Mike Blackburn is watching a startling rise in section prices for new-builds in Christchurch and sees a complete disconnect between the current rate of land development and demand for new housing

I'm glad to find such an enlightened comment on this thread so quickly. There is an utterly unsupportable assumption underlying the urban planning fad for "intensification as a substitute for greenfields sprawl" - which is that site prices are static and the price of them can be divided up between more units when more units are allowed to be developed. 

In real life, which the urban planning fad remains impervious to, site values are elastic to allowed density, and the elasticity is exponential and in the wrong direction. It is obvious from a cursory look at the evidence, that systemic housing affordability as defined by median multiples around 3, certainly not much over 4, are all to be found where greenfields expansion is allowed to whatever extent the market determines to be necessary. This always results in an urban area remaining no more than medium density, because the intensification that occurs anyway driven by market demand and the evolution of central parts of the urban economy, is matched by continued lower density development beyond the fringes. 

However, in ANY urban area where there are restrictions based on the assumption that intensification is to substitute for greenfields expansion, the median multiple is NEVER below six, and is frequently 10 and higher - and cyclical volatility is greater (however the bottom of the crash never gets anywhere near a median multiple of 4). And it seems the greater the "allowing" of density of development, the HIGHER the price of new units coming to market is, NOT the "lower". 

In the typical median multiple 3 urban area, the average new-supply home "unit" is a large McMansion with multiple bedrooms, a backyard and carparking (mostly a garage rather than a pad). And the price of these is around the market median; i.e. three to four times median household income. However, in markets where the average or median new housing unit is something much smaller and more tightly constrained, and possibly even "stacked" on top of other units, the price of this unit is seldom less than the market median: ie six or more times household income.

The difference is to be found entirely in the cost of sites. The cost per square foot of the site rises exponentially as more density is allowed, so that the resulting housing units supplied to market are always more expensive rather than less. I do not believe there has ever been a "sufficiently aggressive" upzoning to demonstrate that upzoning and intensification can indeed provide systemically affordable new housing - every time the upzoning fails to achieve this (Britain has been trying this for decades and failing) the conceited planning classes conclude that "we must try more aggressive upzoning next time". 

The current open-slather 3 stories liberalization will be an interesting experiment: I predict that it will cause another explosion in site prices (I have been correctly predicting inflation every time a Council enacts a round of upzoning, for years now). The problem being that "site prices" are also "house prices", and house prices are set by expectations based on "the highest recent sale". So if developers are bidding more than ever for a "house" on a section with "redevelopment potential", the successful bid then becomes "the expected house price" for that area. And the resulting "supply of new houses" never swamps the "site price inflation" effect. "House prices" go UP because of upzoning, not down. In fact Grimes and Aitken (2010) "Housing Supply, Land Costs and Price Adjustment" had the apropos phrase in the conclusion: "all the profit potential from redevelopment is impounded in rising site prices".

Developing and building becomes a higher-cost, higher-risk game, with the profits earned on honestly building structures being swamped by the "fixed costs" of site acquisition and holding. In Britain, the trend has been decades of building-sector attrition and monopolization by large players, even as a housing shortage worsens and prices climb, because the people reaping the profits from the market distortion are those gouging fixed, non-value-added costs out of the builders, who are trapped in a gladiatorial bidding war against each other, between site vendors with a form of monopoly price gouging power, and the capacity of end consumers of housing to be gouged the absolute maximum they can afford for the necessity of housing. 

You are entitled to your opinion about the RBNZ, but you cannot accuse them of being less competent than the Fed/BOE/RBA etc. From what I hear about Sydney property prices, anyone leaving NZ for there will be in for a rude awakening.

Crypto

There's one managed in Singapore dollars, I think it's Singapore Bank do crypto cards. 

The latter suggestion is what we are trying now, and prices are going up.

And all the land economic theory and practice historically shows it's the fringe that sets the price. 

There is no mystery as to what works, both in theory and what you can see happening with your own eyes.

But to paraphrase Phil re vested interests, 'it can be hard for someone to understand something when their income is dependent on them not understanding.'

Calaverite - I would agree very much with "a combination of both" or indeed every trick in the book. The critical insight is that combinations of "everything but liberalizing the use of exurban land" has already been tried and failed. I do like discussing the example of Germany, which is often raised as a good one. The problem is that advocates cherry-pick what they like and omit what they don't like, or have missed. 

The first thing to note is that Germany has not relentlessly curtailed exurban growth and insisted on intensification "instead". One of the reasons that "old world" cities are so dense is that they started from an extremely dense point around 1900, and even having spread out and become less dense over time since then, they remain more dense than new world cities. It is instructive to compare Britain and Germany; Britain has relentlessly curtailed its sprawl and has successfully held urban densities up to a level around double that of Germany. In practice, what has happened in Germany is that they had suburban sprawl of a very similar magnitude to countries like NZ, Australia and Canada (and so did much of Europe), and this resulted in densities somewhere between NZ and Britain. However, with NZ's relentless intensification focus for the last 20 years, Auckland's density is now comparable to the least dense German urban areas of comparable populations. Our anti-sprawl fanatics will never admit this. 

Germany's amount of sprawl was obviously helpful in averting the kind of housing crisis that Britain suffers from, and that we now do. It was also very well-planned sprawl. But there are several other important contributing factors. 

Germany, as with most of Europe, has much smaller rural land ownership parcels. It is Britain and the Anglosphere that are marked by massive farms as a norm; small farms are a norm in much of the rest of the world. This means that a prescriptive Plan for urban expansion does not deliver monopoly powers to the owners of a few large parcels of land; there are many owners of many small parcels of land; and the Plans in Germany always made it very easy for the owners of these small sites to "develop" by right. The planners also have compulsory acquisition powers that are not controversial like they are in the Anglo world, and exercise them occasionally. The fact that they exist means that the owners of land earmarked for urban growth are reluctant to "hold out" in case they attract the attention of the officials who will wield the compulsory acquisition powers if they need to so as to make the Plan work.

A further factor is that many rural towns are not obstructive of development, and the ability to drive at 200 km/h on autobahns makes far more rural towns a de facto housing-supply option compared to nations and regions with low speed limits and a high tolerance for congestion related to inadequate highway capacity. 

The factor that many advocates like to focus on, is Germany's significant amount of rent-controlled housing. Rent-controlled housing is a disaster in some parts of the world because supply is disincentivized - but in Germany, investment institutions are encouraged to get involved in supply of rent-controlled housing by generous tax incentives. So the factor suppressing the market could be said to be more "subsidy" than "control". Now subsidies in a distorted urban property market like what we have, would just feed straight into higher prices for developable sites - Germany's overall package "worked" for decades because of the overall mix of policies. However, their affordability was never close to as good as the USA's median-multiple-3 cities, or ours from the 1950's to the late 1990's. 

And now, the game is completely over in Germany as their policy mix for systemic affordability has completely collapsed before the onslaught of funny money from central bankers. The only urban areas anywhere in the world that still have median multiples somewhere around 4 or lower, are the ones that Demographia always identified, and this is because the allowance of sprawl exists in those places. It is obvious that only the liberal policy settings around land use are the decider for stablizing urban land prices. 

The last new point I want to emphasize is that the economist Issi Romem studied the rate at which US urban areas were intensifying, and he found that those like Portland that deliberately Plan with the intention that intensification is the main means of new housing supply, in fact were dismal failures in "housing supply", period, and the systemically affordable cities with rapid growth achieved a mix of around 70% new housing by sprawl and 30% new housing by intensification - and that 30% was more in terms of real housing supply, than is achieved by the "intensification focused" cities. Planners hell-bent on saving the planet from urban sprawl will throw up their hands in horror at the idea that "revealed preferences" under a relatively free market, will produce a 70% split for sprawl and only 30% for intensification - but the outcomes are superior on so many levels, that it is criminal not to allow it. For example, the intensification that does occur, driven by evolutionary market forces, clearly increases agglomeration economies. Because the whole price curve is flattened, this intensified housing is ridiculously affordable - far more affordable compared to Auckland near-CBD intense housing than McMansion sprawl is more affordable compared to Auckland - and people are priced "in" not "out". In contrast, the cities that focus on intensification end up "pricing out" potential agglomeration participants. 

The amount of "real income" - derived from "production" - that is not swallowed up in economic rents related to land, becomes a virtuous "flow of money" booster in the local economies with systemically affordable housing, far superior to artificial "stimulus" so beloved of politicians and central bankers. All this "stimulus" in local economies with distorted land markets, just feeds into the land-rent black hole. The recipients of the stimulus become just the "middleman" as rents and house prices rise again in response to the added liquidity. All this would be clear at a glance to any economist from circa 1900 who somehow time-travelled into our day.