Matt Nolan - thank you for your comment on the population change front.

I deliberately kept this important issue out of this article - as I wished to focus on what should be the "construction rate floor" of static or growing markets in population terms - as all buildings have a certain life - obsolescense - whether it be physical, functional or style.

On the "physical front" buildings can last 100 years or more - but as our standards of living impove - our housing "needs" also become greater. Mostly - buildings become obsolete for functional reasions, often well before they become physically obsolete.

So when one factors in "functional obsolescence" - it is really well less than a physical life of 100 years plus.

Therefore my estimates of obsolescense requiring a replacement build rate of 2 to 3 per 1000 population per annum - are extremely conservative.

Matt - as I stated on your blog today - Im really looking forward to economists taking a "nuts and bolts" structural approach to housing issues - so that economists are able to contribute effectively with policy solutions to the issues that need to be dealt with.

Then the economists and I can become "friends" again! At least this would leave me more time to deal with troublesome lawyers on this websiite - struggling to understand how markets work!

Matt Nolan - true enough - off that conservatively estimated replacement platform I outline of 2 to 3 units / per 1000 ( 8,600 to 12,900 replacement units annually in the case of New Zealand with a population base of 4.3 million people) - new household formations must be added.

On the household formation front - one should work to 2.6 to 2.8 people per household. So - if our population is increasing by 40,000 per year (say 30,000 natural, 10,000 net inwards migration) - between 14,285 to 15,384 units should be added for this factor.

Then added to this is the second home / holiday / other which accounts for a further 10% of the market. Allow another 2,500 units for this.

So when the three market segments are added (a) replacement (b) new household formation and (c) second/holiday stock - the total is in the order of 27,500 - as a reasonable "swing build per annum".

With our population of 4.3 million - the above represents a build rate per 1000 population annually of 6.39. Currently (because Councils dont allow affordable stock to be built) we are only putting in place annually 12,000 or less - a woeful build rate of 2.79.

Yet............ Warwick Quinn CEO of the Master Builders has hardly said a thing. Whats the matter with these guys. The members of this organisation need to start asking some serious questions of the leadership (Board members and CEO) of that organisation.

What also needs to be borne in mind is that our "people per household" have been quietly rising within our existing usually occupied stock - moving now towards the 2.9 per household. I think there are only 1.450,000 usually occupied - with about 150,000 seconds - total 1.6 mil plus. So as we become wealthier - our occupancy rate should be around 2.6 per usually occupied household (where Australia got to during the 1990's).

So taking all the above factors in to account - I think we should be building 30,000 new residential units per year at least - not the 20,000 you suggest.

I appreciate you getting in to these numbers Matt.

You might want to check out Tony Alexander's 'Weekly Overview' report for this week:

http://www.bnz.co.nz/About_Us/1,1184,3-29-319,FF.html?pmarkC=Image&pmark...

Page 8 onwards, where he does a piece on factors associated with the recent bubble entitled:

'Price Crash Still Awaited By Some'

followed by a section called:

'A Gift For The Price Optimists'

Interesting stuff.

Gee, even Tony's starting up on the NZ's housing market is special bandwagon.

Nothing is special in the long run. He basically acknowledges that you could see house prices as overvalued, but that's ok because they can be overvalued forever... (a gross oversimplification and putting words in his mouth I suspect).

Joy, Matt - get your razor blades out:

http://www.interest.co.nz/ratesblog/index.php/2009/04/16/oecd-says-nz-ba...

Hugh - you are a wise man
As you say the performance of the economics profession over these past 5 years has been appalling - so why should we place any trust in their views now?
They simply have not earned any trust.

Hugh,

Just to enlighten readers who might get sucked into that "lets sprawl big cities even further" argument of yours, I thought I tell you of my own small experience with building work here in NZ.

Last year I asked a trusted builder of mine, how much a simple, new exposed aggregate concrete carpark, walkway and fence gates in front of my house would cost (based on architect's plans and including removal of existing concrete driveway). His estimate after a few minutes of on the spot calculating was $18-20,000, of which the concrete work was supposed to be worth $9-10K! I said thanks, but no, at the time.

This year, I spoke to my brother in Europe, who happens to be a construction engineer running my fathers construction company now, and he tells me that if he puts 2 men on the job for 2 days, he's done with the concrete work and would charge me 2,300 euro (about $5,000). After much hunting around, arm-twisting and patient wait until trades people are much less busy, I got the concrete work done this month for $6,600, arranged directly with a concrete contractor. That's still about 30% dearer than the same basic work would cost in europe (austria to be precise), which isn't exactly famous as a 'low labour cost' continent!

How much do you suppose do raw material duopolies (and monopolies in some places) and building industry lack of skill and inefficiencies cost us here in NZ by comparison to high land prices? Don't get me wrong, I am the first one to say that housing and land are ridiculously over priced in NZ. But I seriously challenge you to broaden your crusade to other, just as worthwhile contributors to high house building costs, than your single issue of land availability! And let's not get started on the quality of building or finishing...

Even if land prices dropped tomorrow by 50-100%, I still would not run and try to build a new house, even though I could afford to do so. I certainly will not finance Fletcher Construction's most stupid move to date, that is to buy Formica Corporation in the USA for starters? I won't explore any more building work until basic building materials and wages have returned to a level that bears some relation to what I earn. Until then, we just will do with what we have, as it is enough to be comfortable.

Matt of Auck - thanks for the kind comments...Im sorta more old than wise, but im workin on it!

ctnz - you have bought up an extremely important issue - and I would suggest you read the article 080428 "Urban Planning degrades housing affordability" on my website - where I illustrate our housing construction performance is just 40% of that of affordable urban markets in North America - the British just an appalling 25%.

There is an old saying in the property development game - "If you get the land wrong - everything else it wrong". And I mean EVERYTHING - most particularly housing construction performance.

When existing housing is on a bubble roller coaster inflating at 10 and 20% per annum - this flows through to the new residential construction sector as well - where, as the market is hyperventilating, the normal commercial disciplines are blown out the door.

The good guys get out - as they know full well that profits in a bubble are an illusion in having to debt finance and pay tax on it. If that doesnt send one broke - the bubble "popping" will.

So th whole industry becomes "degraded" - and sound business behaviour cannot emerge, until these bubbles are dealt with.

Many of these guys wouldnt last five minutes in a normal affordable market - and they and I know it.

Joy Sutton and Matt of Auck explined it all extremely well in the comments above.

My sense is that the current Government is strongly committed to sorting this mess out - with political support across the board I might add.

Neven 911 - Your questions are just too difficult for a fellow like me to answer.

I suggest you direct them to Tony Alexander at the BNZ.

I think Tony and you would get on extremely well.

neven,

Those workers are all austrian, well qualified and experienced. Although there are many migrant workers in western europe that moved from the eastern parts, and many construction companies struggle to compete with those lower-wage staffed companies. However, there has always been pretty intense competition in europe and a generally high standard of workmanship which is achieved through good education, apprenticeship programs and very tough building standards! Sadly, I don't think we can say the same of NZ.

Hugh,

I am sorry to burst your 'bubble', but I am not interested in reading any of your articles on your website. Your contributions at this blog are completely unbalanced, only focus on one single 'issue' and ignore continuously many other aspects which have far more impact on 'housing bubbles' in my opinion.

Apart from that, I think that urban sprawl is the last thing Auckland needs and you never have seriously addressed the issue of public transport/spaces in any of your contributions or comments here. But I guess that comes from being so single minded about getting 'cheap land on the fringe forever and for everyone'. So, forgive me for being so blunt as to say, thanks, but no, I am not interested in reading more of your so-called 'research' (or whatever you'd like to label it).

Hugh,

Auckland is already one of the lowest density cities of its size in the world. (I would say lowest, if someone knows one lower let me know!).

It has severe geographical constraints - 2 harbours, Volcanoes, Waitakeres etc.

Houston is dead flat and has concentric ring roads. Houston has had land use regulations to encourage sprawl - minuimum lot sizes, minimum road easements etc.

Texas is pro-car, pro-oil. As Neven points out, high oil prices are good for Texas.

NZ on the other hand imports a lot of oil, and is very dependent on it. We have also committed to reducing green house gases. Unlike other countries, we dont use a lot of fossil fuels in electricity generation. We also have half our emmisions coming from livestock, and no one yet has a clue how to reduce these. So the only place where we can realistically reduce emmisions significantly is in land transport. And intra-urban transport is the best place to start.

If we allow more sprawl in Auckland we will be utterly dependent on car use for the next 50 years. In my mind that is a very risky strategy.

I realise the above points are a bit disjointed, but I am just trying to point out a few issues that need to be addressed.

I agree there is a problem with housing. I believe the cause of the problem (in Auckland) is:

A land use strategy that encourages densification of existing urban centres, and a resource management act that makes this type of development very difficult and expensive.

Bullitt - its good to see an economist participating - and your further thoughts to David Hillarys ones are appreciated.

I would suggest you both resist the the temptation to "model" this issue - but keep it simple with "measures" - based on the reliable Median Multiple. I cover these issues within an article "Housing Bubbles and Market Sense".

Until we got the Annual Demographia Survey underway back in early 2005 - Kiwis simply didnt have a clue how unaffordable housing was in this country. The reason of course for this - is that it didnt suit the commercial interests - who deliberately generated the often manipulated "mixed measures" - throwing "mortgage affordability" and "housing affordability" in to the same pot.

The reason they did this was to deliberately hide from the public the structural distortions in the housing market.

With all due respects - I think you are being somewhat flippant with regard to the professional standards of economists - in suggesting that if you have 20 economists you will get 21 different opinions.

In putting it that way - you are suggesting to readers that there is no core body of knowledge in the field of economics. I dont accept that.

What however this current crop of housing bubbles globally has highlighted - is the serious "gaps of knowledge" within the economics profession. Seasoned property development practitioners could see the scope and ramifications of these housing bubbles years ago - and took appropriate action to limit their exposure to them.

One would have to have been blind (quoting Krugman here) not to have seen the looming problems. The sad reality is that economists generally were completely "bubble blind".

With regard to the issue of Banks and "social respnsibility" - I do think there is huge scope for improvement. For example - what constructive role did they play in forewarning policymakers and the wider public of the destructiveness of housing bubbles?

It would appear to me that the Boards and Senior Managements need to discuss these issues in depth.

I agree, Neven and would add that I've been surprised that a guest blogger is allowed to bump up his own commentary to the incessant degree that he does without intervention from the moderator.

He often posts 2-3 times himself in a row on his own threads. And it seemed he and PhilBest were working a tag team a week or so ago, such that when you checked out Recent Comments column - you'd have thought nothing else - aside from the pressing matter of becoming a Houston of the South Pacific - was happening in the financial world.

And Phil often provided us with a link/reference to some article - and then cut and pasted the whole article in the thread - as if other contributors can't be trusted to follow the link themselves.

It is a fascinating study in blog behaviour. I can only assume they both have a financial interest in fringe land somewhere.

:-)

Its all good and well to compare to other countries on a statistical basis...but one thing economists tend to(do) forget and this cant be put into a mathematical formula, is the social mentality between countries and even generations.
My generation went all out to buy our 1st home....my children with their young families, take a different aproach..."Dad we can afford to save, we have savings, yes we MAY buy something in in 5 or 10 yrs time, but renting, suits our life style for now.

Then we take the generation before mine, there was no way they could afford to build or buy, so the Gov created the state home....becuase there was a huge shortage and affordabity was out of the question.
Sure affordabity is an issue today but there is not a huge shortage....
Therefore due to attitudes and market demand, building willy nilly would be like Holden keep on building cars at previous levels, the parking them up in huge paddocks for the next few yrs...and go bust.

There seems to be this weird mentality to boost the housing market to TRY to keep values from rectifying to CORRECT levels, because so many gambled and lost...thats 'business' get over it...same happened with the share market in the 80s.
When the market rectifies, the dust settles, then the market will move in a manner in which natural supply and demand will dictate within the attitudes of that generation.

For those of you who are interested in looking at other factors involved in this issue, see:

https://www.dpmc.govt.nz/dpmc/publications/hpr-report/hpr-13.html

courtesy waymad from another blog on this general subject.

Also, courtesy Roger Thompson and Kieran:

http://workandhome.co.nz/uploads/documents/WaikatoTimes/March_19th_2007_...

where one of the "other factors" gets a simple quantative treatment.

You may have seen these before, but I don't recall seeing some of your handles on the blogs where I first come across these and thought you might find them useful, just as I thought Tony A's WO for this week might be useful in with this discussion too.

You may have seen this blog:

http://www.interest.co.nz/ratesblog/index.php/2009/04/16/oecd-says-nz-ba...

about the OECD report on NZ released this week and reported here in The Herald:

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1056...

Did anyone see much in this stuff about turning us around via a sole focus on one single factor?

Anyway, I have more pressing concerns:

http://www.interest.co.nz/ratesblog/index.php/2009/04/16/special-report-...

and see the first comment on that blog too.

Hugh

You call Public transport is a separate issue - one I am not qualified to discuss. a response? from a "smart growth" advocate, from a "performance planner"?

The tone of it was not acceptable as in what way may I ask?, as in I predicted your response? or that again I pointed out that your continual comparison of NZ to Texas is inane?

Regards Urbanisation, It would probably surprise you to know the NZ highly urbanised and NZ is more urbanised than the US (86% versus 80% live in urban areas), You don't calculate this by taking the population of a country and dividing by the area (unless it reinforces your point of view)

The urban areas are the "growth engines" of a modern economy.
Is this your new mantra? From my statistic above I'd be surprised if this wasn't true given that 86% of us live in urban areas, The point is if we let you have your way those of us who live in the central city would takes days to exit it

Neven

Well said Neven, having been on the end of patronising responses from Hugh when I have asked questions, I can understand your frustration. There are so many issues that need to be considered before making any decision with regard to freeing up fringe land for urban development, least of all transport and infrastructure. Hugh just seems to think that we should free up land now and all will work itself out. No thoughts to how to ensure that the fringe stranglehold just doesn't move from the council planners to the developers, who already withhold supply in their existing subdivisions to artificially keep prices high.

Most of our towns are already struggling with poor, under funded infrastructure, yet Hugh wants us to build more subdivisions on the fringes, presumably requiring more rate payer or debt funded roads and services. And where is all of this land going to come from? Where is it around, say, Wellington? Sure, we have lots of land per head compared to most countries, but have you seen most of that land Hugh? it's not flat, like the Canterbury Plains, it's hilly, swampy, flood prone or just too far away from employment to be desirable. And how many sections and houses, actual numbers Hugh, will we need to create to increase supply over demand to have the downward pressure on prices? When there is as little demand for spec built houses as there currently is, who is going to fund the new building that will be required to create this downward pressure?

I've traveled extensively in the States, I haven't been to Houston, but I have seen plenty of endless sprawled cities, unplanned, soulless and choked with cars, because you can't get anywhere without one. Watch the film "Radiant City", the family are actors, but the "mockumentary" makes some excellent points on unrestrained urban development.

I am also surprised that Bernard allows Hugh such free reign to press his opinions. Perhaps he hopes that Hugh is right, the government goes ahead and builds hundreds of fringe houses and prices are forced down, so he can finally claim to have been right in predicting a 30% fall in house prices.... 80)

The true cost of running public transport is so high that if fares were "user pays", nobody would use it.

The true cost can be calculated simply by dividing total running costs of public transport (just like a business would have to; not omitting the cost of financing infrastructure) by total fare revenue: then just multiply every fare by that factor.

If it is cheaper for a given traveller to run a given car rather than pay true-cost reflecting public transport fares, then that car uses less resources than public transport; not even counting the energy used to get to and from bus stops.

The cost benefit ratio of getting a shift like 10% of car users, to public transport, is exponentially worse than the cost benefit ratio of simply providing new roads and lanes; if there is even a benefit at all. Because most travel is done only at certain times of day, huge "investments" in rolling stock would be necessary to cope with such a shift. Roughly ten times as many people use cars as what use public transport. This means that a 10% decline in car use, shifting to public transport, requires nearly a 100% increase in public transport subsidies. It is a myth that increased patronage will bring efficiencies sufficient to negate this need, as long as public transport is not having to compete in a free market.

If we attempted to run a public transport based, car-free transport system, the cost would be greater than our entire current GDP and/or the lost flexibilities of individual motor vehicles would lead to massive economic contraction. Look at the former USSR. Do you think that their public transport was more efficient than our car use? Did you know that they were far worse wreckers of the environment on every measure, and used more resources per unit value of GDP, than capitalist countries?

Car-free societies absent totalitarian planning, were (Victorian England) and are (Slumdog Millionaire) mixed-use land use societies with people and animals living above and around factories and offices. We will only reach the stated aim of resource conservation and emmissions reductions to the extent we return to such a society. Long distances are the main problem, not modes of transport.

Limiting sprawl does not achieve the desired result because of the effect on land prices. Alain Bertaud's work on urban density profiles show that average commute lengths have increased in cities like Portland precisely because of this effect. The cost of land closer to the urban center becomes prohibitive, and most of the infill development takes place closer to the more affordable fringes. Seriously, take a look at his graphs.

Cities that have been allowed to develop closer to Lassez-Faire principles actually end up with lots of mixed use land use and multiple nodes and much lower average commute distances, and urban density profiles that slope evenly from the highest at the centre, to the lowest at the fringes. The low density at the fringes means that the commuting done by these people is of minimal effect, while the affordability of land is retained over the whole urban area, meaning that many people who could not have afforded to live closer to work under the controlled scenario, can do so under the "free" one.

Trains initially served the use of getting wealthy people over longer distances faster and in more comfort than horse drawn carriage. Trains have had their day long since. But we are doing ourselves serious economic and environmental harm with our mistaken assumptions about all public transport.

People run their own cars by choice. The taxes they pay for petrol alone, covers the cost of roads and externalities. It is public transport that does not pay its way even for running costs let alone externalities.

No-one would use public transport by choice if they had to pay the true cost.

The worst thing here is that people are being lied to about what their hard-earned rates and tax money being spent on public transport, actually achieves. It has never achieved cost-benefit justifiable reductions in road congestion and it has never achieved real reductions in resource use or emissions, let alone cost-benefit-justifiable reductions. We would have been better off in every way to have never spent a cent on public transport subsidies, and simply built more roads and lanes and had lower congestion.

If there were no public transport subsidies, and no government interference in transport, entrepreneurs would identify opportunities to run appropriate vehicles on appropriate routes at appropriate times of day, and make a profit on it.

Increased population densities result in more road congestion, not less, for the simple reason that greater majority of the increased population moving into an area still opt for car use. The exceptions may be downtown Hong Kong and Manhattan.

Such high densities bring their own environmental and quality of life problems. It is far from certain that the resource efficiency and emissions of high density living are superior to urban sprawl. Urban sprawl is partly the result of choice and partly the result of zoning fashions of the past. Free market choice is actually a very good allocater of resources. I believe that those zoning fashions of the past have given us the longer commute distances that are our main problem today: under a freer market in land use, we might have had more urban sprawl but we would also have lower average travel distances.

We don't have a "school zone" that we all pack our kids off to 30 km's away by train; I fail to see why we have to have "workplace zones", if we really do have such a "crisis" of resources and emissions to confront.

Isn't it funny how the political classes favoured "solutions" to any problem invariably involve reductions in human freedom, even when an increase in human freedom would be a better solution, knowledge of which needs to be suppressed accordingly?

The reality is that even if peak oil is real and AGW is real, public transport is no fix. The same factors that will make free use of private vehicles less feasible will also apply to public transport. If we really do have to confront such a crisis, we will be forced to resort to freely mixed uses of land; it will simply be impossible to continue an urban planning model that implies lengthy commutes and focuses myopically on the mode of travel. It is absurd to imply that massive investments in electric rail or any kind of rail or even in buses, is responsible planning for an anticipated future crisis of resources or climate.

Think about this: if resources really do become so scarce that we have regular power cuts, would you rather be living in an inner city dystopia, or out in the suburbs where everyone firing the barbecue up to cook their dinner, or lighting candles, won't asphyxiate the entire neighbourhood? There are many, many implications like this one to consider. Quite frankly, the opportunities for "sustainable living" are much, much higher out in the suburbs. The "Pacific Ecologist" magazine had a lavishly illustrated article a few months ago on how Cuba was a wonderful example of how to exist on a minimum of resources. There was not a high rise building to be seen apart from ruins. Everyone was flat out tilling the land around their separate houses, and running livestock and little cottage industries in their yards. Not only were there no trains, but there was almost no commuting, full stop. The sort of jobs that we commute to here in NZ, simply cease to exist in any case, long before resources become so scarce that commuting becomes impossible.

We really, really need to be thinking these things out a lot, lot more intelligently than we are. We are already suffering enough consequences of this sort of lack of imagination, in financial markets and in social policy and many other areas.

I just said THIS to Matt Nolan on his blog a couple of days ago, and it applies here:

What I really fear, Matt, is that with the aid of new low base interest rates, NZ will be back to "business as usual" regarding property; and all we will be doing is tracking the US experience from about 2002 onwards, only starting from a net household debt situation that is already worse than the US when its bubble burst.

We can kiss any real economic recovery goodbye when most of our potential productive investment money remains sucked into the black hole of a housing price bubble. These bubbles actually worsen the likelihood of income increases enabling a catch-up of the fundamentals that underly home affordability. Business investment simply could not match the returns,(temporarily) from property investment. Interest rates that would prevent a property bubble would kill business. Reserve Banks are pushing on a string once the bubble mentality takes over.

We are surrounded by people talking the house buying market UP again, and persuading us that the time is good again for making that purchase. This is balls. It is economic Darwinism. Here we are, with some of the world's most unaffordable house prices, a situation that developed mostly in 4 years, 2002-2006; graphs that show what can only be described as one of the world's worst house price bubbles; here we are surrounded by house price bubble collapses all over the rest of the world; here we are with our economy in recession; and we are talking home buyers INTO the market and talking price expectations UP?

I am personally acquainted with various family friends who I have been unable at any time, even with all my background knowledge, to persuade them that buying a house 2 years ago or now, was not and still is not a good idea. We still see on interest.co.nz, comments from people who should know better, that "NZ is different"; "Buy"! "Buy"! "Buy"!.

You tell me what is going to fix this?

(Matt said) ""¦..When the building industry starts running again, prices will fall again"¦.."

You tell me what mechanisms are going to result in new homes hitting the market at a price that reflects the value of land for other uses, plus development costs, plus profit. Where are the $40,000 sections now, even after half the property development industry has fallen over? Why are even the bankruptcy sale prices attached to an invisible skyhook?

Some commenters are pointing out that homes are for sale in Atlanta Georgia for US $20,000, and using that as evidence of a housing bubble crash in Georgia. But this is missing the point. Brand new homes on the urban edges of Atlanta were always available for as little as US$120,000. Oversupply and economic downturn has resulted in bankruptcy sales for a little less than this. But tumbledown old dumps in ghetto areas were also always available for $40,000 or less. Why would a first home buyer pay 7 or 8 times average annual income for a tumbledown old dump in a ghetto area, when there are brand new homes available for 3 times average annual income? This is the option that has been denied to the first home buyer in California - or NZ.

Or look at it this way. A subprime mortgage in Atlanta might be an unemployed solo mum with a mortgage of US $40,000 or $50,000. A subprime mortgage in California is a professional yuppie couple with a mortgage of US $600,000. (And that is for a tumbledown dump in what used to be a ghetto area). Where do you think the problem of toxic CDO's has really originated? Some of the studies I link to in my essays on interest.co.nz point out that California is responsible for 45% of all the mortgage related losses of equity in the whole USA so far - and New York is responsible for another 10% and Florida for another 10%.

New Zealand is tracking California, not Georgia or Texas. A high proportion of our mortgages ARE what the USA would call "subprime" - we are just insensible to it. Our younger and poorer people are being screwed by having to pay hundreds of thousands of dollars for ANY home, whether on the outer limits of cities or for tumbledown old dumps in ghetto areas. Californians could emigrate to Texas much more easily than Kiwis can escape the property price trap. Are you aware that California spent years leaking population on net even as their house prices escalated, while Texas attracted large in-migration while houses remained well-supplied and cheap?

What do you think the flow-on effects are throughout NZ society, of unaffordable housing?

That is why I argue that the inhabitants of particularly desirable areas should NOT be "entitled" to prevent further in-migration to their area through policies that make property unaffordable. If greed and selfishness on Wall Street requires legal restriction to prevent damage to whole economies resulting, then so does greed and selfishness in green and pleasant local communities. People have to live somewhere, and these selfish policies at root are saying to people of the next generation and poorer people, ""¦do us a favour"¦"¦don't exist"¦.no, you can't live THERE"¦"¦.no, you can't build THAT"¦.yes, that is the cheapest accomodation you are allowed to live in"¦". The bottom 3 rungs have been knocked out of the social mobility ladder. But "combating inequality" is all about "transferring wealth" via taxes and government spending, isn't it"¦. not about ensuring that homes are affordable.

But Hugh P. tells us that there is good cross-party progress in getting a grasp of these issues in our current parliament. I wish him all the best, the consequences are of paramount importance economically and socially.

We get this feeble argument over and over again:

"....Most of our towns are already struggling with poor, under funded infrastructure, yet Hugh wants us to build more subdivisions on the fringes, presumably requiring more rate payer or debt funded roads and services. And where is all of this land going to come from? Where is it around, say, Wellington? Sure, we have lots of land per head compared to most countries, but have you seen most of that land Hugh? it's not flat, like the Canterbury Plains, it's hilly, swampy, flood prone or just too far away from employment to be desirable....."

So if land is so constrained already by topography, why the heck do we need to have a whole lot of restrictions on development as well?

And why not allow some "satellite cities" where there is plenty of flat land?

""¦.Most of our towns are already struggling with poor, under funded infrastructure, yet Hugh wants us to build more subdivisions on the fringes, presumably requiring more rate payer or debt funded roads and services...."

Never any mention of local government getting less and less efficient, wasting more and more money, finding more and more new things to waste money on, when the whole reason for their existence in the first place, was these basics.

As I point out above, this is a major reason for poorer ratepayers and taxpayers getting poorer; their money being spent on stuff that benefits not them, but better off people and feel-good elitists.

Les Rudd:

".....Did anyone see much in this stuff about turning us around via a sole focus on one single factor?..."

Les, you're one of the best guys on here, intellectual, knowledgeable, open-minded. All I'd say to that, is, time will tell. As you know, I agree with doing the lot, I just predict that housing will remain unaffordable, there will be other negative consequences of new policies, destructive housing bubbles will recur, and so on, if the land supply issue is not resolved.

And if there was one factor that more than any other, would turn us around, it would be freeing up the utilisation of all resources including land, not just for housing.

Notice that other argument from Neven 911 about Texas:

".....Mineral rights owned by the landowner....."

Great point, Neven, I like it; if that is the reason for the difference between us and Texas, let's do that, eh?

But hey, Neven, re the Japanese, they do own half of the rest of the world.

It is something very different about their culture, that they work and save and buy assets, mostly overseas, even to the detriment of their own economy.

But their "lost decade" is also testament to Keynesian "stimulus" policies and not just letting institutions go and letting asset values fall to realistic levels. Don't underestimate the potential for the Obama administration to do the same to the USA, and indeed, most Western nations may be making the same mistake.

Neven said:

"I seriously don't want to be like the Japanese in any regard! an imploding industrial empire so export driven that its just about in a state of collapse (after being in a deflationary period for a decade)"

That's a pretty narrow minded view typical of many leftists who portray themselves as open minded and liberal, when in fact they are pretty close minded. No doubt you admire the Euro-centric socialist models. Can't trust the narrow eyed bastards can we???

Actually, I think we can learn a lot from Japan, although their society is far from perfect. For example, they are masters of the use of space, and when I lived there I marvelled at how they could create a wonderful 3 bedroom townhouse that felt much bigger than its actual size (through design, use of light etc) on a 100 square metre site!!!! If we adopted some of their techniques in this regard we could get thousands of new houses into our cities without going beyond 2-3 levels and without sprawling further!!!

check this out:

http://www.planetizen.com/node/38332

They are also light years ahead of us with "green" technologies.

Matt

I think the jumping to the conclusion that I'm some sort of bigot because I don't want NZ to Japan-like in any aspect is a bit of a leap, however there is an interesting point here, had NZ stayed as ethnically homogeneous as Japan has what would be our population be right now (as an NZ Pom/Scot/Maori I have a foot in several camps)

Neven

Neven - sorry to imply bigotry but your statement "I seriously don't want to be like the Japanese in any regard!" sounded a bit bigotted and close minded to me, like there was ABSOLUTELY NOTHING we could learn from them! Like, we can learn a lot from progressive Europeans but not from the Japs...
Actually having lived there I can advise that Japan is an incredibly civilised country (of course its not perfect, where is?) Environmental awareness is generally higher than here, their government has pumped a lot of money into renewables, Toyota is a world leader with hybrid technology, and in manay Japanese suburbs you'll see 30-40% of houses with solar panels because of generous government subsidies.
Of course they have their issues. Packaging and gift wrapping for example is extreme and wasteful.
As an architect I can personallly admire much in their wonderful architecture and how they use space. Most architects have been heavily influenced by the Japanese, either directly or indirectly, including the great Frank Lloyd Wright. I think we can learn a lot from them in terms of creating density and compact living environments that are still highly liveable. They provide an alternative model to the sprawling suburban McMansion.
As Philbest says we can also learn a lot about developing a saving culture as opposed to a debt culture form the Japanese too.

Neven -thanks for your response, good to see you do find something to admire in their culture, and your fine response suggests you are not a bigot, just looking at things critically.
Sure they've got their issues, but historically they have always been incredibly adaptive. They seem to have (permanently? temporarily?) lost that trait in the last 15-20 years. You hit on it with some of their xenophobic tendencies - the adaptive Japan of history would have looked at their ageing society and realised that they would have to do something about it ie. significant increases to their low immigration rates.
Where will they be in 20 years?
I don't know the answer, but I sense that change is going to have to occur or else they will go down the gurgler.
Maybe they will be a colony of the Chinese Empire in 2030 following the rape of Tokyo?
Just to finally bring things back to topic - we are obviously not Japan, we are a totally different culture, but I think we can learn SOME things from them in terms of urban development (in particualr their mastery of higher density living forms) along with many other countries and cultures

Wow - 14 posts by PhilBest between 2.31pm and 3.45pm - and he managed 10 of those in a row!

Matt in Auck and Neven - Hugh thinks you guys are architechs and he's awarded me an LLB.

:-)

Oh dear, PhilBest, for someone who claims to defend the right to free speech, you are quick to take the arguement ad hominen by trying to label me as some sort of elitist, leftie greenie. Just because you oppose development doesn't make you a tree hugger. it also means that you fail to grasp the point I make.

"So if land is so constrained already by topography, why the heck do we need to have a whole lot of restrictions on development as well?"

No, where is the land you wish to develop? I am looking at this from my local perspective in Wellington. You have to get as far as Kapiti and the end of the Hutt Valley to find fringe land suitable for development and it's already being rezoned and built on - 800 houses in Waikanae North, for example. Freeing up more land out there will have no effect on prices closer to town, as the free market demonstrates that people will pay a premium to live there. Current land restrictions allow for change of use, just don't provide free slather for bulldozers to create thousands of vacant sections that no one wants because there isn't enough demand.

"And why not allow some "satellite cities" where there is plenty of flat land?"

That's not a bad idea, even though I have lived in some in the UK. Unfortunately they do not cause a reduction in the cost of housing in the areas they are satellites to. In fact, after a while, the cost of housing in the cities drives up the cost of the satellite towns. My house in Crawley doubled in "value" over three years as prices in London skyrocketed and people realised they could live in Crawley and get to London Victoria in 40 mins on the train.

"Note the elitist sneering about soulless Houston and suburban homes, too. These lefty green elitists just hate ordinary people to be able to find affordable homes and good jobs; in an area where socialism hasn't created those things, too, free markets did"¦..shock, horror"

Er, no, how can it be leftie green elitist sneering to point out that the American dream of suburban sprawl isn't something we necessarily want here? Do I not have the right to have that opinion without you attacking my character?

You assume that I do not want people to have affordable houses? Where did I say that? No, I didn't, you just like to assume I did as it gives you something to attack your opponents with.

After wading through all the crap in the Herald on Veitch, I got to an interesting article by Olly NEwman this morning, talking about a false dawn in property.
He raised a good point - the mentality that now is a good time to buy not only brings buyers out but also sellers, who perceive that because its a good time to buy its a good time to sell! This, in Newman's opinion, risks flooding the market with properties, when the demand is really not that great. The result - we could ironically see dips in prices due to the agents and bank economists' hype about it being a good time to buy.

Kate - it was Auckland City
Residential 6a zoning / one unit permitted per 375 square metres

there's a very simple way around these issues - use Floor Area Ratios (FAR) rather than units / m2

For example, if you had a FAR of 0.4 that would allow you to build, on a 600 square metre site, 240 sqaure metres of floor area (0.4 x 600). That floor area could be allocated to one large house, two mid sized townhouses, or three small units

A much more flexible system that still adequately controls impact on the environment, and help increase the supply of units within urban limits

Hugh

Firstly I'm not an architect, But as you probably realize I have opinion (Technically I'm an Electrical Engineer, but mostly I'm a Software Engineer/Architect).

Your point about the cost of land and restrictions highlights a "fundamental failure" of free market economics, That is the restrictions have distorted the market (by restricting land supply the cost goes up), so yes we could drop the cost of land by removing the restriction BUT there is another issue here, price elasticity (demand/supply pricing) is based on the precept that if a commodity becomes to expensive then substitution occurs, in this case we would be substituting central convenience for a larger city, Which if you read is pretty much the theme of the drift to the suburbs in the US post WWII

The "failure" I mention is that this process of substitution requires other requirements to remain cheap, cheap energy to build the infrastructure, cheap energy to propel you to and from you home, cheap energy to ship food to you, do you get the drift?

This cheap energy has been taken for granted for so long that it is presumed by many, via technology, to continue for ever this is analogous to the chap falling off a 20 storey building being perfectly happy as he passes the 18th

Free markets as you promote do not 'plan' beyond the vision of those driving them, so given that there is no long term energy planning this doesn't surprise me

Kate

Email Bryan Spondre bspondre at gmail dot com, he might be interested on PB (mis)behavoiur

Matt

I'm surprised re the 2/unit that you didn't do the usual, "its a semidetached house with 2 bedrooms here and 2 there and that's not a second kitchen its a 'bar' for the rumpus room" trick, though I applaud your ethics, the fact that we have to lie and befuddle to be "allowed" to do something perfectly reasonable is another reason town planners will be the first up against the wall when the revolution comes

Neven

Neven - yes some do try that trick, although Auckland CC seem to be onto that one!!!!
The problem now is because of the unethical behaviour, clients who do want to genuinely build a guest bedroom wing slightly detached from the main living area, or a second kitchen (for the totally legitimate reason where they might have a separate entertainment area where they need a second kitchen) are made to feel like criminals by the Council who automatically assume that the guest bedrom wing or the rumpus room with the second kitchen will be used as a second unit!!!!

You are right, people shouldn't HAVE to try it on because if the rules were more sensible / flexible, then who would really care if there was a second or third kitchen as long as the overall floor area and scale / bulk of buildings was controlled!!!

the current rules treat a 6 bedroom house the same as a 1 bedroom bedsit in terms of density which is riduculous!!!! most COuncils are at least 20 years behind the realities of modern life. In fact, ironically the planning rules of the 70s were much more progressive and flexible than current rules.

The fact is the system has been hijacked over the last 20 years by people who don't like prety harmless flats "spoiling" their neighbourhood. They have held the mistaken belief that preventing further development in their neigbourhood will protect property values. In fact all its done is helped (along with other factors, credit expansion etc) create a massive housing bubble through limiting supply of housing which will ultimately have more destructive impact on house values than had more devleopment been allowed!!!!

I was going to post a bit more info about public transport in european cities I am searching for at the moment, but this incessant taking over of blog threads by PhilBest is really putting me off!

Bernard/Brian, if you don't moderate (at least a little) this excessive posting (by anyone for that matter), I will not renew my email subscription next year. In a nutshell, I have subscribed not to get the email every day, but to support you in keeping this website alive and well, and to provide a much needed open and non-coloured (as much as it is humanly possible) forum for many important views! But that variety and depth of views is being swamped by behaviour such as PhilBest's in my personal opinion. I hope you take my and other's comments on board and look at solutions to this.

Regards
Chris

Matt - your comments with respect to the training at University architects get regarding "structural urban economics" (apparently nil) and building costs (a little - but mainly theoretical) - are most interesting.

I suspect it is much the same with the other professions - such as planning, real estate engineering, property valuation and economics - and explains why, through this whole "public conversation" in New Zealand - of these serious urban structural issues these past four years - all these professions and the bodies representing them, have had ABSOLUTELY NOTHING OF VALUE to contribute.

There are major problems of course for professionals giving advice to clients in the industry, if they are "economic iilliterates". In my 30 plus years as a development practitioner - I was often amazed with the drivel I had to listen to.

This highlights for me the urgent need for the Government to (one way or the other) get sound and easily understood "performance measures" in place - so they get embedded in to the Local Government culture as soon as possible.

It is a great pity the tertiary institutions rsponsible for training people within the professions above - dont show greater initiative - by incorporating the necessary "structural urban economics" training in to their courses.

Readers will be aware that Professor Shlomo (Solly) Angel, Adjunct Planning Professor at New York University Wagner - and co architect (with the late Steve Mayo) of the important United Nations and World Bank Unban Indicators Programme and author of "Housing Policy Matters" - at my request, kindly contributed the Preface to this years Demographia Housing Survey.

Its pretty clear to me that we need to get Solly out to this country - to discuss these issues with the Government - and have him speak to our industry groups, professional bodies and tertiary institutions as well.

I would be most interested in learning of others (particularly the professions outlined above) views on the issue of incorporating better economics / structural urban economics training.

Hugh Pavletich

California Update - i should have mentioned this within the original article - but I finally got around to checking out the California Building Industry Association (go check it out on the web) report on residential permitting for the month of February - and what an appalling story that is. Unbelievable.

For February - the total residential permits issued was 2298 - annualized 27,576. With its population of 37 million - that represents an annual build rate per 1000 population of 0.74 (near where the United Kingdom will likely collapse to this year).

If New Zealand (population 4.3 million) was permitting at the current California 0.76 / 1000 - 3,268 permits would be issued on an annual basis - down from the current 12,000 and the 30,000 mid 2004 peak.

If the United States overall - with its population of 305 million - was annually permitting at the current California annual rate of 0.76 / 1000 rate - just 231,800 permits would be issued nationally - down from the current 513,000 and the bubble peak of 2.27 million.

It needs to be borne in mind that California with its 37 plus million population has a usually occupied housing stock of 13 million (about a high 2.85 per household - Australia got down to 2.6 per household in the late 1990's). It should be replacing at least 70,000 units annually - so its current build is well below replacement.

It would seem that this is a recipe for social unrest. I was in Los Angeles mid last year - and couldnt believe the tension in the place. Very spooky indeed.

has anyone downloaded the full (158 pages!) OECD report? I understand there is a cost to doing so
It would be interesting to see in more detail their comments about housing in NZ...

the e-book version is 39 euros!!!! shag that
would be interesting to read the full report though, libraries might get a copy I guess

did anyone else see the house price stats in the Sunday star Times today?
interesting reading, seeing price movements since 2007 by suburb
Quite a few suburbs have hit 13-15% declines already, some even larger. Of course there are a few that have increased slightly or remained about the same, which balance out the overall median
Kieran - like me you'll be looking forward to seeing the March immigration stats this week - I reckon they will come down from 1700 (net) to about 1000 (net) for March

Matt- yes it will be interesting to see what the figures are and what sort of spin the media put on it.

Kieran - my prediction...
It will be around 1000, they will turn around and say (correctly) that the increase in March was distorted due to students - of course we all knew tht anyway and they didn't explain that when they released Feb's figures,all they did was a simplistic "January was 700, MArch was 1700, immigration is booming!!!"
Tony Alexander will still belt on about how, as the year moves on, immigration will increase due to expected waves of returning expats...
just you wait

Matthew - Hugh might be able to correct me if I am wrong, but I think the 532km figure is probably all the URBAN land in the Auckland region, ie. excludes the sizeable rural land area. The 1000km figure is probably the whole region including all rural land
I am assuming Hugh has used just the urban land area as including rural land area would distort the density figures

I think its reasonable to compare to USA, Aus and Canada...NZ shares much more in common in terms of history and form of development with these countries than the "old world"

thats not to say the densities of Europe aren't worth looking at as well -

Interesting to see in the report that Hamilton has a higher density than Auckland!!!!!

Neven911, sorry for stereotyping you. I agree with a lot of what you say.

Sorry to overdo the postings - I will try to keep it down in future.

If I could just make one plea to everyone, it would be this: Please visit Alain Bertaud's site:

http://alain-bertaud.com/

and read his papers on these issues; starting with "Clearing The Air In Atlanta"

Strummer, apologies for labelling you too. I'll be glad to respectfully run through your points.

You say:

"....I am looking at this from my local perspective in Wellington. You have to get as far as Kapiti and the end of the Hutt Valley to find fringe land suitable for development and it's already being rezoned and built on - 800 houses in Waikanae North, for example. Freeing up more land out there will have no effect on prices closer to town, as the free market demonstrates that people will pay a premium to live there...."

Seriously, what I am trying to say is that the house price issue is important enough that housing development should have been made a "permitted use" of any saleable land long ago. Let developers and their customers decide what is "land suitable for development". What the status quo gives us is new developments proceeding wherever, only after lengthy wrangles to get the use changed -this has a material affect on the resulting prices of all new sections. I predict that in another 10 years, there will be more developments in areas that you presume are not suitable, like around the Johnsonville, Churton Park and Woodridge areas; and again, the section prices will end up at well over $200,000. But Hugh's point is that it is possible for developers to make a profit at prices well below that, if the local authorities are "planning" for it.

".....(satellite cities)....not a bad idea, even though I have lived in some in the UK. Unfortunately they do not cause a reduction in the cost of housing in the areas they are satellites to. In fact, after a while, the cost of housing in the cities drives up the cost of the satellite towns. My house in Crawley doubled in "value" over three years as prices in London skyrocketed and people realised they could live in Crawley and get to London Victoria in 40 mins on the train....."

Yes, but would house prices available to first home buyers be higher or lower if Crawley had not been built at all, and it was assumed that the desired objective of higher densities in London would be forced by not building Crawley? The UK is a terrible example; prices in places like Crawley would not skyrocket if only the authorities allowed sufficient new development.

".......how can it be leftie green elitist sneering to point out that the American dream of suburban sprawl isn't something we necessarily want here?...."

OK, apologies for labelling you. But isn't there a New Zealand Dream? Isn't there a clear and obvious preference for the way New Zealanders prefer to live?

".....You assume that I do not want people to have affordable houses? Where did I say that?...."

OK, what is your plan for affordable houses? Please do check out Alain Bertaud as I recommend above if you find my arguments unreadable. You really have to understand urban economics to realise what are the mechanisms that affect the cost of dwellings anywhere. Urban density profiles as studied by Dr Bertaud show that the cost of higher density dwellings closer to urban centres (or rather, the land they are on) IS so adversely affected by the prices for fringe land, that when there is not cheap fringe land, the desired infill development closer to the centre ends up not happening because no-one can afford the resulting properties.

I am sorry that my barrages of comments result in no actual discussion of such an important point.

May I suggest you read the discussion between Chris j and myself on todays thread posted by Bernard on the Master Builders Interest Free Home Loan idea. I have plenty to say here regarding the nonsense from the Master Builders - but more importantly - the discussion with Chris j deals with "fringe subdivision costs" - and particularly, what they should be.

Mathew - electric cars are already on the market in NZ (they are made in Australia) Nick Smith Minister of Enviroment drives one and says "I see electric vehicles as being part of the long-term solution to help New Zealand make the transition to a low-carbon economy and reduce our dependence on fossil fuels."
http://www.stuff.co.nz/nelson-mail/2298712/Environment-minister-puts-plu...

We are blessed in NZ to have an abundant supply of rivers for cheap hydro electricity we could easily double or triple the number of Hydro stations especially in the North Island Wanganui and Rangitekei rivers, We just need to reform the RMA. Electricity is the way of the future.

Interesting...apparently Harrison Grierson prepared a study for the Department of Building and housing last year that looked at the supply of housing in Auckland and constraints to supply
I have contacted the Department, they are treating it like a top secret classified document, apparently it has just been released to Councils but with the Caveat that it can't be released to the public
Very fishy indeed....

neven911 Says:
April 19th, 2009 at 12:26 pm

".....I have to disagree about massively improve public transport options. In short - we've gotta get Aucklanders and Wellingtonians in particular outta their cars

What you are stating here is a politcally driven mantra not an environmental one.

Firstly as an urban density increases the requirement for all transport should drop, so the need for public transport should decline, ie "good" public transport is in itself counter productive to a sustainable life style

Secondly an intra urban bus in Auckland carries on average 5 pax per K travelled, it is essentially a 10 metre long expensive heavy chauffeured limo. So it is not only economically expensive (k for k a first class airfare is cheaper than a bus) but not energy efficient, the conundrum here is that the only way to make PT more "˜efficent' is to carry the pax further! Hence the rail mantra.

Thirdly road damage is proportional to the 4th order of axle weight, so your bus does far more roading damage than it would appear......"

You are onto it, Neven911, have you read "Does Mass Transit Save Energy?" by David S. Lawyer....?

I recommend.

Kate - good idea, once I get it I'll share the top secret information!!!

Matt in Auck - you might find this useful:

http://www.ombudsmen.parliament.nz/internal.asp?cat=100033

It is 20 working days, but beware being specific and particular - don't waste your time.

If you think you are getting fobbed you can appeal/complain through the Ombudsmens' office.

It'll be interesting to see how much of the info you receive is 'blacked out' and then compare that in X months/years time with why it may have been deemed necessary to black stuff out. So keep what info you get and monitor once you kick off.

Good luck.

From the abstract:

"The key conclusion of this research is that there is a significant mismatch between anticipated growth and the current composition of residential supply capacity given current zoning and anticipated population growth. Both conventional density and medium density sites are projected to be exhausted quite quickly in Auckland, North Shore and Manukau City requiring either changes in the location or
density of development"

Matt, Les and Kate..................

I can only imagine Matt that I would be the last person on the planet, they would want seeing this report!

No I hadnt heard of it.

Dont be surprised if it is one of those meaningless "years of supply" execises - deliberately estimating supply requirements at the current Rolls Royce section prices ($200,000 plus).

You can be absolutely sure that there will be no estinates done at affordable section pricing($40,000 - $60,000). In fact I would be most surprised if the word "price" is found in the report at all.

Indeed - a large part of the reforms going forward must deal effectively with the huge issues of quality research and information surrounding Local Government and housing.

Once again - many thanks Matt,

Matt - well its good if they are at least saying that.

The major focus however must be an openning up the fringe land supply to substantially reduce the "artificial scarcity values" - of one or two million dollars or more per hectare for raw land - so that over time, these prices move back to slightly above their rural value.

The Government must ensure that the appropriate regulatory mechanisms are put in place - so that a clear message is sent out to the market, that these artificial scarcities on the fringes are a thing of the past.

Land supply must be responsive and reviewed at least annually - so that these artificial scarcities do not build up.

As reported in the NBR last Friday - Hon Bill English stated that work has already started on getting in place sound infrastructure financing structures for Local Authorities. As part of this work, I would expect that the Government is examining the United States Municipal Utility District (MUDs) structures - to see how they can be adapted to suit our local conditions as well.

As English quite rightly stated - the biggest "blocker" to this is the "capacity building" required within the public service at both central and local level - in getting these sound infrastructure financing arrangements in place.

The bureacracies should have been on to this long ago - particularly when one considers that they are paid considerably more than their counterparts in the United States and Canada.

They cant get Kiwi public servants to work in Canada for example - because they earn far more here in New Zealand - a public servants paradise!

Its long overdue - that as we are clearly overpaying them - the very least we should start expecting is PERFORMANCE (my favourite word in the English dictionary after "clarity").

As part of this change process - it is my strong view that there is a need to significantly simplify the central government structures dealing with Local Government, abolish the Regional Councils and get in place something along the lines of a Local Government Performance Authority - with a clear mandate and souund governmance and management.

As part of this "simplifing central government structures" - Housing NZ should not be involved with poicy advice and the Audit Office should be taken out of matters dealing with Local Government and the Resource Management Act.

There are no doubt many other itsy bitsy outfits at central level that need to be shut down as well - currently dealing with Local Government.

Just changing and tweaking legislation is not enough.

As we all know - Local Government has had a long and sorry history in its attitude to legislation that doesnt suit it (the RMA and its clear intent - being the classic example).

It needs to be clearly understood that the issues we are dealing with are not "legislation problems" - but are instead "political / performance culture problems".

This is why there is the need for an effective oversight body along the lines of the LGPA Im suggesting.

Until our current hillbilly local government culture is sorted out properly - Hon John Key and his team can forget about getting this country back on its feet again.

And quite clearly - thay must get the changes in place this year. They have a lot of work to do.

Having been a part of the Online Universal Work Marketing team for 4 months now, I'm thankful for my fellow team members who have patiently shown me the ropes along the way and made me feel welcome
www.onlineuniversalwork.com

Houses are not very cheap and not everybody is able to buy it. But, credit loans was invented to support people in such situations.