Today's Top 10 is a guest post from Ryan Greenaway-McGrevy, a Senior Lecturer in Economics and the Director of the Centre for Applied Research in Economics at the University of Auckland.
As always, we welcome your additions in the comments below or via email to firstname.lastname@example.org.
And if you're interested in contributing the occasional Top 10 yourself, contact email@example.com.
1. Oversupply? What oversupply?
Kevin Erdmann at the Mercatus Centre reckons that there was no over-supply of housing prior to the housing crash in the US.
It is an argument worthy of careful consideration. Many (myself included) have long ascribed to the view that any housing crash in New Zealand could not be as bad as in the US because supply has been so restricted here. If Erdmann is right I would have to revisit that view.
2. Subsidising the mansions.
Jaap Weel at the Tech for Housing Blog discusses how restrictive land use regulations subsidise mansions in the US.
A similar point could be made for Auckland. Purchasing a ‘heritage’ villa in the inner suburbs will set you back more than a million dollars these days – putting them out of the reach of most Auckland families.
But think about how much more expensive these suburbs would be if homebuyers had to compete against property developers looking to level the site and build apartments. Much of the inner suburbs are zoned Single House under the Auckland Unitary Plan – and that represents a subsidy for the households that are wealthy enough to buy into those neighbourhoods.
3. Zoning in.
The Californian state legislature looks to take zoning authority away from cities. That is a bold move.
Senate Bill 827, written by state Sen. Scott Wiener (D-San Francisco), would loosen or eliminate restrictions on height, density, parking and design for residential properties near major rail and bus stops
However, the latest news suggests that high-rise apartments have been stripped from the bill.
Nonetheless, Salim Furth at the Mercatus Center reckons the law would decrease rents in LA and San Francisco by about 5%.
4. Transporting the population.
New research explains why developing economies are often highly-urbanised despite being more dependent on agriculture: Transportation costs.
The corollary is that developed economies have inherited cities that are more evenly-distributed. Paul Krugman ponders whether the smaller of these cities will survive, and concludes that it will be an uphill struggle for regional development policies to preserve their viability.
5. Put a cap on it.
Rent control is making a comeback in the US. It seems that supply cannot keep up with demand, leading to a call for rents to be capped:
Elena Popp, founder of the Los Angeles-based Eviction Defense Network, said expanding rent control is the best way to protect affordability.
“We cannot build our way out of a crisis of this proportion,” she said.
A friend of mine subletted a rent-controlled apartment in in Washington, D.C. She paid market rent to her “roommate”, who held the lease from the landlord at much cheaper rent-controlled rate. Unsurprisingly, her roommate was never there, but she did keep some belongings locked in her “bedroom”.
Is there a point at which the cost of living becomes so expensive that rent controls would be the best of a terrible bunch of options? A note to our local policymakers – please sort this mess out before we reach the point where such drastic measures are required here.
6. Shake it up.
This detailed NYT article on the significant risks that earthquakes pose to apartment buildings and housing in San Francisco offers more than a few lessons for us here in the Shaky Isles.
7. Foreign buyer bans, housing development, and lessons for New Zealand.
As Vancouver continues to debate a foreign buyer ban, this Op-Ed piece in the Globe and Mail suggests Canada should follow Singapore’s “dual-track” policy by creating massive government-funded housing developments for its citizens.
Today, 80% of 3.8 million Singaporean citizens and permanent residents live in more than one million public Housing and Development Board apartments. HDB flats, as they are called, are affordable, safe, modern and well served by amenities. The country’s 1.8 million non-citizens and wealthier Singaporeans occupy private housing that are among Asia’s most expensive.
Are there any lessons here for New Zealand? Following the Singaporean model would mean putting Kiwibuild on steroids, and we haven’t seen this kind of government intervention for over a generation.
It is worth noting that Singapore is one of the few countries that ranks higher than New Zealand in the Heritage Foundation’s Economic Freedom Index – a measure of an economy’s competitiveness and openness – yet it is not averse to large-scale government intervention when necessary.
Would opponents of our own foreign buyer ban would welcome this kind of state involvement instead?
While we are on that topic, there are good arguments against our government’s impending ban on foreign buyers.
Unfortunately, there have also been some less-convincing arguments put forward over the past few months. To round out this week’s top ten I will look at some of the arguments that don’t really fly.
8. It’s xenophobic.
Some have gone so far as to suggest that it is racist. This is an easy argument to debunk, since the ban applies to non-residents irrespective of their ethnicity.
It’s also a bold claim to make about a country with one of the highest foreign-born populations in the world. Nearly one in four kiwis was born overseas, which is much a much higher proportion than that of the US or the UK. If anything, we seem to be more welcoming to people from overseas.
But if we are going to start a conversation about ethnicity and home ownership in this country, I would humbly suggest that we start with the fact that the proportion of Pasifika people living in owner-occupied housing plunged by thirty-eight percentage points between 1991 and 2013. The figure for Māori is not much better, at thirty-two percentage points.
Let that sink in for a moment.
Home ownership comes with a lot of benefits in New Zealand – particularly for families, which tend to need stability in order to thrive. It really is unacceptable that any community in our country would be so severely marginalised. But aside from some brief coverage, this sad fact is not persisting in the headlines.
Perhaps it is the things that we are not saying, and the conversations we are not having, that really reveal the ongoing battle with prejudice in our country.
9. It is anti-free trade – and our economy depends on free trade.
This is another easy one to debunk. Trade refers to the exchange of goods and services – production, in other words. But land is not produced – in fact it is an input to productions. That means land - and housing - is fundamentally different to milk powder or lamb exports.
Need it be said that building an economy around selling-off irreproducible assets is unsustainable?
Nonetheless, this view resonates with the all-to-pervasive idea that free markets are always best. But residential housing will never be a laissez-faire market – and I am willing to bet that most of us like it that way.
In a free property market, I can buy the place next to yours and turn it into an iron foundry. Or a night club. Or both. I hope you like C & C Music Factory, because I do. But I digress.
The vast majority of us want various regulations to protect our properties and neighbourhoods. But make no mistake, those same regulations infringe on your rights as a property owner.
Free markets are integral to the ongoing wealth of our society, but they cannot solve all our problems. We must remember that free markets are a means to an end, not the end in itself.
10. Fewer luxury golf courses.
We have families living on the streets and kids growing up in motels. But if we are not careful, we could end up with fewer high-end golf courses.
I am not even sure this is a sound argument, since golf courses like Kauri Cliffs are profit-seeking businesses, and we continue to welcome foreign direct investment.