), There are tranches of houses in Socal like this, most of them empty

Neven

Hugh, I had a look

Hugh,

I had a look at your website to try and find specific information on how you would suggest to support "releasing land" on the fringes of Auckland. Specifically, if you promote such schemes, you should accompany that promotion with very specific numbers relating to the cost and time scale of building public transport and/or roads, sewerage, water, power etc.

If you could point me to that info on your site (I couldn't find anything easily or quickly) it would be helpful in assessing your claim to fame.

Thanks
Chris

Hi Neven, I agree wholeheartedly

Hi Neven,

I agree wholeheartedly with your views re the sense or lack of it in extending cities to address the housing issue...

As you so readily point out, we don't have a shortage of land per se - rather we have a shortage of intelligence in how we use it... but, to be fair, our use is largely driven by the 'market' in which we find ourselves.

The key (pardon the pun) is to change the market - which is what we have a political system for - i.e. change laws and the market is changed and the resulting behaviour is changed... with (hopefully) a better result

Currently, the market's fiscal and monetary policies combine with 'master planning' (to use the jargon) to exacerbate reconciliation of supply and demand.

While we have developers talking about excessive restrictions and costs, the truth is that they are still being subsidised by transfers at Council level.

To compound the insult, many developers are land-banking both within and on the periphery of urban limits so that they can control the supply of land - and therefore the price - until the point this rort collapses.

In short we need to change to game - by changing the way land and property 'investment' is taxed and regulated.

John I agree the system

John

I agree the system is not working, I think you would be better off managing the finite resource (land) and using the market to supply the housing. I would get the 'City' to acquire blocks of land for redevelopment and then tender out for the development of the land, the tender would include development type, density, selling costs, materials used etc to a general spec supplied by the city, the 'winning' tender gets to use the land for free.

Neven

Bang On Neven 911. Hopefully

Bang On Neven 911.
Hopefully some new ideas will surface as the smoke clears from this latest bubble burst.

John Robson - you are

John Robson - you are right to suggest that we should change the way land and property "investments" are taxed. I'm not sure what your solution is. Fred Harrison (see http://www.renegadeeconomist.com/) makes the most sensible solution I have heard, i.e. a flat tax on the capital value of unimproved land (over and above local govt. rates). This would incentivise the efficient use of land and reduce land banking of prime land, a problem that has been with us since Wakefield and the absentee owners who purchased plots in London.

A suggestion for interest.co.nz - the writer of this open letter should have disclosed all material interests - such as his stake in Pavlevitch Properties Ltd.

"I cover this within a

"I cover this within a recent article Scoop: Housing Bubbles: Learning To Grow Up, where I draw readers attention to a very perceptive article by Michael Lewis on Portfolio Com The End of Wall Street's Boom - National Business News - Portfolio.com "“ which should be read very closely. Note - it was the guys in the finance sector (and very few of them) who realized that housing markets that exceeded three times household income was THE major problem "“ and they wisely took steps to protect "“ and indeed profit "“ from this."
_______
""These guys lied to infinity. What I learned from that experience was that Wall Street didn't give a shit what it sold."
"

""Steve's fun to take to any Wall Street meeting," Daniel says. "Because he'll say "˜Explain that to me' 30 different times. Or "˜Could you explain that more, in English?' Because once you do that, there's a few things you learn. For a start, you figure out if they even know what they're talking about. And a lot of times, they don't!""
"
"At the end of 2004, Eisman, Moses, and Daniel shared a sense that unhealthy things were going on in the U.S. 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 percent 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 analyst at Credit Suisse, had seen the bubble forming very early on. There's a simple measure of sanity in housing prices: the ratio of median home 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 in 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, 8.5 to 1. And then you coupled that with the buyers. They weren't real buyers. They were speculators."

We agreed that the Wall Street C.E.O. had no real ability to keep track of the frantic innovation occurring inside his firm. ("I didn't understand all the product lines, and they don't either," he said.) We agreed, further, that the chief of the Wall Street investment bank had little control over his subordinates. ("They're buttering you up and then doing whatever the fuck they want to do.") He thought the cause of the financial crisis was "simple. Greed on both sides"”greed of investors and the greed of the bankers." I thought it was more complicated. Greed on Wall Street was a given"”almost an obligation. The problem was the system of incentives that channeled the greed.
http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11...

It is heartening to see

It is heartening to see those fron the planning world participating with their comments. I would ask posters to communicate with other planning / local government people throughout New Zealand to participate as well by reading the material and commenting too.

I will respond to the comments on this website - Friday.

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

Some responses, Dosser: I think

Some responses,

Dosser:

I think the Harrison suggestion is worthy of further exploration - the biggest challenge is the assessment of 'capital' value - witness all the discussion around rating valuations.

And of course, this approach begs the question of why wouldn't one tax all land - to ensure that all utilisation is maximised.

Or at least the real cost of non-maximisation of utilisation is made clear - and paid!

An alternative is to tax capital gain on the sale of land - this has the advantage of being 'real' in the sense that tax is paid on real returns rather than estimates.

And, in addition, ensure that Councils are empowered or, even better, required to levy developers for the full costs of developments.

Finally, combine this with reinstatement of ring-fencing for investment property returns and the strict application of the current capital gains legislation.

Then we might see some sanity prevail.

Neven:

Interesting idea - could you expand on it... I have visions of old-style Soviet towns at worst and British 'new towns' at best...

And I have a lot of questions...

1. Who would own the land?
2. Would all buildings be leasehold?
3. Could land use really be 'free' or would there need to be a ground rent?
4. Where does the individual landowner/builder fit in - if at all?
5. How would Councils finance land acquisition?
6. etc...

I don't know whether you can flesh it out here on this thread - or whether you can 'point' me somewhere else?

John I'm talking about small

John

I'm talking about small integrated redevelopment not total towns, (the Europe post war new towns etc) nor stand alone suburban houses. more akin to the Freemans bay council development (which are now sought after privately), The quality of these developments would be guaranteed twofoldly, firstly the council would provide the specifications and secondly the developer would need to sell them, the developments you talk about (Soviet and English New towns) were socialist state developments, ie they had no 'sale' component.I'm not a leftist commie, far from it. To answer your questions.

1. Who would own the land?
This doesn't really matter, I would suggest the council, as 'land' is neither destroyed nor created and having a single title would mean the council could do maintenance of common area without the overhead of a body corporate.
2. Would all buildings be leasehold?
No, the buildings could be owned or strata title etc
3. Could land use really be "˜free' or would there need to be a ground rent?
Rates/Ground Rent what is the difference?
4. Where does the individual landowner/builder fit in - if at all?
In the suburbs
5. How would Councils finance land acquisition?
Since this would prevent land banking (as any suitable land could be acquired and the risk of sitting on land would be to great) then it is self funding, The increased urban density would increase service rates per area, as a precendent think of the 'Rates' the council is raking in on the CBD high rise slums. any argument against the council 'acquiring' land for this purpose can be countered by the value increases they 'create' by zoning, ie Councils have always had the power to revalue land.

What this does do is remove the myopic discrete profit driven developer being controlled at the outset (ie planning stage) by an equally myopic council.

Neven

Hugh Can you also tell

Hugh

Can you also tell me why in NZ in our multi-dwelling buildings do we insist on using the English Terraced house (ie vertically integrated) and not a Horizontal (ie Single Level Apartments), The Bavarian dwellings I saw were usually 6 dwelling, 3 levels per side a common stairwell, Internally they were like a single level house.

Neven

If land supply caused the

If land supply caused the bubble would we (do we) now have an over supply of sections?
What would be the demand for sections at 3 times Medium Multiple (or whatever they ought to be)?

With respect to the comment

With respect to the comment by "not an expert" there would of course be increased demand for sections if they were sensibly priced. I dont have any answer to Nevins last point regarding Barvarian construction.

You might like to read my latest article - Open Letter to Dep PM Bill English accessible via the Performance Urban Planning website. Its clear to me that both Central and Local Government have no option now other than than to focus on the major issues during 2009.

Hugh Pavletich

And may I also add

And may I also add to my own hint in the first couple of comments.

Councils are obligated, over the next few months, to go through extensive public consultations over the three-yearly LTCCP review, covering the period 2009 - 2019. So this is a once-in-three-years opportunity to get some sensible changes started, under the general aegis of Sustainable Financing. After all, Councils are, because of the 2002 Act, responsible for the 'economic, cultural and social wellbeing of their community'.

Let's hold their feet to the fire on this, then, eh?

Very good point Waymad with

Very good point Waymad with respect to the LTCCP process. Central Government needs to focus on geeting performance measures / indicators with respect to housing and other matters, embedded in to local government culture through this and other vehicles as well.

One of the major problems as I see it are the communication vehicles between Central and Local Government too. I touched on this serious issue within the recent Scoop Open Letter to Bill English - accessible via the Performance Urban Planning website.

I wouldf urge readers to read closely the "whacky" Briefs for Incoming Ministers (referred to as BIMs) - just to get some idea of the extent of the problems at the Central Government civil service level. It extremely clear to me that this whole issue needs to be dealt with with urgency in the New Year. I do hope others ger their views through to the appropriate Minister early in 2009.

It is to be hoped that there are serious substantive discussions among the group of Ministers involved with these issues (in consultation with the Coalition partners) over the Christmas holiday period - so that they are taking a more cohesive approach to Local Government issues during 2009. The reality is that this country will not dig itself out of this deepening economic hole until things are properly sorted out on the Local Government front.

My strong view is that New Zealand - of all the counties surveyed annually by Demographia - has the best political framework and policy settings in place - to get these issues sorted out. Its really just a matter of building on these and having the right structures and people in place, to get this country growing again.

Hugh Pavletich