'Focus on housing supply, not demand'

Property

The NZ Initiative's Oliver Hartwich argues a 'cure', rather than merely 'pain killers', is needed for the housing affordability 'disease'

1st Nov 13, 4:00pm by Gareth Vaughan

By Gareth Vaughan

New Zealand needs to find a cure for its housing affordability "disease" rather than merely administering pain killers and this should start with land availability and making sure both the costs and benefits of development are felt at the same level of government, says the executive director of think tank the New Zealand Initiative.

Oliver Hartwich told interest.co.nz in a Double Shot interview the "disease" in New Zealand stemmed from a long under supply of housing.

"You just have to go back to the 1970s to see that back then New Zealand built about 35,000 (housing) units a year. We're down to just under 15,000 now despite the growing population so we've got a massive under supply that has built up over many decades," Hartwich said.

"I think the problems are probably going to get worse in the future because of demographic change. So really rather than finding these one off solutions (such as) just instructing Auckland to build 39,000 units, we actually have to find a real answer to the long-term challenges in the New Zealand housing market."

He said lots of New Zealand families struggle with their mortgage payments, and it has become very difficult, especially for young New Zealanders, to get on the property ladder.

"It would be nice if these 39,000 (Auckland Housing Accord) homes get built," Hartwich added. "But I think it's still administering pain killers to the housing market when in fact you really need to find a cure for the disease. And I think the disease we have in this country is quite clearly that we have got a long undersupply of housing."

'In Germany there's nothing more boring than the property market'

I recently reported on a speech Hartwich gave to the New Zealand Property Council's Residential Development Summit in Auckland where he suggested New Zealand could learn a lot from his native Germany and neighbouring Switzerland to help deal with its housing affordability issues.

Elaborating on this, Hartwich said this view stemmed from work he did in London on housing affordability for the think tank Policy Exchange.

"And for me coming from Germany this was a completely different feel, because I wasn't used to the kind of property market inflation that Britain has experienced for many, many decades. Coming from Germany that all seemed very strange for me because when you live in Germany nothing is more boring than the property market."

He said Policy Exchange set out to ascertain what was the structural difference between Germany, with its "relaxed" housing market, and Britain and other English speaking countries. They looked at demand side factors and decided these were quite similar.

"All of these countries have some inward migration, they all experience some economic growth, they all experience shrinking household sizes. So structurally we didn't find too many changes and differences on the demand side," Hartwich said.

"Where we found differences was the supply side of the market. So we found that yes, Germany and Switzerland build more regularly on a per capita basis than Britain, or Australia or New Zealand. What we didn't quite understand initially was why they (Germany and Switzerland) built more, because as it turned out they had very complicated planning systems."

"They had building regulations, building courts, planning courts. I would probably say actually it is more complicated in Germany and Switzerland in many respects because they also have a three tiered system, - a federal system with national guidelines, state guidelines, local planning. So if anything it should be more complicated."

"But then we went to Germany and Switzerland, had a look on the ground, and talked to people and found that the difference really was a different way of funding local government," Hartwich said.

"To understand the difference basically put yourself in the position of a planner in an English speaking country. When it comes to development you have to pay for a lot of the infrastructure that goes with it, but you wouldn't automatically get an upgrade in your council's budget to pay for that."

"And to make matters even worse you have to deal with the nimbys (not in my backyard), or with the bananas (who are) the faction of people (who say) build absolutely nothing anywhere near anyone. There's a big anti development brigade and so there's nothing to win either financially nor politically for planners on the ground," Hartwich said.

What they found in Germany and Switzerland was the opposite.

"Especially in Switzerland, they have local income taxes. So any new resident pays into a council's, or canton's budget and therefore they can fund the extra required infrastructure out of that. They can also then exploit some economies of scale so you can finance the existing infrastructure with a larger population. And the existing population then benefits because they may get better public infrastructure, or they may get tax cuts eventually," Hartwich said.

Where NZ has lessons to learn

Hartwich and his colleagues come to the conclusion that the big difference between Germany and Switzerland's housing markets on the one hand, and much of the English speaking world's on the other, was in local government finance.

"And that's where I think New Zealand has lessons to learn."

"We should make sure that when it comes to development, the costs and benefits occur at the same level of government," Hartwich said. "The bulk of all taxes generated go to Wellington, but the costs are often borne by local government."

However, the German and Swiss housing markets have developed affordability issues of their own. In October the Bundesbank said apartments in Germany's biggest cities might be overvalued by as much as 20%, after rises of 25% on average since 2010, in part due to speculation. The Swiss National Bank recently moved to force banks to hold more capital to try and cool the country's housing market where prices have risen an average of 20% since 2008.

And analysts at Goldman Sachs included Germany and Switzerland among countries with the world's five biggest housing bubbles.

Hartwich maintains these problems were created by the euro crisis rather than structural problems with the German or Swiss housing markets.

"The dates that you mention - 2008 and 2010 - are quite telling. It basically coincides with the euro crisis. You can see that interest rates have fallen in the eurozone. The European Central Bank is now going through a period of activism to deal with the euro crisis and what we see in the housing market is a direct result of that," Hartwich said.

"So money is generated, it has to find a safe haven and therefore it goes into property. Not just into property, you can also see it in the German stock market. The stock market last week went through the 9,000 barrier. That's money that just needs to find a place to be invested rather than staying in savings accounts where it doesn't yield any interest anymore in the eurozone," Hartwich said.

"For the same reason money is flowing into Switzerland. The Swiss National Bank is fighting the appreciation of the Swiss franc. I don't think that has anything to do really structurally with the responsiveness, the price responsiveness, of the German or the Swiss property market. It really has everything to do with the euro crisis."

'Focus on supply not demand'

Hartwich isn't a supporter of introducing a capital gains tax, banning non-New Zealand residents from buying investment properties or the Reserve Bank's restrictions on banks' high loan-to-value ratio (LVR) residential mortgage lending.

"The problem I have with all of these solutions is they typically start with the demand side," said Hartwich.

"They are trying to reduce demand when I think we should be taking demand as a given. The problem New Zealand is definitely experiencing is a lack of supply for many, many decades so that's where I would like to start. And introducing LVRs, introducing bans on foreign ownership, introducing a capital gains tax, all of this is really focused purely with demand but it doesn't build a single new home."

And Hartwich said even if it's significantly more expensive to build a house in New Zealand than Australia, which a Productivity Commission study suggested, 60% of what you typically pay for an Auckland home is for the land.

"So you may make building more efficient but you would only affect about 40% of the total price. So I think that's not the way to go about it. If you really want to solve the housing crisis, you really have to start with land and land availability."

The Ministry of Business, Innovation and Employment has released an issues paper seeking comment on the cost of building houses in New Zealand.

'Stable property prices encourage renting'

Another major difference between the German and New Zealand housing markets is the ownership level. According to Roy Morgan Research, 72.3% of New Zealanders own their own home or are paying one off. In comparison about half of all Germans own their own home.

Asked whether more New Zealanders should be prepared to rent, and to do so for a long time, Hartwich said this would be desirable. But first the country needs stable property prices.

"Firstly there is no stigma to renting. If you're in your 30s or 40s and still renting in New Zealand people think that something must be wrong with you. In Germany it's a perfectly acceptable lifestyle. But I think it's a lifestyle that develops over long periods of time based on an expectation of stable house prices," said Hartwich.

"German tenants are actually making some very rational decisions about their own personal finances. If you're living in a housing market that has been characterised for a long period of time by stable property prices, there is no point rushing into the market when you're in your early 20s just to get a foot on the property ladder and just to be able to afford a home in 10 years time."

"Whereas in a New Zealand context many people rush into the housing market because they believe if they don't do it now they will never be able to afford anything in the future.
So I think once you take the pressure out of the housing market, once you actually create a system that delivers stable property prices over long periods of time, there is no rationale anymore for jumping into the market at any cost."

"So I think home ownership rates are lower in Germany as a result of a stable property market, it's not the other way around."

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60 Comments

by Keyser Söze | 1st Nov 13, 5:46pm 1383281165

Any discussion and any debate on housing affordability is healthy and should be encouraged.

Which is why I will try to set aside my general concerns with Oliver more generally as an unbiased economist. Oliver certainly has a reputation and being familiar with his career I am suspicious that many of the economic policies he espouses are politically convenient to his own ideology rather than economic theory.

1) Demographics: Perhaps Oli is referring in spirit to net migration - which would be true in the short term. However NZ - like much of the developed world - has serious medium to long term demographic clouds ahead. People are getting married later and when they do they are having less children than what is required to maintain the population. NZ's median age continues to increase and last time I checked increased by nearly 3 years in a decade. We have a large baby boomer population that will begin to retire over the next 3-5 years and then move into retirement homes in massive numbers that will disrupt the structure of our economy and society. Already - Ryman is building over 1,000 retirement units a year. This long term demographic trend will undermine the market for traditional homes. In most places you look with this demographic profile you find deflation which doesn't mix well with property prices.

2) That house prices are high because there aren't enough of them: You only need look to America (and many others) to see that the ratio of the total population relative to the total standing housing stock is the same or better than NZ's yet they have dramatically lower house prices. This suggest something else is at play

3) Look to Germany for the answer! Where there is a housing bubble. Good on Gareth for keeping him honest and I thought his response was soft.

Oliver shut down any notion that capital gains or LVRs could help the situation. He took the tried and true tactic of saying well Australia has capital gains tax and house prices are worse there so vis a vie capital gains (or LVRs in other countries) must be counter productive. That is only true ceteris paribus which the world isn't. The problem with macro prudential limits and capital gains tax is that you can't prove the way things would have been otherwise. Which make them easy targets.

Which leads me to believe he makes these arguments because he has ulterior political motives. New Zealand hasn't seen much of it but there is a tremendous amount of ideological and political warfare camouflaged as economic theory and debate.

It would be easy to call him a supply sider based on the premise of this headline but that wouldn't be fair. I'm all for making it easier to build as I believe that lowers the floor house prices may eventually gravitate to but the physical supply of houses does not push up house prices (unlike the lack of listings which does). He advocates increased supply because it means less government, less oversight, and more laissez faire.

by Brendon | 2nd Nov 13, 10:02am 1383339720

Keyser, Oliver is arguing for the supply of housing to be more responsive to demand. Not for a simplisitic increase in supply such as the housing accord. His argument is much more subtle. Look up elasticity in regard to demand and supply curves.

But to explain in simple terms if there is a change in demand for housing, which can happen for many reasons, immigration from overseas, disasters such as earthquakes, internal movement of people within the country. Demographics -less/more people per house. Replacement and repair of existing homes etc. There is two possible responses -a change in the price to build new homes, or a change in the number of new homes built. In Germany Oliver argues the industry is 'boring' and the response is in the number of new homes built. While in the UK the response is in prices.

So in Germany the new home property market can be described as responsive or 'elastic' in economic terms. While the UK is in unresponsive or 'inelastic'. If you look at house prices in the UK versus Germany since WW2 you will see the UK has had three booms and busts while Germany has had none. I wonder what that does to the industry suppliers -in the booms do you get cowboys etc. In the busts how many non-cowboys go bankrupt and how does that affect competition after the bust is over? Does a boom bust cycle discourage productivity improving investments?

Oliver also alludes to that by making the property market 'boring' (Germany has had 30 years of declining house prices in real terms to 2008) you take out expections of capital gains at its source, so because 'expectations' have changed the actual changes in demand are smaller, making the property market even more boring. I wonder if the Germany inflation target monetary policy actually requires 'boring' property markets to work.

I disagree with him regarding foreign residents being able to buy property in NZ. Clearly there is a flood of cheap money flowing around the world. The Euro crisis is just part of that problem. And like Germany some of that money is finding its way into the New Zealand property market, in particular in Auckland. New Zealand can legislate away this part of the housing problem, unlike Germany which has EU restrictions on stopping foreing investment. We should do it.

by PhilBest | 3rd Nov 13, 4:25pm 1383449134

I agree with you, Brendon. I changed my mind on this a while ago because there is so much investment money sloshing around the planet looking for safety and/or quick gains.

We still need elastic supply of housing to ensure affordability; however because urban NZ is so small relative to the global investment sector we are going to need controls to prevent our housing supply measures from being swamped by crazed speculators.

It is concerning that Germany and Switzerland have experienced rapid property price inflation recently, and I wonder what their governments will do about it, if anything. I say this is because of global investment capital "flight to safety". And if this makes prices inflate in those countries, with their several dozen cities, NZ wouldn't stand a chance.

Putting controls and taxes on investment won't of itself make housing affordable, supply is needed for that. But we need the controls as well as the supply.

I think we need someone to design a clever system of taxes and fees to catch the speculators but not reduce the supply of housing in the process. Overseas involvement and investment is actually helpful if channelled correctly. There needs to be something like a system of land taxes and CGT's that apply to particular zones in Greenfields surrounding the cities. We want the profits in "housing supply" - including the land supply - to be made on the honest building of stuff and nothing else.

This is how it does work in the elastic-housing-supply cities in the USA, but they manage this without additional fiscal incentives because they have "safety in numbers". I honestly think it would be impossible to swamp housing "supply" in Texas with speculative demand and push the prices up. A deliberate conspiracy among global investors might achieve it with one city. But it is far easier for conspirators to buy off the Councils and get a UGB imposed, which has the desired effect immediately. Austin TX is a likely candidate to sell out in this regard, the State government stands against it.

But a tip to investors wanting to make a really, really fast buck - watch out for any fast growing US city imposing a UGB - and pile into property in that city quick while the prices are still low. I recommend the biggest possible portfolio of the cheapest possible homes, because it is the land underneath that inflates in price. Houses that can be got for $30,000 now will end up like our "bottom end of the market" - i.e. more like $300,000.

Don't be greedy - sell out when the median multiple passes six. Then wait for the crash, and when there are bottom-end houses available for around $60,000, pile in again. Wash, rinse, repeat. Even more money can be made by shorting mortgage backed securities at the right time. Use the profits from selling up at median-multiple six, to keep a few bets posted.

by Brendon | 4th Nov 13, 12:03am 1383476593

Thanks for the confirmation re cheap credit fueled foreign investors. Unfortunately it muddies up the message. But life is like that....

by PhilBest | 3rd Nov 13, 4:02pm 1383447764

Keyser, Brendon has already made some good points.

Here is the thing with America. They do have the largest State, California, with a serious undersupply of housing.

Other States with elastic supply of housing, do not build "too many houses" just because the supply is elastic. They just build them "in time to keep the prices stable".

In contrast, we build them on a "catch up" basis after the prices have inflated and it is too late to manage them down.

The end result is, as you point out, very little difference in actual number of houses relative to the population. But far better to have done them the Texas way rather than the UK way.

Is someone who adocates increased supply via less government, less oversight, and more laissez faire; "ideological" rather than evidence driven; while someone who advocates heavier government involvement is evidence driven, not ideological?

Your kind have got a nerve, pal.

by raegun | 1st Nov 13, 5:23pm 1383279806

Increasing supply is of course necessary, however, it will not have any effect for a wee while, and probably will not keep up with demand, so in the meantime you have to do a bit of tinkering on the demand side.

First cab off the rank can be non resident foreign buyers, they absolutely are surplus to requirements, so they can go

Then there are the investors, the scales need tipping away from their favour to further soften prices and allow the first timers a chance.

I am over those who constantly quote several thousand listings on TM under $400,000. Did they take the properties without prices or up for auction out, did they take the double ups out and did they take out, in all fairness, those in the poorest of areas and if not, did they have any suggestion where the displaced from there would go?

by cowboy | 2nd Nov 13, 9:45am 1383338704

"Then there are the investors, the scales need tipping away from their favour to further soften prices and allow the first timers a chance. "

Your sentence is self-contradictory.

You might want to look into that before progressing any further with that line of thought.

by PhilBest | 3rd Nov 13, 3:47pm 1383446853

And commute to Dorkland from there, which is ironic considering that the Dorkland Planners UGB is imposed to "reduce commuting distances".

This effect has been noted by urban economics specialists everywhere that house prices are unaffordable.

There is actually no "gain" from a UGB, to offset against the "pain". The planners and their apologists claim there is "gain" and no "pain". They are either incompetent or crooked.

by notaneconomist | 1st Nov 13, 6:41pm 1383284460

Building more houses is simple but who the heck wants to be run through the Council hoops and meet their outrageous costs? I would start two building projects tomorrow have the land and finances but simply can't be bothered dealing with Councils and their compliance costs. I wonder how many other people out there feel the same way.

One project straight forward the other has issues that require a helicopter to lift in materials. Actual cost of the build including materials and builder costs are not my issue but the Council charges add such a huge amount that I have dug my toes in. When their costs add many thousands of dollars to a project (both projects have independent water and sewerage etc so not connected to any local Council supply) I know I am being fleeced by them and people wonder why others aren't adding to the housing stock in NZ in large numbers.

If the Government and its Cronies keep making it difficult some people just switch directions and find easier ways to invest and make income. Life is too short why make it difficult and fight the system. It is easier to walk away as there is one of me and hundreds of them with their hands out. It is easier and cheaper to buy an existing house and do it up rather than build.

If you want to fix the housing supply stop the outrageous building consent costs and other add on fees they like to charge. Deal with the RMA by getting rid of it or at the least let the Councils put charges on those who oppose applications rather than the applicant having to foot the bill and that will sought the NIMBY's out.

NZ needs a building boom not a house price boom.

by steven | 1st Nov 13, 7:38pm 1383287880

Compliance costs to regulations ppl want, that is what the voter voted for.

Building taj mahals on non-existant, cheap plots in the right areas all for what ppl can afford, unrealistic.

Not govn's making it difficult, lack of cheap resources, the margins are gone. Sure win a few years by building any piece of crap you want, but will anyone buy it?

back to round 2 of leaky homes with some poor bugger saddled with cw*p.

regards

by notaneconomist | 1st Nov 13, 8:26pm 1383290804

Steven - maybe I suggest surgical removal of your office chair it appears you are stuck there.

So in your eyes no-one without regulation is capable of building a house that wont suffer from leaking? Really, your comments are bordering on defamation and not for the first time either.

by steven | 1st Nov 13, 9:11pm 1383293460

Again you fail to see the [bigger] context.

and no I didnt say that. Sure there are competant ppl capable of building houses to NZ conditions, I certianly could. Really though there is more than enough evidence that there are many that have not and cannot.

and apart from that whom pray am I defaming? Are not your claims that regulation is the problem and the planners are incompetent not far more of a defamation?

really those in glass houses should not throw stones.

Putting that aside regulations would give the buyer some confidence that the building is safe to occupy. Another way to look at the regulations is a way of imparting experience of what works in NZ to someone who may not know every detail.

Simple, as always what I say is a personal opinion I hold.

regards

by notaneconomist | 2nd Nov 13, 8:11am 1383333066

Steven - if regulation were the key then leaky buildings would not have been built.

Don't worry I see the bigger picture.......your obviously enjoying the supply shortage and unafforable housing for many.......

Propaganda.......only ever shows one side of the story........maybe your making plenty of money off capital gains on property and don't want that to end.......never mind about the people who can't afford decent housing........or the NZ debt situation......or the current account deficit.......

Fortunately I have a good nose........

by PhilBest | 3rd Nov 13, 3:50pm 1383447024

Thanks, Notaneconomist - I have been saying the same thing to Steven for years. His unwillingness to learn makes him either far too thick to be any help on a site like this one, or as you say, a stooge for the great housing rip-off.

by waymad | 1st Nov 13, 8:31pm 1383291086

Development Contributions used for:

community centres
community organisers
extension of reserves 50 kms away from the subdivision
Art in the Community and other social/cultural wellbeing boondoggles

are not 'local compliance costs'. Try seeking out a Source and Application of Funds statement for DC's from yer local Council. Take yer lunch. Prepare to be shocked, Shocked.

I talked to the developer who built our subdivision just this morning (he still lives here).

Has another on the back burner, has been for 5 years.

Exact same reasons as notanecon.

Too much hassle. All too hard.

Investors' capital runs downhill, to the easiest/most yield trade-off. Not uphill, past a million outstretched Council hands, with rules that could change tomorrow depending on some far-off Appeal, and the 'carry' - interest or opportunity cost on capital employed - ticking always up, up, up.

These are Practitioner anecdotes. To be taken seriously.

by PhilBest | 3rd Nov 13, 3:54pm 1383447252

There are anecdotes like that all over the industry, Waymad.

One of the sickening things is that the LGA 2002 is actually quite good on the basis for development contributions, but Councils are getting away with acting illegally because there has been no system of quick and cheap legal redress for developers.

Council staff have far too much power and no accountability, and any developer that rocks the boat and gets a good lawyer (like, say, Russell Bartlett) on his case, can count on his entire business getting sabotaged from then on.

by cowboy | 2nd Nov 13, 9:41am 1383338483

Cure would involve correctly identifying the problem:

So the real problem is too much increase in population.

Reduce population housing demand shrinks, prices soften AND resource demands come back within sustainable levels.

by PhilBest | 3rd Nov 13, 3:57pm 1383447420

Anyone who says "too much population" is the cause of unaffordable housing is morally inconsistent; have they topped themselves to free up their house and help the problem? No.

by cowboy | 3rd Nov 13, 4:43pm 1383450220

However I am at ZPG PhilBest so not inconsistent. But your ad homein and complete lack of content is worthy of a member of Parliment,...

by PhilBest | 3rd Nov 13, 4:53pm 1383450837

Sorry, it was a bit low.....

You will find plenty of "content" in my contributions on here going back years.

I have become quite testy, more so than Hugh P, over the endless feeble excuses that get recycled again and again and again every time this topic comes up. Hugh P has been right all along. Young Kiwis are being kicked in the teeth year after year after year. Lefties like Minto tend to be excused a little bit of angst. I say some of us affordable housing advocates could be excused a little too.

by cowboy | 4th Nov 13, 11:20am 1383517258

I'm all for affordable housing, very much so. I got my own economic turnaround by living in a cheap boarding house in Dunedin, 1 meal a day, no phone/power bills. By driving my costs so low I had disposable income, with disposable income I could reduce my separation debts and invest a little.

Current housing system in NZ is opposite of that effect. It loads up with worlds highest interest rates, over long periods, and builds in huge amounts of infrastructure and compliance "cost recoveries" that I don't use and don't want the opportunity to use...but they still have to pay (reducing that ever important disposable income). The dead-weight-costs have to be covered in the price of the house pushing prices up.

However as long as demand is predictably increasing that's unlikely to reverse.

Human lives are livestock for government and economies. Whether I'm looking at GDP, Unemployment, Net Asset values, or Trade Balances politicians are trying to build their herd, and we're going to get pushed in like battery hens. And as any livestock owner knows, you have to size your herd to the resources, not your personal/political ambitions.

by raegun | 4th Nov 13, 7:18am 1383502730

Too much population is not just the cause of unaffordable housing, it is the single biggest problem we face today, and face it we had better

by cowboy | 3rd Nov 13, 4:58pm 1383451099

They started with the biggest population in the world and are now facing a "crisis" of too many old people and reduced new generation from a grass roots preferences for boys over girls.

Simple matter of ZPG. 1 living kid per person, none for criminals for 3 - 5 yrs after release. Reduce extreme efforts of resus, and remove the loot & torture the elderly & dying policies (where willing).

High crime areas to have cameras, recognising the Right of personal safety for innocent people.

No special deals for the wealthy trying to buy privileges.

Do I expect these sane measures to be put into law? No. I expect humans will multiple and grow until cities are teeming with starving and sick, where food will be decreed as so important to the public interest that it is seized by government officials and those who have no other skills to be forced to labour for their ration, accomodation and taxes. And that the population will keep increasing until the whole place starts to resemble Haiti or refugee camps...... where the well paid government officials in their gentified houses and security guards will decree that low income population will be subjected to breeding limits and everyone will watch the poor breeding and dying by their thousands everyday.

It is already happening in many countries around the world. Food&water they can't get, housing they can't build, no income to tax, healthcare that is too expensive for them to have, And yet they keep breeding....

That is what I expect will happen. They'll keep multiplying until the branch breaks, then they'll blame each other and the most corrupt will seize what they can and ignore the rest.

by KH | 4th Nov 13, 12:00pm 1383519645

ZZ. The chinese in fact did well. They did make a significant difference to their population. And that was a part of their current success.

by jh | 2nd Nov 13, 9:30pm 1383381000

The “free market thinktanks” and their secret funders are a threat to democracy.

By George Monbiot. Published in the Guardian 13th September 2011

There are dozens of groups in the UK which call themselves free market or conservative thinktanks, but they have a remarkably consistent agenda. They tend to oppose the laws which protect us from banks and corporations; to demand the privatisation of state assets; to argue that the rich should pay less tax; and to pour scorn on global warming. What the thinktanks call free market economics looks more like a programme for corporate power.

Some of them have a turnover of several million pounds a year, but in most cases that’s about all we know. In the US, groups claiming to be free market thinktanks have been exposed as sophisticated corporate lobbying outfits, acting in concert to promote the views of the people who fund them. In previous columns, I’ve shown how such groups, funded by the billionaire Koch brothers, built and directed the Tea Party movement(6,7).

The Kochs and the oil company Exxon have also funded a swarm of thinktanks which, by coincidence, all spontaneously decided that manmade climate change is a myth(8,9). A study in the journal Environmental Politics found that such groups, funded by economic elites and working through the media, have been “central to the reversal of US support for environmental protection, both domestically and internationally.”(10)

Jeff Judson, who has worked for 26 years as a corporate lobbyist in the US, has explained why thinktanks are more effective than other public relations agencies. They are, he says, “the source of many of the ideas and facts that appear in countless editorials, news articles, and syndicated columns.”(11) They have “considerable influence and close personal relationships with elected officials”. They “support and encourage one another, echo and amplify their messages, and can pull together … coalitions on the most important public policy issues.” Crucially, they are “virtually immune to retribution … the identity of donors to think tanks is protected from involuntary disclosure.”(12)

The harder you stare at them, the more they look like lobby groups working for big business without disclosing their interests. Yet throughout the media they are treated as independent sources of expertise. The BBC is particularly culpable. Even when the corporate funding of its contributors has been exposed by human rights or environmental groups, it still allows them to masquerade as unbiased commentators, without disclosing their interests.

http://www.monbiot.com/2011/09/12/think-of-a-tank/

by PhilBest | 3rd Nov 13, 4:31pm 1383449512

So the "free market think tanks" who advocate the freeing up of supply of land for housing, are guilty of ".....tending to oppose the laws which protect us from banks and corporations...."

??????????????????????????

Not the advocates of UGB's?

Have you worked out yet why enviro conservation groups and anti urban sprawl groups are the most well funded activism in history? Why Soros, the Rockefellers, and their ilk, are liberal funders of this activism?

Oh of course these dear saintly people have genuine concern for the planet and humanity, unlike those evil business people who dare to want stuff built at honest prices.

Try calculating for me, how much profit is made in building new suburbs for genuine growth of a city over a decade - and compare that with the zero sum unearned capital gains involved in every square foot of land inside a UGB being inflated in price by a factor of some tens. Vested interests mucho?

by PhilBest | 3rd Nov 13, 4:55pm 1383450931

JH, take a look at these analyses of the situation in Pommie-land, from the Left:

http://www.audacity.org/downloads/250NTC-12-12.03.12-Aims-Draft-03-NPPF.pdf

http://www.audacity.org/downloads/250NTC-13-19.09.12-Aims-Draft-04.pdf

by jh | 2nd Nov 13, 9:46pm 1383382016

...........................................

You forgot the other recomendation of the tax working group- land tax. The Property Council opposed that on the grounds that there would be too many exemptions ( bit of a cop out for an organisation which spouts economic purity). What would the independant think tank say about that?

by jh | 2nd Nov 13, 9:58pm 1383382688

While most countries swing strongly in favour of either renting or buying your home, the options are balanced in Germany, with just over half the population owning their own homes. Average purchase prices for a property in Germany are relatively low for central Europe at EUR 1,500–2,500 per square metre. The average price for a 30 square metre property (a small apartment) is EUR 60,000, while a 100 square metre apartment averages around EUR 250,000. Prices are typically up to 50 percent higher in the major cities, such as Berlin, and Munich is the most expensive city in Germany.

Should you rent or buy in Germany?

House prices and rents have risen dramatically in Germany in the last decade, with rents rising 15 percent between 2008 and 2013 and house prices rising 23 percent in the same period. German property has been seen as a stable, reliable investment by both local and overseas investors, and the market has been largely resilient in the wake of the 2008 financial crisis.

As property prices seem to be rising faster than wages, many feel the trend is unsustainable and are urging the government to correct it. As a result, it's unclear what the future holds. This uncertainty combined with a capital gains tax (abgeltungsteuer) of 25 percent, which applies to any property owned for less than 10 years, means that for many expats buying property in Germany is only attractive for longer stays. Find out more about the alternative in Expatica's guide to renting a home in Germany.

http://www.expatica.com/de/housing/buying/buying-a-home-in-germany-2124…

.......................................

So supply not working?

by KH | 4th Nov 13, 12:09pm 1383520159

At those prices it would seem I could afford to live in Germany, although I probably could not afford to live in Auckland

by jh | 2nd Nov 13, 10:05pm 1383383100

"Over the past three years, the prices for houses and apartments have risen by a total of 8.25 percent. This is due to a 'marked gap between property prices in urban and rural areas'," the bank said in its press release.

The statement added that in Germany's largest cities, apartment prices had risen by more than one-quarter during this period, an increase that could "give rise to fears of a broad-based property price boom".

Urban housing markets could be up to 10 percent higher than acceptable, it said, adding that in attractive large cities, like Berlin, Hamburg, Munich, Cologne, Frankfurt am Main, Stuttgart and Düsseldorf the overvaluation could be as much as 20 percent.

Stronger demand for property than was expected during an economic recovery is seen a reason behind the price hikes, according to the Bundesbank, adding that the German property market became more attractive to international investors after the property market price bubble in the U.S. and in a number of European housing markets burst.

"Furthermore, the appeal of property investment has grown given the lower returns on financial assets in recent years," it said. It also earned that any price corrections in the housing market could give rise to notable wealth losses for households.

http://www.cnbc.com/id/101130887

by jh | 2nd Nov 13, 11:09pm 1383386951

5 Biggest Housing Bubbles

Germanies bigger than NZ

http://qz.com/139190/the-worlds-five-largest-housing-bubbles-a-brief-whirlwind-tour/

by PhilBest | 3rd Nov 13, 4:39pm 1383449957

See my comment further up the thread. I think that while Germany and Switzerland have had a housing supply situation that has maintained a kind of balance for decades, it is possible for this housing supply to not be sufficiently elastic to cope with the demand shock of a global capital "flight to safety".

Housing affordability does indeed need elastic supply but I have come to believe that smart fiscal measures are necessary to protect against a global investment mania in a country with few cities. The tricky thing is to not disincentivise investment in actual building of houses at the same time. The system should be geared to the making of modest and honest profits in building houses, and nothing else - no unearned gains in the mere process of land dealing.

by Anarkist | 3rd Nov 13, 5:20pm 1383452407

Well in the case of Germany they actually did have a sizeable housing bubble in the mid 1990s from which many of Germany's professional class receive burnt fingers. There are a lot of other factors to explain its stable prices. Stagnant population growth and economy, surfeit of subsidised social housing, proponderence of multi unit housing, strict lending standards etc.

by PhilBest | 3rd Nov 13, 6:39pm 1383457151

"......in the case of Germany they actually did have a sizeable housing bubble in the mid 1990s....."

Can you refer me to a graph or some other data that shows that? My own recollections of graphs of property prices in Germany, is a long gentle decline since about the mid 1980's.

Like, say, the graph on page 8 here:

http://nzinitiative.org.nz/site/nzbr/files/PRICED%20OUT%20-%20FULL%20RES.pdf

The Germans might have called something that happened in the 1990's, a "bubble", according to their boring expectations, but in perspective to the price shifts in other nations? No way.

by Anarkist | 4th Nov 13, 10:21am 1383513703

Sorry no data, but a good article in Dr Spiegel entitled Housing Doldrums Why the Globl Housing Boom Bypassed Germany. Another is A Rental Nation? Germans Looking to Buy These Four Walls on DW TVs website, which elaborates on those factors which have shaped Germany's housing market.

by iconoclast | 3rd Nov 13, 4:53pm 1383450805

Check out Doctor Oliver Marc Hartwich wikipedia

He is a travelling mercenary gunslinger, a gun for hire

What peeves me is the number of outlanders who blow in to wellington and join up with the domestic resident gun-slingers and become instant authorities on what the solutions to aucklands problems are without ever having lived there

On 1 May 2012, Hartwich was appointed the first Executive Director of The New Zealand Initiative, a public policy think tank created out of the merger of the New Zealand Institute and the New Zealand Business Roundtable

The one odd note about this article is it appears on the same day as an article by Gareth Morgan, another wellington based think-tank of one who disagrees with Hartwich - so who do you believe?

http://en.wikipedia.org/wiki/Oliver_Marc_Hartwich

by PhilBest | 3rd Nov 13, 4:54pm 1383450876

Hartwich is the honourable man here.

by iconoclast | 3rd Nov 13, 4:57pm 1383451045

Sez who? what? You?

by PhilBest | 3rd Nov 13, 6:47pm 1383457659

Have you not worked out yet just how much the big property and big finance sectors hate advocates of reform that will bring economic land rent down? Hartwich won't be popular on The Terrace and Lambton Quay and Queen Street.

Do read those essays from "AudaCity" in the UK that I gave you links to. I don't agree with everything in them, but the fact that the AudaCity guys are hard-left shows that this is a non-partisan issue. It is really a fight for and against economic "rent". If you are a Tory perpetuating the racket, you are a crony capitalist of the kind that gets "capitalism" a bad name (Ayn Rand said these people should be hung). If you are a lefty perpetuating the racket because of your faith in "planning" or Statist solutions to everything or a Greenie, you are a useful idiot of the crony capitalists.

by steven | 3rd Nov 13, 6:09pm 1383455360

Lobbying at its, uh finest.

Really so much for "think tanks" seems to be an oxymoron.

regards

by PhilBest | 3rd Nov 13, 6:49pm 1383457761

No think tanks anywhere in the world that you approve of? None of the ones funded by Soros or the Rockefellers, to advocate for urban growth containment, receive your approval? That would be heartening.

by steven | 3rd Nov 13, 6:51pm 1383457885

Generally Ive not seen any that show a great deal of use from the libeertarian in particualr side of things.

by PhilBest | 3rd Nov 13, 6:32pm 1383456743

I say we are heading down the same track as the UK if no courageous reforms are done: take a look at this data pack:

http://www.buzzfeed.com/dlknowles/britains-dysfunctional-property-market-in-gi-fm44

by steven | 3rd Nov 13, 7:05pm 1383458709

The UK is dysfunctioanl, full stop...it has nothing but debt, no resources to speak of...its finished.

regards

by PhilBest | 3rd Nov 13, 8:22pm 1383463362

So why are you defending the same sort of policies in NZ, that will have the same effect on NZ?

by steven | 3rd Nov 13, 9:57pm 1383469062

If you think the UK is in the state it is because of housing polices, well oh dear is all I can say.

Like I said its burnout, used up....it cant pay for anything it needs.

regards

by PhilBest | 3rd Nov 13, 7:02pm 1383458556

Really, this is all that young NZ-ers need to look at and get real about:

http://www.realtor.com/realestateandhomes-search/Houston_TX/type-condo-townhome-row-home-co-op/price-100000-300000/sby-1?ml=1

That is affordable high intensity housing near to a CBD, that you won't find for less than $1 million in Dorkland.

Here's the depreciated family houses in mature suburbs, that you won't find for less than $1 million in Dorkland:

http://www.realtor.com/realestateandhomes-search/Houston_TX/type-single-family-home/price-100000-300000/sby-1?ml=1

Here's what you get for $1 million in an undistorted market for housing:

http://www.realtor.com/realestateandhomes-search/Houston_TX/type-single-family-home/price-1000000-na/sby-1?ml=1

And that's not even "fringe" stuff...... that's still "inside the ringroad".

Here's what you get for $1 million in "The Woodlands" 30 km out - and there is jobs-housing balance there, long commutes unnecessary:

http://www.realtor.com/realestateandhomes-search/The-Woodlands_TX/type-single-family-home,condo-townhome-row-home-co-op/price-1000000-na/sby-1?pgsz=50

Here's what you get for $1.2 million in Dorkland:

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11149072

by Dale Smith | 3rd Nov 13, 7:07pm 1383458825

What most commentators have not fully understood, maybe Oliver amongst them, is the concept of matching demand/supply. For housing this is being able to develop land and build at the rate of demand as close as possible to real time.

An analogy is our ability to breath at the rate of demand. We are surrounded by air and our rate of demand equals our supply even though in reality we have an oversupply. This supply is there regardless of the demand we put on it. However, I can serious effect how much you might be prepared to pay for it by limiting your supply for as little as a few seconds. Note I’m talking about our ability to breath, not other man made activities than may affect the quality of that air.

The Texas model is the one that is most responsive to being able to build at the rate of demand in real time (for land in particular) as there is no impediment like housing accords, MUL’s, RUB’s etc. to restrict the supply (think as a MUL etc. as a plastic bag, with a few holes, over the head of the city).

Just as importantly the Texas system also allows developers to stop building if the supply lessens. There is far less chance of a boom or a bust, just a steady as she goes. As there is no ability in Texas to artificially restrict this supply, speculators cannot manipulate this supply relative to demand.

Hence price of land for development in Texas is far closer to the rural land value than it is in countries were supply is limited.

Further to this is the perception of supply. When a MUL is extended it is still sending the signal that while the supply might be ok today, it will still be limited in the near future, thus those with the cash can bank (land) this future supply.

Only when you take this ability to control supply, both real and perception of, can supply equal demand in real time. Any intervention by governments, councils etc. that try to match demand with supply cannot do so at the rate of demand in real time, they cannot react fast enough. The more rules, the more out of sync. the system gets with being able to build at the rate of demand in real time.

This is why the Swiss and German models, as good as they are; still find it difficult in the cyclic world of supply and demand to always get it right. And that is why the Californian, UK, Canada, Australia, NZ etc. model that has plenty of intervention and rules, restrictions etc. causes the demand/supply synchronisation to get out of balance even more.

One of variables that can cause an imbalance is immigration and/or the inflow of investor money from foreign resident owners. This would seem to be part of the problem of high house price growth Cities as mentioned in the link earlier posted and I think it a problem in NZ as well.

I think the best model would be to have a Texas style MUD system for land development, but with a Swiss/German style system of allowing councils to receive more tax income from the Government and land taxes? based on population. This would compensate the councils for not receiving as much income from development levies, a definitely not from shared value uplift zoning as Auckland is proposing.

by PhilBest | 3rd Nov 13, 8:51pm 1383465062

Very helpful, thanks Dale.

The lack of interest on this site when I post links to RE sites in the USA is breathtaking.

Contrast that to the discussion I aroused on this site:

http://www.macrobusiness.com.au/2013/10/sydney-melbourne-drive-shift-to-apartment-living/#comment-293430

I promptly got an intelligent response from someone called "Dumpling":

"Phil, how can they be so cheap? I mean, even if the land is free, the costs of building materials and construction should be more than the selling price?"

To which I replied:

"That is depreciated buildings, that’s all. The land IS worth only around $70,000 per acre even in the mature locations.

This is perfectly possible in a city with no urban fringe constraints, a land rent curve anchored in rural values of $10,000 per acre, and a land rent curve flat enough to still be only 7X higher relatively close to the city centre.

Cheshire and Mills (1999) found that the difference in city centre land values, between a growth contained UK city and an unconstrained US city similar in many other ways, was around “300 times”. Yes, that means similar land might be $70,000 in the US city and $21 million in the UK city. This is why a 30-year-depreciated 1000 sq ft condo can be $60,000 in Houston and a 30-year-depreciated 300 sq ft apartment can be $600,000 in London. Our cities are heading the same way."

And the discussion continued from there, all positive reactions to how dam cheap decent property is in Houston.

On interest.co.nz? Nobody at home. Oh well I guess our young people get what they deserve for being "mushrooms" (living in the dark, being fed bullshit).

by Dale Smith | 3rd Nov 13, 10:21pm 1383470518

Yes Phil – I noticed the different level of debate – but it could be a sign that we are further along the trail than the Aussies in achieving affordable housing.

In Aussie, the restricted zoning supporters are so comfortable in their position (hear what their politicians are saying about how good the latest house price increases are) that they don’t have to enter any debate to defend the indefensible.

by Dale Smith | 3rd Nov 13, 10:07pm 1383469663

Yes Hugh – I’m worried how the council spends money, but what I was suggesting was stopping them from taking money by monopoly from new home owners via developers, and so they cannot complain by being disadvantaged by this, they can be compensated similar to the Swiss/German model, which the central government of course can oversee with the appropriate conditions. So the addict is still getting the same amount of drug, but from a different source that might have better control over them, maybe even put them into rehab. And if nothing else, this should give them no reason to interfere while others make housing truly affordable.

by Chris-M | 3rd Nov 13, 9:24pm 1383467078

The German housing market is understandably very easy to keep stable. They have a falling population. They seem to manage to maintain one of the most powerfull ecconomies in the world and enjoy relatively affordable homes stable prices and a very high standard of living without resorting to the increasing population/imigration ponsie schem that our government seems to think is clever.

by steven | 3rd Nov 13, 10:14pm 1383470090

They do however export severe un-emplyment to other EU countries and stress...and that debt is owed to German banks.

Not going to be pretty

regards

by Brendon | 4th Nov 13, 1:59am 1383483561

Agreed Germany has grown too big for the EU or to put it another way the EU cannot accomodate such a large country with frugual debt adverse consumers and a diverse array of innovating exporters.

But for New Zealand where we have the opposite problems wouldn't Germany be a great model to copy? They even have affordable housing...

and Chris-M Germany's population growth hasn't been so different from the UKs where there definitely is not affordable housing.

by Chris-M | 4th Nov 13, 9:47am 1383511636

NZ population growth rate 0.9%

Britian 0.28%

Germany -0.06%

Source CIA database

The problem with Gemany in the EU is that the common currency is a totally flawed concept which favours Germany. The British realised this from the start and the results have confirmed it. They will continue to have problems untill it is either scrapped of significantly changed.

by Brendon | 4th Nov 13, 11:22am 1383517337

Chris-M look at population growth and house prices in the two links above, over the last 30 years not just currently. Agree with you re Euro.

Roelof it is hard to disentangle all the factors but maybe the inflation target monetary policy which is derived from Germany requires stable asset prices and Germany becomes of various cultural and institutional factors has had that until recently with the Euro crisis.

by Roelof | 4th Nov 13, 9:56am 1383512182

Brendon.... Part of the reason that Germany seems to have a historically subdued property mkt might have to do with its historically ...prudent .... Monetary policy.

They never forgot their hyperinflation in the 1920s.

http://research.stlouisfed.org/publications/review/05/03/part2/Issing.pdf

NZs' very loose control on money supply has fueled house prices for many yrs.

House prices are a better measure of Monetary inflation , in NZ, than is the CPI.

So... maybe a big part of the German miracle, in regards to the property mkt, has been their Monetary policy.... ( that is... until 1999 when the Euro came out )

A part of all that, is the "psychology" involved that influences People.... With Real Estate in NZ there are some very deeply ingrained "psychology"... or "paradigms"

eg.. the great depression turned a whole generation into savers who were adverse to borrowing.

So... Just like the "Irish Tiger" as a model for growth in NZ ......... maybe German Real Estate does not have too many answers for NZ Real Estate .

I'm just adding to the views already expressed..... which I mostly agree with.

by Brendon | 4th Nov 13, 11:12am 1383516767

The cultural values are fascinating and definitely a factor. I think the German word for debt is also guilt or something similiar. And this has an effect. Credit cards for instance are still not accepted in many German shops and restaurants. Germany as a country borrows less and saves more than its EU neighbours, destabalising the euro, especially when you add in competitive pressures from suppressed German wages and the inability for other Euro countries to regain competitiveness through currency devaluation.

In the UK they have the 'my house is a my castle and woe betide anyone who devalues it' attitude. I think New Zealand has touch of that but it is balanced by a 'fair go' attitude. That everyone with a enough hard work should be able to buy there own home, farm or business. This dates back to the early colonial period and the reason people made such long journeys to live here in NZ. This is why I think there is so much debate about affordable housing and when polled the vast majority want more affordable housing even though many of them must be property owners and this will devalue their assets.

by KH | 4th Nov 13, 12:18pm 1383520684

I'm with Brendon on the importance of culture. We behave very differently from the Germans. Think about the Japanese as well.

Culture, in my view, is the most important factor in all this.

What I don't get is the condemination of the Germans. Greece and Germany behaved very differently and got very different outcomes. But somehow this is the fault of the Germans.

(leaving aside that little matter in the 1940s. hmmmm)