sign uplog in
Want to go ad-free? Find out how, here.

Ryan Greenaway-McGrevy on housing vs equities, what barriers to affordable housing cost the economy, upzoning, restoring affordability & more

Ryan Greenaway-McGrevy on housing vs equities, what barriers to affordable housing cost the economy, upzoning, restoring affordability & more

Today's Top 5 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

And if you're interested in contributing the occasional Top 10 yourself, contact

See all previous Top 5s here.

Before I begin this week's Top 5: The past two weeks have been among the darkest days of our nation's history. I cannot add to what has already been said by our leaders or by those affected by this tragedy. Nor do I think it is my place to. Rather, I'd like to acknowledge the terrible suffering that some our fellow Kiwis are going through, and that their lives will be forever changed. Kia Kaha, Christchurch.

1) Whether or not housing outperforms equities as an investment is a perennial debate. New research from NBER throws a cat among the pigeons by concluding that housing is better on a risk-adjusted basis in a sample of 16 developed nations. (Unfortunately New Zealand is not included.)

If the returns are so great, why haven’t we invested more in housing?  Perhaps it is hard to scale investment in housing, which makes it difficult for the corporates to compete with households, particularly when it comes to quality of service. Meanwhile, financial frictions and regulatory barriers prevent households from scaling up too much themselves.

2) While we are on the topic, what are barriers to affordable housing costing the economy? Well, about 7% of GDP, according to research by MR Cagney Economist (and former UoA Economics student) Peter Nunns. Posts explaining it all are here, here and here

The gist of the result is as follows. Agglomeration makes cities highly productive. But expensive housing can prevent people from moving to the cities where their labour is most productive. Making housing more affordable means enhancing productivity and growing the economy.

Now, if memory serves, that 7% figure shrinks to about 1% on a per capita basis, which is still nothing to be sneezed at, but suggests that agglomeration in New Zealand has not yet yielded vast improvements in productivity. It is far less than the 10% figure that Hsieh and Moretti (2015) originally found for the US, for example. Perhaps Auckland grew expensive before it grew wealthy?

3) Upzoning is one policy response to unaffordable housing. Seattle has followed Auckland and gone all-in. Historically such large-scale upzonings have been quite rare: perhaps this is a sign of things to come.

4) Meanwhile, Tyler Cowen facetiously proposes an alternative way to restore affordability: erode the quality of public services. In cities with constrained land, the value of any quality improvements in public services - such as lower crime or better public transport – gets capitalized into land, leaving non-landowners no better off.

In other words, to the scarce factor of production go the spoils. But it’s not just the benefits of better public services that go to land owners. Here’s Cowen again:

Once you think about these cities in terms of the Ricardo-George model, it is remarkable how many orthodox views get revised. What about an increase in the minimum wage, for example? Any initial gains for workers will eventually be offset by higher rents.

Who has benefited from the rise in women’s labour force participation? Clearly, women themselves, as they have more options and more financial independence, which is something to celebrate. But who can afford a house in Auckland on a single income these days? In our expensive cities, landowners are pocketing much of the value that women have created.

5) New research maps beliefs in “pseudo-profound bullshit” to political ideology.

In case you are wondering, yes, that is the technical term. To generate PPB the researchers “generated sentences by randomly stringing together words from a list of profound-sounding words or from tweets by Deepak Chopra (a prominent figure in the New Age movement) into syntactically correct but vacuous sentences”. LOL.

Go on: click the link to see whether your political preferences fall into one of the at-risk categories.

Enjoy your Friday! And remember: Imagination is inside exponential space time events.

We welcome your comments below. If you are not already registered, please register to comment.

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


2) Did Auckland get more expensive before it got more wealthy? Perhaps not so black and white but in part yes. Where is all the high density residential construction in Auckland? Why are there so few apartments in a city with such a large population?

Part of what I work in is getting as many townhouses and apartments as possible in the regions I work in. People living in close proximity to work and play leads to a lot more activity. Activity is not just work or consumer transactions but also opportunity for creative works and an improved lifestyle. Good public transport helps rather than people stuck in traffic for hours.

The limitations aren't just cost but getting consents to build the high density residential buildings is slow, much slower than it should be or is allowed by law.

If New Zealand embraced innovative and new urban development processes Wellington could build 10,000 houses at about $400,000 each, in a location that can access the region’s major employment markets with 30 minutes or less travel time using rapid transit.

Brendom: in a book you recommended the formula for productivity benefits due to size was discovered to be 15% for each doubling of size. So take Dunedin as a base and double the population four times to get Auckland's population and if we were like most countries Auckland would be 60% more productive than Dunedin. That formula works well enough comparing small Yorkshire towns with Leeds or small and large cities in USA. Auckland is quite remarkably unproductive - just a smidgen better than the average for NZ.
Your explanation emphasizes low density housing and my guess would be transport and the odd shape imposed by the geography.

Yes Auckland and NZ is awful at building houses, transport corridors and city infrastructure. It is a giant cluster f... and we reap the resulting crap productivity.

My explanation is more that our cities never joined up the dots re integrating higher density housing with rapid transit. Especially as geography in Auckland and Wellington -and increasingly in Greater Christchurch means our cities would benefit from this approach.

Peter Nunn's excellent paper did not model the socio-economic costs of unaffordable crap housing and it didn't measure the productivity losses from chronic traffic congestion. I suspect like Birmingham that the impact on Auckland is quite huge. So the per capita effect on GDP could be much larger.

I think Auckland (and other Anglo-World) cities could learn a few lessons from Tokyo re housing affordability and transport.

There is a market failure in Christchurch’s housing market. Affordable housing in walkable communities with good access to rapid transit is not provided. Will the city be able to correct this flaw before harms become entrenched -terrible traffic congestion or a housing crisis? Auckland couldn't find a route between that rock and hard place -can any NZ city do it?

Cities require inputs of energy and resources. They also require removal of solid, liquid and gaseous wastes. If the resources are finite or being used at an unsustainable rate or if the removal is inadequately mitigated, the city is unsustainable. Period. At some point it will simply cease functioning, probably in a series of degenerating stages due to a series of disruptive impacts.

Doesn't matter about 'labour productivity' - labour is less than 1% of work-done. It's interesting to note that crowding makes cities go 'up' at a certain point, and interesting to note the increased complexity of servicing ever-further sprawl. But neither move is the problem - crowding is a result of too many of the species, even if they choose to blindside themselves in that regard.

"Making housing more affordable means enhancing productivity and growing the economy".

No it doesn't. It might allow some folk to consume consumables, rather than pay a mortgage. Globally, 'the economy' has peaked due to the dwindling physical underwrite remaining, something that will show up more as debt-increases and money-printing run their course.

The disconnect seems to be that so many folk 'earn' their 'assumed right to purchase' from activities so far removed from the real world, that they've lost touch with whether the real world can support the current level of activity, let alone 'grow the economy'. I hope Ryan explains to his students, the real state of the world they are going to be somewhat annoyed at inheriting.

Only a few humans like to isolate themselves from the rest of society. Humans are social animals -towns and cities reflect that fact. City dwellers in many ways are more environmentally sound than those living in countryside. Cities can incrementally improve on their environmental credentials too.

Of course PDK you don't believe in this. You have an end of time belief system and everything must follow from that belief.....

The man who becries economists for poor scientific practices, is also the one who starts with a conclusion and works backwards.
Can you say "irony".

Presuming you're referring to me, you've got it wrong.

I monitor stocks, your temporary measurement style only addressed flows, abstractedly, at that. I can monitor depletion-rates, I can monitor energy demand, I can monitor diminishing EROEI, i can measure population and I can measure the minimum per-head energy requirement. I can also measure the First-World energy demand, the rates of decay/entropy of infrastructure - and tell you our current population and rate of consumption are unsustainable. I'm also un-brainwashed enough to know that exponential growth in consumption (or even the rate of consumption of most things we've temporarily attained) cannot be kept up by substitution - you run out of planets.

All these matters project a conclusion - a very inevitable conclusion. Growth, based on consumption, is impossible on a finite planet. If you want to be of any use at all, try encouraging people of your 'profession' to take a unit or two relating to physical realities. Something like this:

Can you say "avoidance"? Or "we-a culpa"?

"I can monitor depletion-rates, I can monitor energy demand, I can monitor diminishing EROEI, i can measure population and I can measure the minimum per-head energy requirement. I can also measure the First-World energy demand, the rates of decay/entropy of infrastructure - and tell you our current population and rate of consumption are unsustainable."

Sounds like you believe you have a perfect model.
And there in lies a fault of yours; you have no scientific humility, but discharge those who do.
You believe science is all about some certainty, when it isn't. It's the uncertainty that defines 99% of all scientific pursuits. These pursuits rely on the ability to gauge the uncertainty within a model and estimate whether it justifiably supports a claim or not - Ironically exactly what all empirical economists do. It's also what biologists do, chemists do, physicists do.

Growth models are almost always wrong in some regard. There is no doubt about it, but they provide important illustrations of empirical data. That is their purpose; they are 'models'.
You always come back to the point that economists don't understand physical laws, which is the most pathetic internetism around. As I have said before several times, I challenge you to quote any single economist who does not believe in a finite planet. And I also challenge you to quote one economic model which doesn't consider resources to be finite.

Well done for posting a link that reiterates my point.

Yes, that 'The End is Nigh' sign must have left permanent scars on the shoulders....

More to the point, we aren't in any danger of running out of the following:

  • Sunlight: 1.3Kw/sq m over the entire planet. Of course, we can only capture a fraction of this (my panels are currently running just over 3kW as I type), but it also powers plants, clouds, and life itself.
  • The potential energy in the bonds between atoms. Nuclear is of course a banned word despite the Big Yellow Thing in the sky apparently running it, but hey, times can change.
  • Subduction zones to dump our plastic, rubbish, nuclear waste and whatever. Gaia slowly churns these through and they then turn up, much transmogrified, as Spreading Zones and new land.
  • Human ingenuity. New software, new designs, new technology. But the key is Rationality - perhaps that's the Real Limit we all face.....and the many and varied forms of New Religion around do not augur well. Too much Magical the Green Nude Eel just recently euthanized in the USA.

I've met the Waymad way of thinking often. It's several stages ahead of 'economics', but it's still not quite there.

I live on solar too - was co-CFhair of Solar Action once. But every acre of sunlit surface is doing something right now. We've had to displace more than our (and our for-consumption herds) weight in biomass, and we've already done that. That's all those paddocks with pivot irrigators to the south of you. And we have to make the panels and install them - a process we are too late already already with.

Nuclear? Yep, a possiblility, only does electricity though and (dreams aside) there's maybe 100 years of it, maybe only 40.

Subduction is on a timescale irrelevant to our problem/responsibility, a red herring. Alle same "the climate is always changing".

Human ingenuity is a wrong-un, alle same technology. A fuel-injected computer-controlled motor will out-efficiency a Model-T motor - but both run to a halt with an empty tank.

Rational thinking is indeed good. And indeed the modern religion is bad - as they all are. The one I notice most, is the 'We're not big enough to be altering the climate 9or anything), so we can go right on doing what we're doing".... Why did you go solar, given your optimism? Surely ingenuity will soon supersede the technology?

Rationality just acknowledges that we're a species, that we used a temporary bonanza to overshoot our population, and that we chose to believe what was no more believable than the six-day creation - that the Holy Grail was 'economic growth'.

Heh. "Why did you go solar, given your optimism?"

I am a Techie Optimist, and a Human Misbehaviour Pessimist. So the panels (4.8Kw peak - 15 of 'em. plus a battery to time-shift consumption) are a hedge against an OBR event. If there's much greater mischief afoot than that, then all bets are off anyway.

Linking two of the topics (2 and 5) above, I believe there is a lot of PPB in the debate around housing costs. Just yesterday Susan St John wrote a piece in one of her responses to her article; " Owning one's own home yields a non monetary benefit which we can see if two neighbours go and live in each others houses and pay rent to each other. This is why GDP includes an imputed rental for owner occupied housing." Asking some simple questions can push through this like; why would two neighbours do this and charge each other rent? This just reads like the politics of envy? What assumptions underlie such an assertion?

2) Auckland stopped doing agglomeration 9 years ago, we now officially develop in a polycentric configuration and place new urban growth areas at a distance from the pre-existing agglomeration. A polycentric configuration allows separated equivalent centres of similar jobs/services scale so the transport network remains under-stressed as residents can act locally. Auckland's "centres" are disparate - 1.5 million, 0.12 million, 0.08 million and 0.05 million people - making it a very non-traditional use of the term polycentric. However they are certainly attempting to slow agglomeration.

3) There is massive oversupply of land currently available adjacent to every urban area in the Auckland region (apart from suburban Auckland) made available at the behest of Auckland Council. The Auckland Council have hardly gone all in on up-zoning, they have covered their bets.

4) Facetious - you didn't even have to ask. Polycentric development is expensive and hence carried out by cities in excess of 10 million people (and historical accidents and Auckland). Each new centre needs replicated infrastructure, which large cities nevertheless find affordable because it is cheaper than adding to the existing centres. In small little Auckland we are building multiple new centres simultaneously (odd) and lack the resource to do so without stripping the existing centre of investment. Polycentric development requires transit between centres and here is an isthmus choke point. Reduced investment and increased through transit causing congestion - central Auckland is well on the way to becoming affordable.

The entire Labour Party suffers from the syndrome described .........

"This research systematically mapped the relationship between political ideology and receptivity to pseudo-profound bullshit"

Like 'recalibrating " their Kiwibuild program, as an example

Mapping the types needing to 'believe' might be more productive. Assuming the need for more followers than leaders, it may explain the mass delusion and the transfer from tea-leaf reading to believing in the Gospel according to GDP.

Note the disingenuous question up-thread:

From the moment Malthus penned his stunningly intelligent and original piece, through Hubbert doing his 1956 presentation, to the howls of derision/obfuscation/rejection following publication of the Limits to Growth, it's been economists, and those who benefit from the continual chanting of the growth mantra, who have been doing the howling.

This statement: "Making housing more affordable means enhancing productivity and growing the economy". is typical - no general-public reader could possibly guess that there was a limit to that 'growth' from reading the sentence, nor would they have a blind clue what 'economic growth' actually is.

And that's pretty much par for the course - we quote them on a multiple-times-daily basis, but never do they offer the fact (nor are they asked, despite prodding of reporters) that this growth, in increasing trouble since 1970, is near to, or has already entered, terminal decline. One of the problems - a fatal one - is that they have no measure in their suite for the things they fudge as 'externalities'.

This explains it as well as any - one of the few economists on the planet to see the problem in proportion:

... ah , dear old Malthus ... he's been proven 100 % wrong every year for the past 218 years ... since the publishing of his seminal work predicting the end of civilisation as we know it ...

Well , in part , he was correct , civilisation as we knew it did " end " ... it gradually morphed into something unbelievably more inclusive , richer , and wonderful ... quite the opposite of what dear olde Tom predicted ..

... imagine though ... if the All Blacks had lost that many times ... 218 consecutive games in a row ... we'd have quit them and all be experts at tiddly-winks or something ...

Malthus .... 218 years ... and counting ... wrong once , wrong forever .... what a guy !