Post RSS Feed 
Podcast Feed
Opinion: Americans still ignoring structural housing issues as Kiwis react to prevent more bubbles
November 13th, 2009
By Hugh Pavletich
Within this article - The Comprehensive State of the U.S. Housing Market: Learning to Love the Housing Data and Forgetting the Economic Facts. Everything you wanted to know about U.S. Housing Trends. » Dr. Housing Bubble Blog – Dr Housing Bubble (based in California) asserts that of the 129 million residential units in the United States – some 15,950,000 are vacant – and therefore overall the United States has a huge oversupply of residential stock.
There are other United States commentators making the same assertions – for example Colin Barr of Fortune magazine in Housing market still faces a big glut – Nov. 10, 2009.
The US Census Quickfacts (Texas page – with US figures alongside) states that the 2008 US population estimate is 304,059,724 and that the persons per occupied household in 2000 was 2.59.
As societies become more affluent, persons per household should fall (note Texas persons per household is slightly higher on these 2000 figures at 2.74 per household – likely due to the higher Hispanic population with larger families).
Conversely – through these economic downturns – it is likely that household sizes would increase somewhat.
For example – if the persons per household overall increased from say 2.59 per household requiring with the current United States population around 117.3 million residential units – to say 2.79 persons per household (as economic conditions worsen) and using the US 2008 population estimate of 304 million as a guide – just 109 million residential units would be required for occupation, around 8 million less than was occupied during the peak of the boom.
Further to this – significant numbers of second/vacation homes would no longer be required, as households struggle to lower their expenses through this economic phase.
As an example – during the decade of the 1990’s in Australia – as people became more affluent and family sizes decreased, household sizes moved from around 2.8 per household to around 2.6 per household – a factor that was a big driver of the residential construction industry in that country. Australia’s population increased by about 12% through this period, as its housing stock increased by in excess of 22%. (Access Australian Bureau of Statistics for further information.)
In being conservative – and in going back to the United States Census 2000 figures for household size overall at 2.59 persons per household, with the estimated 2008 United States population at 304,059,724 – this would suggest that at least 117,397,576 of the current total residential stock of around 128 million (using Census 2007 numbers) is occupied.
My understanding is that there are approximately 10 million second/vacation homes in the United States – something Dr Housing Bubble and other “oversupply” commentators don’t appear to mention.
Property commentators “estimates” are always interesting of course – but - along with my own – should be treated with great caution.
THE REALITY IS THAT THE ONLY TRUE MEASURE OF SCARCITY AND ABUNDANCE – IS PRICE.
Over the years, Dr Housing Bubble and many other American commentators have persisted in ignoring the glaring contrasts of the California and Texas housing markets (to illustrate – refer latest Houston Association of Realtors Monthly Report ) – where through the recent bubble years, the former bubbled out to in excess of 9 times gross annual household median income, while the latter housing stock stayed pretty much constant at 2.5 times household income.
The Annual Demograpghia Surveys (5th Annual Edition), the Harvard Median Multiples and many other income to house price studies (e.g. Randal O’Toole of Cato’s extensive work), clearly illustrate that if housing exceeds three times annual household income – there are supply constraint issues to be dealt with.
It appears too that Dr Housing Bubble is “baffled” why California had such an inordinate share of sub prime, Option ARMs and other grossly distorted mortgage structures, and delights in blaming the Bankers (banksters as he sometimes refers to them) for the unholy mess that is California – the epicenter of the Global Financial Crisis.
As stated previously – households should not spend any more than 3 times their gross annual household income to house themselves – and importantly – not load themselves up with any more than 2.5 times their gross annual household income in mortgage debt.
It has not dawned on Dr Housing Bubble to date – that as the California bubble inflated – financial institutions simply had to increasingly lend outside these historic norms – if they wished to maintain market share.
Understandably – the financial institutions in no doubt being acutely aware of the risks (sorry DHB – these people are not dumb) of this high multiple lending – were very keen to securitize it – and off load the risks to others. The only mistake they made was not offloading the risks adequately or fast enough! Herb Greenberg outlines this financial circus in Straight Talk on the Mortgage Mess from an Insider – Herb Greenberg – MarketWatch.
It appears too that Professor Robert Shiller of Yale University is “terribly conflicted” about what is happening, if his recent extraordinary Fox Business television interview (Shiller on Housing: ‘I am Terribly Conflicted’ « Glick Report) is any guide.
Meanwhile – as the Americans are continuing to be confused and conflicted – in Australia and New Zealand there is now widespread recognition there must be structural changes put in place to ensure that these disastrous housing bubbles don’t get underway again (refer Performance Urban Planning for access to New Zealand Government statements. For recent Australian news and reports – refer Bottlenecks choking recovery | The Australian , More houses, not taxes | The Australian , AdelaideNow… Home ownership dream fading, say Flinders University researchers …)
Yet the Americans seem to persist in ignoring the real structural issues – and instead are choosing to “paper over the cracks” by financially bailing out everything in sight. Thanks, in no small measure, to the benevolence of the Chinese.
Why?
—————–
Hugh Pavletich, FDIA
Performance Urban Planning
Christchurch, New Zealand
Tags: House prices, Housing Affordability, housing bubbles, Hugh Pavletich
You may also like to read:
Loading ...
November 13th, 2009 at 12:28 pm
Hugh : Altogether way too long since we last heard from you . I watch a bit of CNBC in the wee small hours , and I get this impression that there is a mass hypnosis happening in the US . They earnestly believe the recession is over , that the Fed saved them , that the ” green-shoots ” are for real . Occassionally a contrarian voice pops up , bond trader Rick Santelli , or money columnist James Grant , and then all hell breaks loose with the resident panel of head bobbers .
I checked out homes for sale in Detroit . It is ugly ! 1000’s of solid 3 b.rm. houses for a little over $ 10 000 US . No jobs within a 100 mile radius . And there is the nub , 10 % unemployment across the country . The rate is declining , but it is not reversing .
November 13th, 2009 at 12:39 pm
Roger, I think you misinterpreted Hugh. Let me see if I can help.
Vacant homes in the US has nothing to do with employment or unemployment – but everything to do with house prices, for example, forced up in California by failure to expand housing stock out-out-out into the ‘greenfields’ forever.
People in the States are not losing their houses due to job failure and an out-of-control amount of risk taking by the financial sector, but due to regulatory authorities who have strangled supply through ‘protectionist’ regulation.
If the folks in California had paid $300,000 instead of $700,000 for their homes, they would still be in them regardless of the massive job losses occuring there.
November 13th, 2009 at 1:42 pm
Misinterpretation probably happens – because – the readability of this post – is -highly affected- by the overuse of hyphens – even when not required – it is only lucky that – having read his earlier posts – we should all know his position by now.
P.S. Bring back the comma, please!
November 13th, 2009 at 2:19 pm
Roger – I was overseas July through October and am now back in the best country in the world, endeavouring to come up to speed with the issues.
Kate – thanks for the clarification. The two major points I wished to convey are (a) Australia and New Zealand are way ahead of the United States in thinking through needed structural changes and Britain, Ireland and Canada for that matter – (b) – Price is the true measure of scarcity or abundance.
And Annabel – I deliberately cut back on the hypens in this response!
November 13th, 2009 at 2:37 pm
Hugh,
thanks for the link to Shiller.
Some interesting comments
“Things seem to be working right now but we’re in a GRAND experiment.”
“things are violating the laws of things I’ve learned”
“I don’t know what to make of this”
“Invite me back in 6 months”
November 13th, 2009 at 3:34 pm
Misinterpretation probably happens – because – the readability of this post – is -highly affected- by the overuse of hyphens – even when not required – it is only lucky that – having read his earlier posts – we should all know his position by now.
P.S. Bring back the comma, please!
here here. Easier to read my tea leaves!
November 13th, 2009 at 4:04 pm
Well Hugh : To bring you up to speed . The weather has altered whilst you were away , some say global warming . I hypothesize an annual change of seasons , from winter to spring . Other than that , we are still running on the spot , economically speaking , in a time-warp , until 2011 . It appears that as Jelly Key feels he had no mandate to alter anything , any financial reform , in this 3 year cycle , he is obliged to do nothing . Wild Bill has woken up to the fact that our ponzi-housing bubble has unbalanced the economy . And Wally is still mad as a ferrett chasing chickens in a custard factory ( thank God for that ! ) .
[ And some spammers keep trying to unload substandard UGG boots on us , when summer is just 2 weeks away ]
November 13th, 2009 at 4:17 pm
Are you all as excited as I am…..the monkeys are back in the House Nov 17….hope I can wait that long. Better than the soaps. My money’s on Hone doing his bun.
November 13th, 2009 at 4:23 pm
And up he pops . Our little Wally-in-a-box . ……… . Glad to be back now , Hugh ? Maybe more duty-free grog , and a sit in a warm corner , with the ugg boots , and you’ll be feeling fine .
November 13th, 2009 at 4:41 pm
Is it P.O.E.T.S. day , Bryan ? ( Piss Off Early , Tomorrow’s Saturday ) : ‘ Cos UGG & Co . are getting alot of free advertising today .
November 13th, 2009 at 11:58 pm
Well, I want to test one of Hugh’s two theories.
“THE REALITY IS THAT THE ONLY TRUE MEASURE OF SCARCITY AND ABUNDANCE – IS PRICE”
So, in a situation in which there is a constant population, and a fixed number of houses, am I right in saying that scarcity and abundance would be constant?
If your theory is correct, I assume that also means that house prices would also be constant.
Is that your assertion?
If so, I think it is incorrect. As we have seen, house prices rise when there is an expectation of rising prices, and when people have an expectation of a capital gain.
When that speculative bubble pops, the process reverses, and prices fall.
Yet the scarcity and abundance have remained constant.
Therefore prices are not a good indication of scarcity and abundance.
November 14th, 2009 at 12:51 am
Steve Netwriter – use the hyperlink within the article through to the latest Houston Association of Realtors Monthly Report – and explain why even with increased sales and dollar volumes yoy, house prices have stayed constant at around $US155,000?
November 14th, 2009 at 8:01 am
Steve,
http://baselinescenario.com/2009/08/18/vermont-texas-and-subprime-loans/
Combine perceived scarcity with an ability to leverage and hey presto, instant bubble
Take away the ability to leverage as much and prices stay much lower.
November 14th, 2009 at 8:13 am
Steve Netwriter – “prices are not a good indication of scarcity and abundance”
I think you’ll find in any free market prices are THE BIGGEST indicator of scarcity and abundance. I have never seen a free market where increased demand and/or decreased supply hasn’t led to an increase of prices, and I have never seen a free market where decreased demand and/or increased supply hasn’t led to a decrease in prices.
However, there are lots of other factors and with housing these include interest rates, replacement costs, job security, market sentiment etc so even with a constant population and fixed number of houses it is possible to have changing prices, but the main drivers are still supply & demand. Interest rates, replacement costs & job security/employment also operate on supply & demand.
November 14th, 2009 at 8:38 am
Hey Roger, I think your view of Detroit is skewed… “I checked out homes for sale in Detroit . It is ugly ! 1000’s of solid 3 b.rm. houses for a little over $ 10 000 US . No jobs within a 100 mile radius . And there is the nub , 10 % unemployment across the country . The rate is declining , but it is not reversing .”
I looked at houses in Detroit in 1998 – prices/rents were low, houses were big, but the city was down to 1million people from a previous 3million so it has been struggling to survive for many years, let alone maintain house prices at any reasonable level. The problem existed well before the recent downturns. Perhaps a better comparison should be drawn from Sterling Heights (15 miles out from Detroit) where demand & price was normal in 1998, and the impact of recent recessions should be visible.
November 14th, 2009 at 8:40 am
testing my new broadband only !
November 14th, 2009 at 9:08 am
Kate
You were being sarcastic weren’t you? Or do you subscribe to Hugh’s mantra that everything will be fine as long as we sprawl
Neven
November 14th, 2009 at 10:35 am
Neven – I don’t subscribe to it – was just repeating it.
November 14th, 2009 at 12:12 pm
Kate and Neven911 – may I suggest you go to the California Building Industry Associations website for thir Report on permit activity for the month of September. Its a shocker.
And while you are at it, Google News Search “california economy”.
They have again revised their estimates downwards for the 2009 year, with just 37,700 permits expected.
With its population of around 37 million, this represents a build rate per 1000 population of 1 per 1000. If we were permitting at that rate, just 4,300 would be issued in a year, for Australia 21,000, Britain 61,000 and the United States overall 304,000.
I think these are the lowest permitting rates per 1000 population in the developed world in recorded history, well below those of the Great Depression years.
No wonder California has 12% unemployment.
Is there anything we can learn do you think when we compare the performances of Texas and California?
November 14th, 2009 at 12:45 pm
Hugh
What are you trying to say, that California would be fine just as long as they built even more houses in areas people can’t afford to commute to let alone pay for, this would be some sort of ‘perpetual motion’ economy where they employed everyone building houses that no-one could afford
This sounds like the plot of a Goodies episode, hey hang on it is the plot of a goodies episode.
The US is screwed they have survived economic overshoot by importing deflation from China and ‘pumping’ their own masturbatory economy (that’s the technical term for playing with oneself), The ‘Dump’ is going to be ugly
Neven
November 14th, 2009 at 12:48 pm
Hugh,
It seems to be my time for writing articles.
I’ve replied more extensively here (although this isn’t my job and it’s the weekend):
Factors Affecting House Prices by Steve Netwriter
http://neuralnetwriter.cylo42.com/node/2361
I assume you agree that changing regulations to make land more available for building would be most unwise at the start of a decade long worldwide depression, when house prices are falling, and supply is outstripping demand.
The absolute worst decision possible.
Gibber,
Thanks for that
I don’t really have the time to answer questions like that, and you’ve done it for me beautifully
Murray,
What is your evidence for that claim “THE BIGGEST indicator” ?
We’ve just seen a massive worldwide housing bubble, in which prices have risen without massive scarcity.
I suggest recent evidence suggests that cheap available credit and “investor” psychology are by far the biggest factors.
November 14th, 2009 at 12:53 pm
Drew : Detroit has been declining for 50 years , sure . But the houses I saw were fine , solid looking , properties of less than 20 years age . ” Ugly ” is the situation there , not the aesthetics of the locale . Plenty of bargains to be had in green leafy suburbs . Latest stats. suggest a population of 800 000 , now . Sad !
November 14th, 2009 at 4:15 pm
Steve Netwriter,
Either – start increasingly building more affordable stock to wind out of these bubbles, or ignore the real structural issues completely as the Americans are currently doing and get the next bubble underway.
It is going to take years and years to dig ourselves out of these bubble holes.
Have a read of the comments to the Dr Housing Bubble article I have provided the hyperlinks for within the article.
Note how the speculators are already winding back in to parts of the California market. They know as well as I do, that there is not likelly to be any new affordable housing stock coming on stream anytime soon to compete with it.
You only need to read the latest horrific market report out of the California Building Industry Association to see that. A shocking build rate of just 1 unit per 1000 population a year – well below replacement. The worst in recordee history – anyhere – as best I can tell.
Meantime New Zealand is spluttering along at a lousy build rate of less than 4 / 1000, when it should be approxinately 6 / 1000 through to 8 / 1000 through the normal building cycle.
November 14th, 2009 at 9:02 pm
Hugh
What is our population per household
November 14th, 2009 at 10:30 pm
Steve Netwriter – I was talking about any free market, not just the housing market. And you don’t need “scarcity” to have increasing prices. All you need is demand exceeding supply. Supply could in fact be increasing (housing stock doesn’t usually decrease), but if demand is increasing at a faster rate there will still be upwards pressure on prices.
I did say that interest rates etc are factors, but “cheap available credit and “investor” psychology” only add to demand at the time.
Property prices don’t double in value when interest rates are 5% and credit is easy, then halve in value when interest rates reach 10% and credit is tight again.
However, double the population in a short time period and watch what happens to prices, or conversely, halve the population in a short time period and watch what happens to prices.
The thing with property is that due to the length of time taken to get consents & builders & actually build a house, there is a 1 to 2 year lag between increased demand and increased supply, so there is usually quite a head of steam built up. The same happens at the other end of the cycle, the demand has long since fizzled out but once people are committed to building they generally have to see it through and an over-supply eventuates.
It’s also not just the equation between population & housing stock – even in a constant population if there are more people willing to buy (demand) than sell (supply) prices will increase & vice versa.
November 15th, 2009 at 12:10 am
Hugh Pavletich Says:
“The two major points I wished to convey are (a) Australia and New Zealand are way ahead of the United States in thinking through needed structural changes and Britain, Ireland and Canada for that matter”
Does this mean the lobbyists from the Property Council have been successful?
November 15th, 2009 at 12:52 am
All jokes aside guys – affordable housing is a very serious issue. How about keeping it solutions focused.
Household size I think in NZ would be about the 2,7 mark at the moment.
November 15th, 2009 at 7:15 am
New Zealand was founded by conquerors who used religion, guns and paper to expropriate land for nothing and build family empires. Wealth has always come at a cost to somebody else. Such a model is not sustainable because local wealth is soon exhausted and the host begins to feed on itself. We need to get back to first principles and clear away the wreckage of the past. If this culture is to endure it needs to start over again. We need to move beyond words and provide the first people’s of this country an opportunity to stand alongside pakeha in an equitable power-sharing agreement. A house built on sand will never stand. It matters little how much the castle costs.
November 15th, 2009 at 8:01 am
Doug
so true if the colonial masters of the past ripped off the minority of the time (Maori) through share weight, technology and numbers, you would think we would have learned a lesson or two. After all, the profits then went back to the mother country (England) and the generations of NZ’ers beyond had to pay the market price in 1990’s and beyond. Pushing the debt into the future seems to be a common theme. The greying colonial masters today may as well boil up their grandchildren and eat them live on national prime time TV. And so still few would wake up to the injustice and irony that this is defying all the principals that we claim to make us humane. If it was about colour, it is now about age.
November 15th, 2009 at 8:56 am
Hugh Pavletich Says:
November 15th, 2009 at 12:52 am
All jokes aside guys – affordable housing is a very serious issue. How about keeping it solutions focused.
This is what Gareth Morgan says in Pension Panic:
“Instead of being driven by sustainable fundamentals, the rising prices depended on soaring increases in debt, a risk mostly borne by new entrants to the housing market. These recent entrants (those who bought after 2002/03) are the real losers from the feeding frenzy — if they can hold on to their house, they may face may see negative equity for years to come. Eventually the supply of suckers — whoops, sorry I mean new buyers — willing to take on the crazy debt necessary to buy a house would run out as they realised they were better off renting.
But before the supply did run out, the bankers were brought to their senses anyway by the offshore credit crunch and its demolition of banks. In New Zealand, banks summarily stopped lending to suckers. The only way to keep housing prices on that sort of trend would have been a much greater stream of immigration (providing a steady supply of people to keep up demand for housing) — something, incidentally
financial-sector folk are now lobbying the government to stimulate.”
I don’t suppose developers are leaning on the government by any chance?
November 15th, 2009 at 9:03 am
The only thing we can rely on developers to do is spread like a disease; extract maximum profit; live elsewhere (in a mansion) .
November 15th, 2009 at 9:25 am
jh – thats an interesting assertion by Morgan regarding the finance sector folk lobbying the Government to lift immigation levels – certainly something I havent heard of. And there has been no feed back coming my way regarding the property sector folk doing the same thing.
Can you enlighten us on who in the property and finance sectors is lobbying the Government to lift immiigration?
Bear in mind jh it will likely take us 10 – 15 years to get out housing markets back to a normal state, where people dont have to pay any more than 3 times annual income to house themselves and debt load themselves to more the 2.5 times their annual gross income.
My sense is that people generally are fed up with the housing markets being bubble casinos and that playing this game in loading themselves up to the eyeballs in unnecessary debt, is no more than fools gold road to wealth destruction.
And I think people may have learnt something over these past few years with the raft of bubble bunny developers with their bubble bunny financiers who have gone under – taking the life savings of too many small investors with them. The good people got out of the market when the bubble got underway, because they were smart enough to know just how dangerous they are.
In any event, the Fitch Ratings Research commissioned by the Sydney Morning Herald following the 2007 Australian Federal election, found that it was the electorates with excessive mortgages that threw the Howard Government out. I made reference to this within my March 2008 Paper “Getting performance planning in place” (refer my website).
November 15th, 2009 at 9:31 am
jh – that’s possibly a bit harsh on developers, the margins on developing land and doing house & land packages are wafer thin. The ever increasing cost of new houses has a lot to do with ludicrous council fees, consent processes, new regulations (like double glazing, cladding cavities etc), rising labour costs, rising material costs (particularly any product derived from oil) etc etc etc……
November 15th, 2009 at 9:34 am
The olde (greedy) kiwi tradition
http://www.teara.govt.nz/en/rural-language/3
November 15th, 2009 at 10:51 am
Hugh – welcome back! Strange to see you stirring things up a bit…. Cheers, Les.
November 15th, 2009 at 10:58 am
Hugh Pavletich Says:
November 15th, 2009 at 9:25 am
“jh – thats an interesting assertion by Morgan regarding the finance sector folk lobbying the Government to lift immigation levels – certainly something I havent heard of. And there has been no feed back coming my way regarding the property sector folk doing the same thing.
Can you enlighten us on who in the property and finance sectors is lobbying the Government to lift immiigration?”
I never disclose my sources. Anyway it must be working as Minister Cunliffe has proclaimed that “immigration is good for everyone” and he has the equilibrium analysis to prove it. Apparently GDP is the measure of well being and immigration increases per capita GDP* (so we are all better off even when the property Council get their wish of raising height restrictions and shade the neighbours clothesline ).
http://www.treasury.govt.nz/publications/research-policy/wp/2006/06-02
November 15th, 2009 at 11:21 am
What is so wrong with immigration . We are an underpopulated country . And an aging population . Immigrants can offer much to us in youth , enthusiasm , skills and entrepreneurship . A side benefit is demand for housing………Win / Win as they say .
November 15th, 2009 at 12:04 pm
Murray,
“Property prices don’t double in value when interest rates are 5% and credit is easy, then halve in value when interest rates reach 10% and credit is tight again.”
Looking at the US:
http://neuralnetwriter.cylo42.com/node/2359#comment-1890
I see no evidence that scarcity/abundance was in any way a major contributor to that bubble.
As I think I showed above, price is not a good measure of scarcity/abundance.
Hugh,
If I understand your argument correctly, you are suggesting we build our way out of this housing price bubble. Is that right?
I can understand a concern about replacing old housing stock. But as a country we need to earn money to pay for that, before we do it.
It is my view that the house price bubble here will be self-correcting. ie house prices, in real terms (and that is an important point), will fall significantly.
There are plenty of available empty properties in the US. There will be no need to build affordable houses. The current stock will provide them, as has happened in the US.
This is of course a side issue. The real issue is why people feel it necessary to speculate. The reason is because they know leaving currency in the bank will result in them becoming poorer.
Seeking solutions should start by seeking the REAL causes.
November 15th, 2009 at 12:13 pm
Roger,
That is the unsustainable solution of the last 200 years.
IMO a population density so much lower than places like the UK is what makes this country such a great place to live.
Relying on a population increase is unsustainable because energy requirement = f(population, standard of living).
It’s unsustainable because of……………PEAK OIL.
And we are already way past the time we should have started acting.
Oh, and what is good about increasing demand for houses?
That tends to push prices up, which makes them less affordable, and diverts currency from productive investment into borrowing for property.
November 15th, 2009 at 12:14 pm
@Roger – we’re not underpopulated, just less overpopulated than most.
Given our emissions targets, every new immigrant means that those already here must cut their carbon consumption even more.
Increasing the population leads to the loss of freedom.
Want to go ‘freedom camping’ these days? Well tough, you can’t because councils have had to clamp down due to the mess caused by too many people doing it.
Want to walk one of our popular tracks? Just put your name down on the waiting list.
Want to park in your local town to go shopping? Well you’ll just have to pay because there isn’t enough space for everyone.
It increases GDP by increasing the need for more expensive infrastructure, but does little about paying for it. A big con, like the ‘bridges to nowhere’.
Want to use water? Well, you’ll have to pay by the litre because we don’t have enough for everyone to use what they like. And we’re going to have to build a new dam and flood that nice piece of bush because the population has to keep on growing – it’s good for everyone! And by the way, your water charges have to go up again to pay for it.
Yeah right.
November 15th, 2009 at 12:24 pm
GailM – couldn’t agree more! And underlying this ‘growth is always good’ myth is the adopted measure of a society’s success – GDP. We need to throw out that measure – and instead start planning based on environmental carrying capacity. If we simply measured this based on freshwater supply without further intervention – we’d have so many communities at capacity that I think many people would be extremely surprised.
This ‘growth is always good’ mantra is, IMO, capitalisms great problem.
November 15th, 2009 at 12:26 pm
When does it end?
“The full extent of plans to cut the Green Belt across large swathes of England can be revealed for the first time. ”
http://www.telegraph.co.uk/news/6569414/Green-belt-threat-to-27-towns-and-cities-revealed.html
November 15th, 2009 at 12:37 pm
History shows that if you did not prostrate yourself to having your money supply monetised by the private central bankers you were left to languish without modern technological advances, and if you did prostrate yourself, you were allowed to exceed your capabilities to physically sustain yourself due to excess liquidity of created credit. The sad thing was then when the bankers have finished with you, you a returned to the beginning, with much of your modern technologies sitting in the local tip and necesities of survival in disarray, and with massive residual debt obligations hanging from your neck like a ball and chain.
Which is very much what is going to happen here if the sort of submissive behaviour displayed here is allowed to continue
http://www.interest.co.nz/ratesblog/index.php/2009/11/13/interview-labours-david-cunliffe-talks-on-banking-inquiry-monetary-policy-and-tax-reform/comment-page-1/#comment-47306
November 15th, 2009 at 12:43 pm
Steve Netwriter – “IMO a population density so much lower than places like the UK is what makes this country such a great place to live” – I’ve heard it said before that the best thing about NZ is the lack of people, and the worst thing about NZ is the lack of people……
“what is good about increasing demand for houses? That tends to push prices up” – I thought you said it wasn’t about demand?….
Kate – I agree the notion that GDP must always increase, and going in to recession must be avoided at all costs, seems absurd…..
November 15th, 2009 at 12:58 pm
Yeah it sure is a warning isn’t it JH but you can expect our fatheaded govts to opt for the policy of following the stupidity displayed by the morons in London. A check of Green Party policy and we see this telling statement…”Ministry of the Environment current modelling estimates put our carrying capacity at 5.7 million”…and the Greens think that’s ok…no doubt they made sure the “modelling” amounted to more than throwing a dart at a dart board, or asking for the number to be provided by govt…Since just over 4 million currently live here and about 1 million think it wiser to live somewhere else! ( a sign of things to come)…it seems as though the Greens would say “goody goody” to another 1.7 million living here! So there you are JH…1.7 million set to turn up to a street near you…something to look forward to isn’t it? I didn’t bother looking at policy of the other parties because we both know they intend to stuff in as many migrants as possible. All in all, I would say Noddyland has a future of violence ahead of it as groups start to fight back against stupid govt policy with whatever weapons they can grab.
November 15th, 2009 at 1:16 pm
I offer you this ponder if there is anylonger a Right or Left, but only Right and Wrong:
Cherep-Spiridovitch cites an interview with the German chancellor Otto von
Bismarck in 1876.
German Chancellor Otto Bon Bismark said upon President Abraham Lincoln’s
assassination: “I fear that foreign bankers with their craftiness tortuous
tricks will entirely control the exhuberant riches of America and use it
systematically to corrupt modern civilization. They will not hesitate to
plunge the whole of Christendom into wars and chaos in order that the earth
should become their inheritance.” “The division of the United States into
federations of equal force was decided long before the Civil War by the high
financial powers of Europe. These Bankers were afraid that the US, if they
remained as one block, and as one nation, would attain economic and
financial independence, which would upset their financial domination over
the world.” Otto von Bismark chancellor of Germany late 1800s.
Bismarck explained that the Rothschilds who controlled Europe were afraid
the United States would become independent of them if it remained one
nation: “They foresaw tremendous booty if they could substitute two feeble
democracies indebted to the Jewish financiers to the vigorous republic
confident and self providing. Therefore they started their emissaries in
order to exploit the question of slavery and thus to dig an abyss between
the two parts of the republic.”
“America will never be destroyed from the outside. If we falter and lose our freedoms, it will be because we destroyed ourselves.” – Abraham Lincoln
“If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be.” – Thomas Jefferson
“…for the loan of $30,000,000 of their own money the people of the United States should be compelled to pay $66,000,000 — that is what it amounts to, with interest. People who will not turn a shovelful of dirt nor contribute a pound of material will collect more money from the United States than will the people who supply the material and do the work. That is the terrible thing about interest. In all our great bond issues the interest is always greater than the principal. All of the great public works cost more than twice the actual cost, on that account. Under the present system of doing business we simply add 120 to 150 per cent, to the stated cost.” – Thomas Edison
“But here is the point: If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good. The difference between the bond and the bill is that the bond lets the money brokers collect twice the amount of the bond and an additional 20 per cent, whereas the currency pays nobody but those who directly contribute to Muscle Shoals (referring to a public works project in Alabama) in some useful way.” – Thomas Edison
“It is absurd to say that our country can issue $30,000,000 in bonds and not $30,000,000 in currency. Both are promises to pay; but one promise fattens the usurer (banker), and the other helps the people. If the currency issued by the Government were no good, then the bonds issued would be no good either. It is a terrible situation when the Government, to increase the national wealth, must go into debt and submit to ruinous interest charges at the hands of men who control the fictitious values of gold.” – Thomas Edison
“I wish it were possible to obtain a single amendment to our Constitution — taking from the federal government their power of borrowing.” – Thomas Jefferson
“The Government should create, issue, and circulate all the currency and credits needed to satisfy the spending power of the Government and the buying power of consumers. By the adoption of these principles, the taxpayers will be saved immense sums of interest. Money will cease to be master and become the servant of humanity.” – Abraham Lincoln
“The money power preys upon the nation in times of peace and conspires against it in times of adversity. It is more despotic than monarchy, more selfish than bureaucracy.” – Abraham Lincoln
http://forum.prisonplanet.com/index.php?topic=63298.0
November 15th, 2009 at 2:45 pm
Iain,
Not in disagreement, or anything, but your point is toward justice in affairs of trade. How can we gnash our teeth and wring our hands about central banks and live in a country, which in microcosm, has done the same thing to Maori. A bit like the snapper interrupted in his meal of piper by a kingfish.
November 15th, 2009 at 4:38 pm
Les – great to be back! In reading the above posts, did the Greens storm the offices of Interest Co NZ in my absence ? !!!!
November 15th, 2009 at 6:31 pm
Murray,
“what is good about increasing demand for houses? That tends to push prices up” – I thought you said it wasn’t about demand?….
No, what I said was that prices can move irrespective of scarcity/abundance.
Of course a rising demand/supply ratio will tend to push up prices.
November 15th, 2009 at 6:42 pm
Hugh,
You’ve lost me.
What posts above are “Green” ?
By the way, I’m still awaiting your reply re prices and scarcity/abundance.
I think I’ve proved your article wrong. Haven’t I ?
Unless you can show where my argument is wrong.
November 15th, 2009 at 8:03 pm
“did the Greens storm the offices of Interest Co NZ in my absence ? !!!!”
———
“Anti-immigration feeling has no place in the Green party Immigration and Population policies released today, Green MP Keith Locke says.
“Our policy is the opposite of Winston Peters’,” the Party’s Immigration Spokesperson Keith Locke says.
“We have no fear of migrants. The Green Party says ‘Welcome Home – this is your country now’. Our welcome extends to the families of new migrants. The Green Party policy is fundamentally humanitarian, not exclusionary like Mr Peters’.”
“The Green Party policy is not based on prejudice, but an objective analysis of what level of migration is compatible with a sustainable New Zealand.
“Racism has no place in the selection of migrants. Unlike Mr Peters, we don’t start with an assumption that ‘Kiwi values’ are somehow superior to those of new migrants.
http://www.greens.org.nz/press-releases/greens-counter-peters-welcoming-immigration-policy
========
I think NZ First made a mistake singling out Asians, (although they have a point in that the public weren’t consulted) as it is stereotyping but we should seek people by their behaviour and values. Between the Greens (so named) and NZ First we have fluffed it (with much help from the money behind “National” and “Labour”).
Green policy is about achieving a maximum not optimum.
November 15th, 2009 at 9:35 pm
Steve Netwriter – “No, what I said was that prices can move irrespective of scarcity/abundance” – my apologies, I think I misinterpreted your original post.
I still think though that house price rises start with demand rising faster than supply, and end with supply still rising as demand falls away. As with any boom though, by the peak it’s mostly speculation….
November 15th, 2009 at 9:39 pm
Doug, a recent letter I wrote covers my answer to you:
- Tis The Parliamentary Season Of Folly -
Rodney Hide will be frustrated having not been able to keep a lid on his fiddling until the public are paying the least attention in the holiday period, which is traditionally when politicians release information or future intentions they know will be damaging.
Hone Harawira has again shown his tendency to “gross generalise” that “all” White’s were responsible, and profited equally from the past crimes committed against Maori. The Treaty Of Waitangi(1840) promised an end to the oppressive class systems of slavery that had long darkened the door steps of both cultures. The Treaty was sold as a new umbrella of a rule of law that would treat all the same regardless of colour or class.
Rodney Hide and Co are a pertinent reminder equal opportunity has never been delivered to the coloured or the classed, that New Zealand has remained very elitist behind the political curtain. Hone remains very ignorant to the impact of the corporate raiding foreign finance-sector and their locally recruited co-operatives upon the economic and social policy of New Zealand. Rodney and his slaveminded cohorts on the other hand know full well their intentions and welcome them with open arms.
The common peoples of this nation are having a wedge driven between them by the progeny of the elite who carried out most of the crimes committed against Maori and now don’t want to have to give back any of their ill gotten gains, let alone pay compensation, and by a Maori hierarchy who suppress the very dark side of their early culture and now demand large fees as investment advisors overseeing large amounts of common Maori’s cash which they invest in market vehicles that recent events have confirmed to be at the very least flawed, at worst a fraud. Both seemingly opposing elements do this in order that the common taxpayer, regardless of colour, will keep stumping up the money to repay the loans borrowed for the supposed compensation, loans that will see us, with inclusion of compounding interest, pay back to the foreign owned central banking network 2-3 times what was borrowed.
All the money in the world will not bring about reconciliation unless the truth is told to is widest and deepest, not just the surface.
Society has been reduced to dog eat dog by the fact that the privately owned central banking network have repeatedly loaned us a basketball size of debt when there is only a tennis ball size of means of repayment, they then put us “collectively” into receivership, forcing us to sell public assets to corporation’s they themselves own.
Given the Banking Corptocracy’s predatory loan practices again have us in their grip, my studies lead me to believe this nation may have only one timely tried and tested option available, the suppressed founding ideals of the Labour Party must be reintroduced to grassroots Labour membership and control of its wayward parliamentary branch regained, as they were as much needed then as they are now for the very same reasons as made clear in 1935 election by Michael Joseph Savage as Labour vigorously campaigned for reform of the monetary system:
“Labour proposed a money system which would equate credit with the goods produced. The ideal was that the people should be able to utilise their own credit system and complete public works without incurring public debt.”
As a result, upon their election, Labour used our sovereign public credit facilities to issue our own currency to build State Houses, Hydro Schemes, fund the Dairy Marketing Board, they made only one costly mistake, they surrendered to the threats from the private bankers and ceased issuing our own money supply backed by our own resources. That mistake must be rectified and in the Kiwi tradition of fighting for freedom and equality, no more threats must be surrendered to.
Iain Parker
Stratford
Public Credit Advocate
November 15th, 2009 at 10:02 pm
Hugh – “affordable housing is a very serious issue. How about keeping it solutions focused”
Solutions to affordable housing, now that could take a paragraph or two!
My opinion is that it would likely need to be a government initiative, as I said earlier the margins in the private sector are fairly thin. A section can already cost around 3 x household income ($225k ?), which doesn’t leave much to build with! A tent, perhaps?!
It could be possible to build a modest 150m2 house in the $100k to $150k range, which would leave $75k to $125k for a section. There are sections at these prices, but not where the bulk of people would choose to live.
So the only way I can see it being done near any main centre, is for the government to cheaply subdivide fringe land and build rows of modest houses using bulk buying power, similar to the rows of state houses of yester-year….
Which leads to my next question (sorry for a question rather than a solution!)… given that average NZ house prices in the 60s were around 4 x average male income, and given that the average house of today is around twice as big with many more features (insulation, air conditioning, double glazing etc), would it not seem logical for them to cost a higher ratio of income?
November 15th, 2009 at 10:25 pm
Roger Thompson: “What is so wrong with immigration . We are an underpopulated country . And an aging population . Immigrants can offer much to us in youth , enthusiasm , skills and entrepreneurship . A side benefit is demand for housing………Win / Win as they say”.
Roger, fundamentally there is nothing wrong with immigration – until politicians get involved. Go back prior to world war 1 in Europe and there were few immigration controls. However, there were marked differences to today. Firstly, Europe largely reposed on a system of sound money – so our friends like the Greens could not pursue the policies of ‘welfare immigration’ on which the re-distributive left is so keen. It is no surprise that the abandonment of the gold standard was followed by the mass ‘welfare immigration’ policies that are causing such problems in Europe today. Put simply, residence has been ’sold’ for votes.
Secondly, we did not have the same advanced culture of corporate welfare prior to 1914 in which businesses expect to be able to import workers – but to then pass on many of the costs of their domicile to the established population. This is exactly what is happening in Britain, where people are brought in (frequently now from Eastern Europe), and are paid a wage insufficient to manage in such an expensive country. As a consequence costs (additional infrastructure, healthcare for their families, schooling, policing etc) all wind up being passed on to the established community. Within this it has, hitherto, often been the poorest British communities bearing the brunt.
Thirdly, prior to 1914 (and well after) the idea that countries get rich by artificially inflating house prices had not infected national psyches to any great extent. Hence the notion, that you might encourage a massive influx of people in order to bid up house prices – to levels beyond that which could be afforded by the established population – would have been met with utter incredulity. I jest not – it might even have been considered an act of treason.
The simple fact is, that if we take Britain as an example, the country has seen unprecedented immigration in recent years – with most of your arguments being advanced ad nauseam by the establishment – and now the country is bankrupt! Likewise California – a state that has seen flabbergasting levels of immigration – bankrupt! New Zealand – a country that has seen vast immigration in recent years and, guess what, it has not paid its way in the world since (if I recall correctly) 1973.
Immigration should be a reactive (not pro-active) thing and, as King Alfred the Great told us all those years ago, we should always seek to be friendly and hospitable to the stranger. Yet this cannot offset the fact that the much vaunted economic justification for mass immigration is utter nonsense, and I would suggest that the main reason politicians cry ‘racist’ every time debate is attempted is because the policy is not defendable when subjected to intellectual scrutiny.
November 15th, 2009 at 10:34 pm
Murray said:
“given that average NZ house prices in the 60s were around 4 x average male income, and given that the average house of today is around twice as big with many more features (insulation, air conditioning, double glazing etc), would it not seem logical for them to cost a higher ratio of income?”
House size – therein lies one of the barriers to affordability. Our household sizes have dropped a third yet our house sizes have doubled – dumb!
40 yers ago a family of 5 lived in a 100 square metres house. Today a family of 3 or 4 are living in houses 170 sqaure metres or bigger.
Part of the solution lies in Councils allowing sections of 250-300 sq. m, then building houses around the 110-120 sqaure metre mark, as opposed to building 200 square metre houses on 700 sqaure metres
then you’ll get housing costs down
November 15th, 2009 at 11:03 pm
Matt – I agree. It’s all very well people demanding cheaper houses, but they’re not taking in to account replacement costs. We’re not going to get 200m2 houses on 700m2 lots for $225k. The only way to do it is go smaller….
November 16th, 2009 at 12:07 am
“As stated previously – households should not spend any more than 3 times their gross annual household income to house themselves – and importantly – not load themselves up with any more than 2.5 times their gross annual household income in mortgage debt.”
Why should this ratio stay constant over time? If peoples real income increases, they wont increase their spending on all aspects of their life proportionately. It seems to me to be highly likely that housing could get a higher share. There is only so much butter I could ever eat, but I could easily see myself living in a 1000m2 mansion if I had a chance…
That said, I agree that NZ is ahead of the UK where I am living. The green belt as an issue has not once been mentioned in the MSM that I have seen since living here. I live in Manchester where I have friends trying to buy an expensive, run down semi detached house within virtually a stones through of endless Cheshire fields! (Within 10-15ks of the absolute city centre).
November 16th, 2009 at 4:46 am
Someone point out where they think I said ” mass immigration ” , or ” open the floodgates “, or ” flabbergasting levels of immigration ” . Because I did not ! I ( mistakingly ) assumed that a sensible immigration policy be endorsed . And I did say young immigrants with skills / energy / entrepreneural flair . ………… . Geez Louise , I just gently broach the subject , and get corrected and condemned from all directions . Are you guys Australians , or from the deep south of the USA ? An annual intake of carefully selected immigrants is both an asset and a necessity for our country . You wanna barricade us in , we’re here first , so clear off to anyone else . That truely is selfish and foolish .
November 16th, 2009 at 8:01 am
Touche’ Roger
November 16th, 2009 at 8:13 am
Roger, as I mentioned above, once you have politicians involved it is simply not possible to have a ’sensible immigration policy’. Why, I would suggest it is because, as the great Victorian statesman Benjamin Disraeli once told us, the people who really run the show are very different to the people we elect.
This has been magnificently – and tragically – demonstrated in Europe, where post-war immigration policies incline most reasonable people to discuss the matter in terms normally reserved for psychiatry. Yet, in my view, it is ridiculous to suggest that what has been happening is anything less than a deliberate policy designed to permanently disrupt European culture, prosperity, and democratic repose as a precursor for a single authoritarian – anti Christian – hegemony of the type now made possible by the Lisbon Treaty. Put simply, the politicians who facilitated this were mere vassals in a much bigger game.
There is no requirement for an ‘annual intake’ because such a system will, inevitably, be abused by the vested interests that really run New Zealand in order to inflate house prices (thus bank profits) and to enhance the corporate welfare and authoritarian government agenda. What is required is a re-active policy, whereby migrants should be welcomed if demonstrable employment opportunities are available for them – without prejudice to the established population – or if the have some unique other contribution to make. Within this, natural generosity would suggest, e.g, that we should continue to take some refugees – and actually take the trouble to properly assist them once here rather than creating European style ‘enclaves’.
The current nut-case points system, where a bunch of civil servants arbitrarily think up an annual number and then allow those people in, is simply a rort primarily designed to inflate house prices. Moreover, any immigration policy, that has its origins in such a desire to inflate house prices, is actually wrecking the economy – not building it – because its net effect is to destroy existing capital and replace it with more debt money. Small wonder the ‘banksters’ LOVE mass immigration.
If you want a sensible immigration policy then first return to sound/domestically controlled money – which will deliver the conditions in which a rationale approach can be developed and in which and the chorus line of ‘corporate welfare demanders’ and ‘house price inflators’ can be invited – to emigrate! Who knows – we might then even be able to go back to pre-1914 laissez faire!
November 16th, 2009 at 8:29 am
When I was born in the 1950’s we had a double section with fruit trees, hens and a large garden plus outside toilet, one car (narrow garage). Back in those days people grew their own vegetables (and bottled fruit), it was safe to cycle and people hid their house key under the door mat. Houses were heated with coal and wood. In older houses the living area was based around a coal range. There was no infill or shading by a neighbouring building. People listened to “Life with Dexter” on the radio and used their imaginations. The BBC version of Lord of the Rings was just as enthralling as Peter Jacksons. People only lived in a seaside town because they wanted to not because they had to get there before prices went sky high.
November 16th, 2009 at 8:51 am
From Marginal Revolution:
gdp vs. gdp per capita
Using growth in GDP per head rather than crude GDP growth reveals a strikingly different picture of other countries’ economic health. For example, Australian politicians often boast that their economy has had one of the fastest growth rates among the major developed nations—an average of 3.3% over the past five years. But Australia has also had one of the biggest increases in population; its GDP per head has grown no faster than Japan’s over this period. Likewise, Spain has been one of the euro area’s star performers in terms of GDP growth, but over the past three years output per person has grown more slowly than in Germany, which like Japan, has a shrinking population.
Some emerging economies also look less impressive when growth is compared on a per-person basis. One of the supposedly booming BRIC countries, Brazil, has seen its GDP per head increase by only 2.3% per year since 2003, barely any faster than Japan’s. Russia, by contrast, enjoyed annual average growth in GDP per head of 7.4% because the population is falling faster than in any other large country (by 0.5% a year). Indians love to boast that their economy’s growth rate has almost caught up with China’s, but its population is also expanding much faster. Over the past five years, the 10.2% average increase in China’s income per head dwarfed India’s 6.8% gain.
http://www.marginalrevolution.com/marginalrevolution/2008/03/gdp-vs-gdp-per.html
The Beehive:
If we closed off immigration entirely the consequences for our economy would be profound. Without current levels of inward migration, within 15 years, both our population base and economy would shrink dramatically. The statistics speak for themselves.
http://www.beehive.govt.nz/speech/economic+impact+immigration
http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2009/05/immigration-gdp.html
http://www.civitas.org.uk/pdf/Rowthorn_Immigration.pdf
http://eye-on-immigration.blogspot.com/2009/03/immigration-driven-population-growth.html
November 16th, 2009 at 8:58 am
jh – a splendid post, and a reminder that the current ‘vested interest’ arguments for mass immigration are not (as I have suggested in a previous post) defendable when subjected to intellectual scrutiny.
November 16th, 2009 at 9:22 am
I mentioned above that much of the European drive for mass immigration was to do do with a coming authoritarian hegemony – made possible by the Lisbon Treaty. Within this one of the fears of us ‘Euro-sceptics’ has always been the possibility of a European army – that could be deployed in order to put down rebellion within parts of the empire as necessary. The ghost of imperial Rome is stalking the continent:
http://www.timesonline.co.uk/tol/news/world/europe/article6917652.ece
November 16th, 2009 at 10:29 am
Am I missing something here , where is the call for mass immigration ? Who has a current vested interest for mass immigration ? What is a Euro-Septic ?
November 16th, 2009 at 12:23 pm
Murray,
No worries
As to your other point, I suspect in many cases you are right. That’s the “efficient market” working as well as always LOL.
November 17th, 2009 at 8:53 am
As a regular reader of Dr.HousingBubble I must say that he has been completely misrepresented in this article. A more careful reading of his prolific blog will reveal that he is acutely aware of the issues Hugh accuses him of being blind to. Hugh also builds a straw man with his second homes argument (which btw DHB does cover). Any “bafflement” that DHB expresses is either cynicism or from the fact that individuals continue to sign up for government backed mortgages at they cannot afford. Not that this conflicts with Hugh’s point but in many inland area’s of California prices are down massively due to a host of factors (including oversupply). In Riverside (a far flung inland suburb of LA) new tracts of unsold homes were in some cases actually being demolished. While prices do remain stubbornly high in more “prime” areas even a cursory reading of DHB will make the strongest of arguments (forward, backward and upside down) of why prices will come down to earth (barring hyper wage inflation) and that income is the ultimate fundamental in a healthy housing market.
November 17th, 2009 at 1:59 pm
For reasons that have not been worked out, I have been unable to post comments on Dr Housing Bubble. Here is my most recent argument for the benefit of Joe California.
Dr Housing Bubble has fallen into the same trap as all the others who are in the most part, dismissing the arguments of people like Hugh Pavletich and Randal O’Toole, who has it exactly right in “How Urban Planners Caused the Housing Bubble”.
http://www.cato.org/pub_display.php?pub_id=10570
The most in-depth 24 pages of analysis you can yet read on this issue. If this common sense is ignored, none of the other big ideas about banking law reform and tax reform and monetary policy are going to amount to anything – the USA is going to have bigger and bigger housing bubbles until their whole economic future is irretrievably destroyed. (And so are other countries with the same problem).
The common mistake that Dr Housing Bubble is making along with almost everybody else, is in assuming that land supply restrictions have to result in clear demographic under-supply before they can be blamed for price bubbles.
Let me give you an alternative illustration. In New Zealand where I am from, the government some decades ago decided to issue licenses for imported goods, such as motor vehicles, on an auction basis. Importers had to bid for quantities of license. Although the quantities of license were generous and the government could not in any way be accused of restricting the amount of supply below that usually demanded by the population of NZ, how could you possibly argue that this did not result in bidding wars in the license auctions and massive increases in the price of cars, in spite of the fact that the total number of cars being sold did not reduce, at least initially? The scheme was finally scrapped after a few years when the biggest bidders who thought they had cornered the market started going bankrupt.
The same has happened with urban limits and housing development. It is perfectly possible for local authorities to be “releasing enough land” to cover population increase. They can even be releasing too much. But the fact that the quantity is capturable by investors compared to the alternatives such as in Texas, means that the entire supply becomes subject to a kind of bidding war before any building and selling of homes even takes place. This is not even greed, it is staying in business in a competitive market. But because of the finite supply, there is no stopping a Ponzi mentality from occurring, and what is more, it occurs in the entire housing market, just as all used cars were too expensive in NZ when license was auctioned.
The same goes for the banks in these markets, California especially. If they are to continue in business in California, they will be competing with each other in how much riskier they can get with their lending terms. The only honorable way out for any bank if they are to avoid the sort of culpability being leveled at them by Dr Housing Bubble, is simply to shut their doors in California and restrict their operations to States with non totalitarian policies regarding development. The same goes for the entire housing development industry.
Hugh Pavletich from New Zealand, one of the co authors of the annual Demographia reports, is a uniquely honorable commentator on these issues. A successful property developer, he simply walked away from the industry several years ago when he saw the writing on the wall. He deserves to be taken notice of, far more than recently created celebrities like Nouriel Roubini and Peter Schiff and all the rest of them who see these bubbles coming from the monetary angle but haven’t got a clue about the true underlying cause of the recent phenomenon of uniquely destructive housing bubbles.
November 17th, 2009 at 3:36 pm
This is the conclusion from the article you cite:
I’ll try and find the time, and enthusiasm, to read the full article.
I have to say, based on the conclusion, I have great doubts on its merit.
November 17th, 2009 at 4:54 pm
I feel like I’ve just wasted an hour of my life.
How Urban Planners Caused the Housing Bubble by Randal O’Toole 1st Oct 2009 – My Review
http://neuralnetwriter.cylo42.com/node/2383
November 17th, 2009 at 5:21 pm
“Roger Thompson Says:
November 16th, 2009 at 10:29 am
Am I missing something here , where is the call for mass immigration ? Who has a current vested interest for mass immigration ? What is a Euro-Septic ?”
Roger, politicians don’t call for mass immigration (at the behest of the elites who command them). No they talk about ‘measured increases’, ‘responsibility’, ’sensitivity’ etc etc etc – and then they deliver the urban tragedy that is unfolding across Europe. The people who have a vested interest in mass immigration are Europe’s elite who are merely doing what the Romans did – overwhelming existing populations with people who are of more use to them. If I recall correctly, Professor Victor Duruy (Trinity College Dublin) addressed the Roman tactic of deploying multiculturalism, in order to permanently change national demographics, in his exhaustive six volume work ‘The History of Rome and The Roman People’ published in 1883. Strange then, how the liberal elite claims this is a new invention.
As to “what is a Euro-sceptic” it is a person with sufficient brain to recognise that the EU (European Union) is nothing but an evil scam designed to turn Europe into the reality of George Orwell’s Animal Farm. A few years from now you will gasp at the new European Reich that unfolds daily.
November 17th, 2009 at 5:38 pm
wow!!! what a really stupid writer you are!
“Understandably – the financial institutions in no doubt being acutely aware of the risks (sorry DHB – these people are not dumb) ” Um,heard of countrywide, or any of the 300+ other bank lenders now bankrupt? the fact that the FDIC which insures bank depositors is also underwater due to bailing out these smart bankers? the fact that FANNIE and freddie, the two government sponsored mortgage lenders also went bankrupt?
“the reality, is the only consistent measure of scarcity and abundance is price” Ok, then I guess homes in my town, Phoenix went from very scarce to very abundant in 24 months, because prices dropped by just over 50% in that time frame. Strangely, there are the same number of homes here, and roughly the same number of people.
Does this really count for smart writing and thinking where you are? I’m curious, maybe I’ve finally found somewhere with worse public education!
November 17th, 2009 at 5:52 pm
No mention in the article by Randal O’Toole of the Savings & Loan crisis which centered in Texas in the late 1980’s
Of the 1600 banks / Savings & loan institutions that were allowed to fail in that time period, 800 were from Texas.
It seems that experience was burned into the psyche of some of the Texan bankers. And Texas had a bunch of laws that may have been different to California with respect to banks being prudent.
If Mr O’Toole totally ignores the leverage that was allowed in California and disallowed in Texas, then he has overlooked a major factor in the differences between California & Texas.
Also much talk about Community Reinvestment Act. None about Glass-Steagall repeal. Which is what I expect from someone with the “All Regulation Bad. No Regulation Good” blinkers on.
For some additional information seemingly overlooked by Mr O’Toole
http://money.cnn.com/2009/08/26/news/economy/banking_texas/index.htm?section=money_topstories
November 17th, 2009 at 6:08 pm
azrob – I assume the price fall you describe occurred because credit imploded. I assume it has very little to do with ‘planning issues’.
The fact is that house prices exploded because a tsunami of debt money was deliberately created that was then distilled into a less quickly expanding physical resource. Remove those ‘instruments of debt money’ and you will see house prices FALL to levels that Joe Public will not believe. The only alternative is to monetize all the debt – then Joe Public will probably see house prices RISE to levels he will not believe. Two diametrically opposed outcomes within the same level of overall population and need for housing. The planning issue may be an ‘issue’ but I would suggest it has almost nothing to do with the price madness of recent years. Kiwis I urge you – do not fall for this one!
November 18th, 2009 at 7:04 am
Maybe its not the Americans..but our leaders..
http://www.associatedcontent.com/article/2381656/why_obamas_home_affordability_program.html?cat=3
http://www.associatedcontent.com/article/2394906/lenders_are_being_paid_by_us_goverment.html?cat=3
November 18th, 2009 at 8:47 am
Larry, the HAMP debacle is a prime example of crony capitalism and its aim of “accumulation by dispossession”. The Bill put up by the Executive did indeed address the problem – but was amended by the Legislature following lobbying by the private sector capitalists. And then the capitalists turn around and blame the Executive.
Clearly, the US is governed by the capitalists not by the representatives.
November 18th, 2009 at 3:11 pm
Gibber, that is a good point about Texas. But if you look at the Demographia surveys or the Randal O’Toole paper, you will see that Texas is not just a lone holdout against the housing bubble. California alone is responsible for 50% of the “US housing bubble”. Add New York and Florida and you’re up to 70%. Add 5 more States and you’re nearly 90%. Forty-something States contributed next to nothing to the “US housing bubble” in spite of identical monetary and credit conditions.
The correlation between “Smart Growth” and bubbles is undeniable.
November 18th, 2009 at 3:24 pm
Such a shame that “Smart Growth” isn’t smart growth.
November 18th, 2009 at 3:39 pm
Kate – you are right regarding smart growth. i suggest you read the latest housing affordability report out of the Tauranga Council – where it starts off with the Demographia Survey, then launches in to a contorted expl;anation of smart growth its failures – then suggests more smart growth is needed! Extraordinary stuff.
Phil Best – you are so right about the bubble States in the US being the epicentre of the Global Financial Crisis.
A much expanded version of this article (which is currently on Scoop as well_ – will be published on la couple of influential united States and American websites within the next week. I cover in some depth as well the horrific state of the residential construction sector in California. This State has a population of 37 million and about 13,300,0000 housing units and the residential permits for 2009 are now expected to be an appalling 37,700. Those interested should refer to the California Building Industry Association website for their latest report,
Thats a build rate of one per 1000 population. If NZ was producing the same, our current residential construction permits for 2009 would be 4,300. Its currently around 17,000 and should be moving in the range of 25,000 to 35,0000 or a build rate of 6 to 8 per 1000 population per annum through the normal building cycle.
No wonder of course California has an official unemployment rate of 12% and underemployment (U6) of in excess of 20%.
November 18th, 2009 at 4:11 pm
Hugh, checked their website with a ‘housing affordability’ search and didn’t get a match – any chance of a link?
November 18th, 2009 at 4:17 pm
Steve Netwriter.
Others can read Randal O’Toole for themselves and see if you have done him justice, especially considering you declined to look at anything past page 10 of 24. I’d like to see you try and rebut the evidence presented there, not that your assertions about pages 1 to 10 are valid.
You say, presenting a graph; “….This is the true picture of US house prices:…”‘
Sure, but that does not relate to Randal O’Toole’s main argument. He is arguing not that the crisis was just the latest “cycle”, but that it is something uniquely damaging in comparison to the past. As I said in the first place, discussing US aggregates and averages conceals the dramatic fluctuations that are unique to particular areas.
But it is undeniable that property has tended to “cycle” in the past, it is just that it has started cycling more noticeably in the event of “smart growth” policies. The presence of low price urban fringe land is THE crucial factor in cycles being restrained.
You say “….States that maintained better credit regulations deterred house price speculation, while the others allowed it to happen….”
Sure, refer us to a study that shows the correlations. Or do one yourself. Randal O’Toole’s study, particularly after Page 10, demonstrates a convincing correlation between smart growth policies and housing bubbles.
Regarding the Texas lesson, see my reply to Gibber above.
You say: “……Restricting supply will tend to push up prices. Agreed.
The author needs to provide evidence that restriction also cause bubbles……”
The opposite is the case. Lack of restrictions STOPS a bubble from happening.
Look at monetary poliicy and interest rates in Australia and NZ. Interest rates twice as high as in the USA, mortgage terms twice as long on average, and median multipliers over 6. Why?
You say: “…..when one bubble bursts, people search for other homes for their currency….”. Sure. But housing markets with unregulated supply have a safety valve regarding the levels to which prices can go.
You say: “…….one might theorise that regional job markets might also result in regional variations in house price movements….”
Sure, that explains Ohio’s low prices. What other States low prices are explained by job market factors rather than freedom from supply restrictions?
You say: “……I thought market price was affected by supply and demand, and that currently there was an oversupply. Even when the real oversupply is being hidden…..”
See my original posting. The point is that the entire supply is capturable by investors. Even if it represents a demographic oversupply, it is still the case that prices have been forced up by the quantity restrictions.
You say: “……oil prices, are just a little relevant to the concept of distant suburbs…..”
No, long commuting distances are the result of regulation. Prior to zoning, homes, factories and offices were mixed up in the same areas. Of course people could walk to work. The longer commutes are part of a social consensus of several decades ago, that quality of life would be higher iif suburbs were separated from employment areas by significant distances.
If there was any completely Lassez Faire city in the developed world, it would have the shortest commuting distances.
Multi nodal development and a web of roads ensuring the shortest possible travelling distances between all areas are the best compromise. Distances are a far more significant factor than modes of travel. Alain Bertaud’s “The Costs of Utopia” is an eye-opener of a study regarding why the planned urban economies of the USSR were actually far less efficient than the free market alternatives, even though they made everyone live in blocks of flats and catch trains to work.
You say: “……Demand is not inelastic. When someone loses their job, and their house, they move back in with mum and dad, or go buy a tent!
Normally it might be described as inelastic, but not when an economic crash occurs……”
Fine. So a crash will occur, because demand is inelastic up to then.
You say: “…..Of course neo-classical economics finds it difficult to cope with such concepts, lacking as it does, both history and dynamics LOL…..”
Sure, the whole profession, like you, has failed to grasp that the regulated supply of land can be “enough” from the regulators demographic calculations, and yet the price of it will be forced up.
You say: “……Within a “building zone” land is priced according to its ability to be developed.
Outside a building zone, agricultural land is priced based on completely different factors…..”
Excuse me, does supply and demand not apply in both cases? In the case of no artificial barrier being put between the two markets, we would see values roughly “merge” at the urban fringes. They do this, in the land markets in most States of the USA. But in California, Britain, Australia, NZ, there is a sudden “step up’ of several hundred percent, MINIMUM. (it is several thousand per cent in parts of Britain).
In an absence of urban limits, farmland might be pushed up 1 or 2 percent in price, while land for housing would drop several magnitudes. This is because there is so many times more farmland than there is demographic potential for urban sprawl.
You say: “……I think it is clear that if loans are restricted to a sensible multiple of income, speculative bubbles are limited. It is not necessary to allow an unregulated market in order to limit speculation…..”
I would argue that regardless of the “sensible multiple of income” you select, the presence of a regulated, finite and capturable land supply, will result in a bubble that will end only with the bankruptcies of the most risky, but temporarily successful, players. The progressive dropping out of the market, of first home buyers, has been a prominent phenomenon in bubble economies long before an actual crash took place. The bubble is not restrained to some point below bursting, by the pricing and regulating of first home buyers out of the market. This is currently a serious problem in Australia and NZ, who have not yet had their California crash, and have reinflating housing bubbles right now in the face of bad employment conditions and poor productivity and investment conditions (especially in NZ).
You say: “……I get the impression that those writing this sort of article have an agenda re regulations……”
If I have an agenda, it is based on the fact that restrictions lead to more restrictions. There you are, saying that to avoid future housing bubbles, which were caused by regulations and restrictions, we just need more restrictions, on banks and so on. But your type will never learn that all you are ever doing is pushing the problem from one part of the economy, to another, and each time the outcomes are entirely unexpected and all the more damaging for that.
November 18th, 2009 at 4:42 pm
Regarding agendas, Steve Netwriter, how about the following.
Saul Eslake: “Housing as a Good Thing”
“…….between the 1996 and 2006 censuses, the home ownership rate actually declined in every age bracket except the over 65s (where it remained unchanged) (see Judith Yates, Hal Kendig and Ben Phillips with Vivienne Milligan and Rob Tanton, Sustaining fair shares: the Australian housing system and intergenerational sustainability); the only reason why the overall home ownership rate rose (by about one percentage point) over this interval is because of an increase in the proportion of the Australian population aged 45 and over, among whom home ownership rates are consistently above the national average.
In other words, the panoply of policies pursued by governments of both political persuasions in the name of promoting increased home ownership has conspicuously failed to achieve that objective……..
“………The only result of policies which put additional cash into the hands of intending first-home buyers and thus allow them to pay more for the homes which they wish to buy is that housing has become more expensive than it would have been in the absence of those policies. Indeed, it would be more accurate to describe the First Home Owner Grant as a Second and Subsequent Vendor Grant, because more often than not, that’s where the money ends up.
This probably explains why the home ownership policies long favoured by Australian governments remain so popular, despite their conspicuous failure to achieve their stated objective. There are close to six million home-owning households in Australia, nearly all of whom believe (rightly or wrongly) that rising house prices make them richer; whereas in any given year since the introduction of the current First Home Owner Grant scheme there have been on average only 125,000 successful first home buyers, for whom rising house prices are a negative (at least up until the moment at which they join the club of home owners, when their perspective on rising house prices typically undergoes an abrupt change)……
“………No Australian government – or political party aspiring to government – would ever implement or advocate measures intended to bring on an across-the-board fall in house prices. On the contrary (as we have seen as part of Australia’s response to the global financial crisis), Australian governments will go to considerable lengths to prevent even a modest decline in house prices prompted by factors entirely beyond a government’s control.
But if governments could summon up the courage required to abandon a strategy that has been so conspicuously unsuccessful, and redirected the money which currently serves only to inflate the demand for housing and thereby push up housing prices, instead to increasing the supply of housing, they might actually succeed in making housing more affordable and increasing the home ownership rate.”
From NZ Green Party leader Russel Norman:
“…people with property investments now number in their hundreds of thousands……
“…..They’re a well-heeled, organised, vocal group……mainly upper middle class people who are trying to reduce their taxable income under $60,000………
“…….there is big political risk to tackling the issue……..”
“…….on the supply side, there needs to be an increase in affordable housing………
“…….there is potential for rent rises with a clampdown on the housing market, as investors would need to be more diligent about getting a return on their properties…..”
Russel Norman, quite right up to this point, advocates a program of State House building as his solution, along with rule changes to make it easier to develop medium density housing around public transport routes.
Of course, State housing involves artificially cheap housing for a favoured few at the cost of the already over-burdened taxpayer. Good luck with that.
The problem with “infilll” type development, is that as all land has been forced up in value, land near the urban center becomes simply too expensive for the people who Russel Norman expects to live there, to buy even the smallest house that would be developed on it. Ironically, the results identified by Alain Bertaud and Randall Pozdena in analysing Portland, is that higher density development is occurring further away from the urban center than is normal, due to people desperately trying to cope with high land prices; whereas in more naturally developed urban areas, the density profile goes smoothly from highest at the center, to lowest at the fringes. One even sees this phenomenon occurring in NZ urban areas; infill development occurring near the fringes -ridiculous. This defeats the whole purpose of smart growth.
If there is any area where the economics has failed to be grasped, it is urban economics.
The only way to actually bring about the kind of en masse infill development closer to the center, that our economically ignorant planners desire, is by confiscation of value of the land involved. Good luck with that.
November 18th, 2009 at 5:37 pm
Philbest
Correlation is not necessarily causation.
Randal O’Toole did not make any reference to credit.
The supply of cheap, readily available credit was present in California. But not in Texas.
Yet he, and you, claim the bubble is due entirely due to land use regulations.
it appears to me that you have a possible confound that you, and Randal O’Toole, are unable to adequately explain.
You point to other states, with no reference as to whether there was a difference or similarity in availability of credit in those states.
I have provided a reference to the difference in availability of credit in texas Vs California. And there is a signficant difference. In other words, there is evidence that falsifies Randal O’Toole and Hugh’s theory.
You say
And identical planning regulations?
Or were there states like California that had strict planning regulations that didn’t bubble.
There are obvious diffs between California and Texas banking regs. I am interested in your claim of identical monetary and credit conditions. If that is the case. What about the planning and land use regs. Why does Hugh focus on Texas as the ONLY example of a non-bubble state.?
Doesn’t make sense to me. If there were 40 other states that supported his position I would expect him to trumpet it from the rooftops. Yet he doesn’t. Can I assume that in those other states the land use regs were the same as California? Or Texas? Or somewhere between the two? Hmm. Don’t think I can without checking out the information.
And can I believe your claim that 40 other states had identical monetary and credit conditions? Identical to California (loose as a goose with respect to credit) Or Identical to Texas (strict and prudent)?
November 18th, 2009 at 5:52 pm
Phil Best – Good to see you referring to former ANZ Australia Chief Economist Saul Eslakes article recently on OnLine Opinion in Australia. It is very pleasing indeed to see economists in this part of the world starting to get their heads around supply issues.
Kate and other readers – regarding the Tauranga Councils November paper “Housing Stock and Housing Demand” may I suggest you email directly the Tauranga Council planning staff for a copy. Ask them at the same time to post it on their website. If you google news search “housing affordability” you will see an editorial in the local paper there on that report.
The report starts off well in mentioning the Demographia Survey noting that Tauranga is rated “severely unaffordable”, then goes straight in to hillbilly economics mode trying to justify smart growth and surprise surprise, then coming up with suggestions why Tauranga needs more smart growth!
I will be responding to it, once my current “severely elevated” blood pressure levels, come back to normal levels. Sadly, its just another illustration of the complete lack of basic management disciplines within New Zealands Local Government sector. There is an overdue need for normal performance disciplines to be instilled in to the local government sector, something I have been going on about for a long time now – refer “Getting performance urban planning in place” on my website.
November 18th, 2009 at 6:54 pm
Gibber – there are a number of very good points you bring up, particularly regarding mortgage regulations in Texas. For those interested in this issue, I would suggest you google search “texas mortgage regulations”, where there is extensive information available.
The key Texas regulation however is that people are not permitted a mortgage in excess of 80% of the property value in that State – referred to as the Combined Loan to Value (CLTV). As with any finance regulations however, no doubt people find ways around the CLTV hurdle. Firstly, parents assisting by placing small mortgages on their own homes to assist children with deposits. The property appraiser / valuer erring on the slightly generous side. People financing some of the deposit with credit card assisance and borrowing on other assets they may own (eg a car).
The median house price is about the $US150,000 mark – so its not a back breaker to pony up with a $US30,000 deposit. Or a new fringe manufactured house on a site for $US73,000 all up. Whats the median house price in New Zealand at the moment?
But in having said that – the finance regulations would certainly act as a “damper” but should not be considered the PRIMARY reason why we have not seen bubble housing markets emerging in Texas over recent times.
You ask too why I talk of Texas so much. The major reason for this, is that of all the affordable States in North America, the quality of the information is just so good. For example, the Houston Association of Realtors website http://www.har.com is rightly considered the best in the world. Further to this, the reports generated by the Dallas Fed, Texas Real Estate Center and numerous other institutions.
There are things I dont like about Texas and America generally – such as property taxes. But I do think there is a lot we should be learning from these affordable markets – then seeing how we can best adopt / adapt what they are doing right to suit our local conditions. Just like the Japanese did after the 2nd World War when they went to Detoit to learn how to build cars. I think it would be fair to say they were pretty clever students! We need to be clever too.
November 18th, 2009 at 7:03 pm
PhilBest,
Oh yes, and exactly what is MY TYPE PihilBest ?
Come on PhilBest, please describe me. I’d like to know exactly what you think “my type” is.
November 18th, 2009 at 7:27 pm
Lemme have a crack at that , Steve : Your type is a tough guy , but you cry when France beats the All Blacks . You eat quiche , but never infront of truckies . You believe that Sue Bradford is off the planet , yet you deny the existence of extraterrestial life . You love white-bait , but always leave the filleting to ” her indoors ” . You are a pacifist , but will clobber a smart-arse little know-it-all oink like ……………. owwwwwwwww !
November 19th, 2009 at 7:48 am
This style of article seems fairly common in NZ – read a US financial blog once or twice, paraphrase what they are saying and then try to prove you are smarter.
Sorry, Dr Housing Bubble is anything but “baffled” when it comes to any aspect of the US market and especially California. Any regular reader of the site wouldn’t be able to say that with a straight face.
What is also interesting about these kinds of articles is the impossibility of finding reasoned discussion of the New Zealand market in NZ! Copying US sites with their well researched links is just easier.
The NZ market is in worse shape than the US now. Americans can now buy in less desirable areas for reasonable prices. Prices in NZ are far out of whack with income. Real estate fever is still running hot – whereas in the US it is continuing to die.
Visiting Aus or NZ now is like going into a time warp and being in the US circa 2005.
November 19th, 2009 at 6:25 pm
Hi Roger
I was hoping for a reply from PhilBest, because I REALLY would like to know what he think my type is.
I’m pretty sure it would be the basis of an interesting discussion.
Since you have been kind enough to offer your ideas, I will reply
quote:
Lemme have a crack at that , Steve : – Good
Your type is a tough guy , but you cry when France beats the All Blacks – Vice versa. Soft and don’t care about rugby !!!!! ROFL
You eat quiche , but never infront of truckies – I eat quiche in front of anyone
You believe that Sue Bradford is off the planet – YES I sure do.
yet you deny the existence of extraterrestial life – You know ‘deny’ is antilocution
Actually I think it almost impossible that there is not extra-terrestrial life.
You love white-bait , but always leave the filleting to ” her indoors ” . ROFL
You are a pacifist , but will clobber a smart-arse little know-it-all oink like ……………. owwwwwwwww ! ROFL.
==============
I’d describe my self as:
1. Non-political.
2. Non-ideological.
3. A scientist, interested in truth, and willing to change my views at the drop of a hat if they prove to be false.
Come on PhilBest
January 30th, 2010 at 9:31 am
wow – a fight!!!
come on PhiBest – respond to Steve! Let there be blood … real men’s blood on the streets. Times are bad indeed when wordsmith fisticuffs hold more appeal than endless house price discussions. But enough said … I’ll just stand on the edge of the page and pretend to be horrified (whilst secretly loving it).