The high cost of expensive housing and how Auckland fixed it
brettongoods.substack.com
brettongoods.substack.com
Hopefully we can implement a land value tax and/or build lots of public housing, to fix the fundamentals.
Construction costs are out of kilter. The fact that we run out of essential materials such as gib (I believe Americans call it sheet rock or drywall) means the high prices are not going away.
I would say rental prices most likely have dropped due to the property bubble in Auckland bursting. The bubble was bigger than almost everywhere else, so I could expect rents to drop accordingly.
I really do wish this was not the case, I would love for the problem to be fixed.
That rents are increasing slower in Auckland now, compared to other regions, doesn't mean much, because they already spiked through the roof, in far excess of every other region, five years ago.
The title is unfortunately out and out misleading, just because Auckland is still the most expensive city to live in (Queenstown isn't a city).
And if the best that can be claimed is that rents went up a bit slower than other cities, but the increase began from an already far higher level of rent prices, then has Auckland actually solved the cost of housing?
Any New Zealander can answer that in two to three words. Either, "lol, no", or "lol, fuck no"
Unless by lol, you meant "League of Legends", which would make "lol, fuck no" 5 words, not 3.
That is actually a communist idea: let the government take almost the whole value of a property. The whole point of a land value tax is to take the rent. Funnily enough that leaves a property worth a pittance. Everything I have read about land-value-tax seems to just ignore that glaring problem. PS: I have no love for property investors, they often screw up people’s lives: however blanket tax changes screws over the good as well as the wicked.
Edit: I’m happy to be corrected. Commercial investment property is valued based the return you get from it. If the return drops drastically (the point of a land-value-tax) then the property value drops drastically. Sucks if you retired and invested your life savings into an investment property, only to have all returns taxed away.
Edit 2: discussing property values has become politicalised. Everyone seems to trot out some memetic idea (left example: land-value-tax-for-the-win; right example: state-housing-is-theft-from-productive-members-of-society) but few people seem to actually think through the consequences of an idea.
It is pointless trying to compare a country with population growth against a country (like Japan) where housing availability is increasing due to population decline.
It has not had a decrease in population since 1995 and the latest data point (2020) shows an increase of +3.5% compared to 2015.
You can say the same about Germany (and probably most western countries) - vast rural (or depressed urban) areas are depopulating because people move to Berlin/Munich/Hamburg/Frankfurt/etc. And yet Japan solved affordable housing to a much greater extent than us.
High property prices aren't axiomatically good, if that's what you're going for, and the fact that people spend millions on construction as well suggests that sometimes properties are worth more than their raw land value. People will be able to make a ROI for the actual productive investment in building and maintaining property, even if speculation and economic rent are cut off.
Yes, If something that is untaxed previously is now taxed then it's value will probably go down. There are winners and losers with every tax change.
The rate of a Land Tax is usually proposed to be around 1% of the value of the land. So if you own a $1m block of land in a prime area thats just $10,000/year.
If you have built on the property and are getting a rental of 5%, you are now getting 4%. That is a 20% decrease in property valuation, ignoring expenses (which make the figures much much worse). And the few articles I have read don’t talk about anything nearly as low as 1%. That is why I called it “communist” (I shouldn’t have been so inflammatory), because the government is taking money from a long term investment. Maybe it would be possible to introduce it slowly and fairly, but I can’t see how a government could actually do it and stay elected.
The simple mechanics of “just 1%” are usually just glossed over in the articles I have read.
1% is typically the value most people talk about for a land tax. If anything often it is less. This makes it similar to other property taxes that are already out there.
I have no idea where you live but in many countries it is common for taxes to be introduced, raised and lowered as different political parties get in power.
Also the assumption is that income and other taxes will be reduced as land taxes are introduced to the amount the government makes would be about the same. It would just mean those with property would pay more while those earning wages would pay less.
So you are proposing to increase average taxes by $5000, and you appear to talk about that as though that is some trivial amount the average New Zealander can afford. A land tax as you propose is an absolutely massive taxation increase.
Say that a land tax takes 50% of all rental income (a large amount) in New Zealand and puts that into the government - how can you believe that is equitable for renters or owners?
The point of a land tax is to take the land profits from private owners, and put it into government coffers. Note that it doesn’t change the amount that renters pay. You think that it would correct rent prices in New Zealand?
$1 million of land is not extreme wealth - it is only 2 or 3 times an average home. Where do you live that $10000 after tax is not a huge amount of money annually?
Edit: I mean, people talk about land tax as though:
1: empty land is abundant and a problem that needs fixing. Ummmm, empty valuable land is rare because there is already a massive holding cost - either a mortgage or the opportunity cost of what you could invest the money in, if you sold. The point of a land tax is to penalise the owner, but owners are already very significantly penalised!
2: a LVT will fix the problem that developers are just sitting on properties without densification. That is a NIMBY problem, or a zoning problem.
LVT doesn’t fix 1 or 2 above. QED.
So, you have a lot of land with a single family home, but you are taxed for it as if 20-unit apartment building was standing there. Which, in the long run, incentivizes you to sell your home to some developer that would actually build such building.
Now you can discuss if that's fair approach, or just a way to force people out of their homes.
Everything I have read just uses nearby property prices. Very similar to GV valuations as we currently do in New Zealand with our council rates (just use that figure rather than another). As market prices shift, your Capital Value remains relatively constant (maybe inflation less depreciation), and the Land Value shifts to meet market value (usually upwards, whenever your property rating is updated).
In New Zealand we currently have a partial land-value-tax called rates, although they are usually far below LVT suggested taxation rates. Rates are low, but still a significant drain. Mortgages are also similar to a LVT - your mortgage has to pay the land value - and that is certainly more than suggested LVT. Apparently the point of an LVT is not to get revenues, so I don’t quite understand how that works. An incentive that is less than a mortgage already is - hmmmmmm - how can that help?
Ironically house prices are set by people bidding against each other for how big their mortgage can be - See: https://news.ycombinator.com/item?id=34097478
Because of the above, a LVT perhaps won’t shift house prices, just shift money from private equity to government?
The arguments I have read are usually so vague and seem to always miss critical details. I am not a property or economics specialist, yet I see glaring problems and omissions in well received blogs: that doesn’t bode well for the idea IMHO.
In developed countries the government takes around 30%-40% of your labor income if you work. In that sense taking 20% of capital income (rent, dividends, capital gains) is still on the low side.
Apparently I just don’t understand what you are saying.
Australia's ACT is in the middle of introducing a land value tax to replace stamp duty over 20 years; it's perhaps not the largest land value tax that could exist but they're ~10 years in and it's having a good effect on increasing home ownership rates and decreasing rents. You can read about it here: https://www.prosper.org.au/campaigns/stamp-duty-to-land-tax/...
[The ACT Government] also promised that the reforms would be revenue neutral, reassuring residents that this was not a tax grab.
If we had a stamp-tax, then relevant.
In terms of fairness, the reality is that it's actually really fair for those who have owned land for a long time, because they currently benefit disproportionately from land values going up (they don't cause the land values to rise much, but society as a whole does). The current system is grossly unfair for renters, because they contribute to society just like everyone else but don't benefit from land value increases.
Land only goes up in value because of the improvements that society makes around it, which is why land in cities is very expensive. It isn't fair for landowners to benefit from this and renters to not benefit. Of course the biggest beneficiaries of all this are the banks, but most landowners didn't work for the value of their land, so losing the value of their land is fair.
Recent buyers are the most screwed over by land values dropping, because they did work very hard for their deposit and mortgage but then without working less they suddenly lose out a lot.
I'm unsure as to how this would prevent long term planning or investment. A one million dollar piece of land presumably has buildings on it worth at least as much.
If it is bringing in something like $100,000 per year how would a $10,000/year tax completely make it impossible to build or invest.
Land Taxes and Property taxes exist the world over. They rarely prevent development from happening and a pure land tax is designed to encourage development.
Per [1] if you're paying $10000 in tax/yr, being able to invest the same money would take 41 years at 5% interest (long term S&P 500 has been just shy of 10%) to reach $1m, 29 years with 8% interest (compounded annually).
1. https://www.investor.gov/financial-tools-calculators/calcula...
wtf I suddenly love communist ideas (is it really tho?)
As an example, let’s take a homeowner who rents their old house to someone when they purchase a second home. The question is, what value are they providing to the renter to justify the huge cost? The rent payment must cover the mortgage payment and maintenance or else the landlord would be loosing money. The landlord essentially ends up with a free house, while the renter ends up loosing many tens or hundreds of thousands of dollars, and at the end of the lease, they have nothing.
The only value the landlord provided was happening to own an asset that’s in huge demand. If that asset was abundant, the renter would very likely be able to buy their own and be much better off.
Rent-seeking behavior (which is drastically incentivized when houses are such a valuable asset) is pretty much only a negative for society for two reasons:
1. It makes many people poorer without any equity to show for their huge financial commitment.
2. It makes housing more expensive, which also makes people poorer.
3. A poorer society means people have less money to spend on products that someone actually put in work/effort to produce.
The basic idea is that a landlord is generally not producing a product or putting in any meaningful effort. (The actual work is contracted out and paid for by rent.) They’re just profiting off of an asset they got lucky / rich enough to own —- which by itself isn’t that much of a problem, except housing is a basic human necessity/right.
So why shouldn’t society be profiting off of the asset’s (land’s) value?
But this line of thinking means you have to turn off that “capitalist greed” mindset that everyone gets by default.
Seriously? They took on the risk of a mortgage for the house! They have to service that debt for decades. Renters can go wherever they want.
Imagine a world with no landlords…now you have to purchase a property to not be homeless.
I have heard it said “rotten houses filled with rotten people”: wooden houses with zero maintenance left to rot by investors waiting for market to improve so they can make a profit, terrible houses results in desperate people renting, resulting in a broken society. I don’t blame poor people, but there are definite problems that they come with.
Same problem with Brighton Mall (majority owned by two wealthy Christchurch families) that have zero incentive to invest their own money and every incentive to get local government to develop the area. If shops in Brighton Mall were owned by individuals, I suspect it would be a pretty nice place (not a wasteland).
If more homes in Brighton were owned by individuals, they spend time and money to make them better, and they have incentives to create a common community for themselves.
My point is not “capitalist greed”, it is that taking an individuals lifetime savings away from them is very bad I think.
Meanwhile be very careful buying anything in Brighton within the 1:50 year floodzone which is a huge percentage of the homes (And beware in much of Christchurch). You think your odds are okay, but sea level rise means the risk increases over 20 years, and the sum of the risk ends up very freaking high over decades.
If there is flooding, it will be like the earthquake. Prices will drop drastically within whole suburbs, houses will become uninsurable, and as-is prices will occur. Some suburbs will become very undesirable, which will have severe negative value. If you have a mortgage, you can lose all your money due to gearing.
Meanwhile over time insurance premiums are going sky-high - mine went up 33% last year and I’m on a higher part!
Don’t buy in floodzone areas.
I am going to buy a bare property on the hills to hedge my potential losses since I can’t insure against sea level rise. If there is sea level rise, my property will decrease in value, but hopefully that is offset by an increase in value of a hillside property.
Cheers
Um, a place to live? That’s something that obviously has huge value to people.
I rented 5 different places for a cumulative ~12 years post-college and each of them were in circumstances where I didn’t want the commitment and hassles of property ownership. One place I lived for 6 years and knowingly and happily paid more than the investor’s mortgage for that time. (He is a real estate agent/investor and we talked several times about the topic.) He got economic benefit; I got shelter without a long commitment and without tying up much money up-front.
If I need two years’ worth of shelter, it’s convenient to be able to buy that amount rather than buying a property that yields an infinite series of it and selling that two years later.
> But this line of thinking means you have to turn off that “capitalist greed” mindset that everyone gets by default.
That sounds idealistic. Society won't be benefitting from a LVT. The ones who benefit are the rich outsiders who can now push out longtime residents from an area so they can take over and build some highrises for profit. So capitalist greed at its finest.
This is why people like Milton Friedman thought it was the least-bad tax, because it doesn't create deadweight loss and instead stimulates productivity.
You can argue about the details, but most proponents of land tax seem happy that we should fuck over many people that have worked and saved, and that they deserve to be fucked over because they are somehow bad people for playing the game by the rules that we have been given.
I don’t disagree with taxes, I just think that suggesting facile solutions is dangerous.
Give me a reference for a land tax policy in New Zealand, that considers how to fairly manage the problem of existing owners, and I am interested. Links to articles that ignore the glaringly obvious issues are pointless.
I don't think that landowners are to blame for the problems we have, but you're not considering that about half of the population of NZ do not own their own home. They are currently being screwed over by the system, and landowners on the other hand are benefiting disproportionately. Resetting the system to be more fair does result in some people losing, yes, but equality tends to feel like oppression when you've been benefiting from inequality.
Of course, most people that would start paying the land value tax would get a reduction in income tax, and would also gain intangible benefits like their children and grandchildren being able to afford to live in the same city as them. Currently the government is stealing away large amounts of the profit of our labour (income tax), so we are reducing "communism" by allowing people to keep more of the fruit of their labour.
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I know it's a fairly extreme analogy and probably invoking Godwin's Law, but slaveholders in the UK and USA made similar arguments about losing their investment when they were just working within the system and slavery was in the process of being abolished. They worked and saved to purchase slaves, and then the government was proposing to simply destroy all that investment by freeing the slaves.
The UK government actually ended up compensating slaveowners for their loss of investment, which I think was wrong even if politically expedient.
The analogy works sufficiently if you can answer two questions: 1) why does land increase in value, and 2) is it fair for tenants to miss out of land value gains but landowners to get land value gains?
I hardly think allowing someone to purchase a portion of the radio spectrum and own it in perpetuity is a good idea. Yet we pretty much do this with land.
Introducing a tax that crashes property prices is what I disagree with - most proponents of land tax seem to be happy with the government just appropriating the land value (literally - because taking the interest payment IS similar to taking the principal).
Edit: If you own an annuity like a bond that pays a coupon amount every period for infinity with no maturity value, that bond has a fixed current value fn(inflation, risk, time). If the government takes 100% of the coupon, then the bond has zero value. A land value tax would severely reprice property (that’s the purpose), by the government “taking” the coupon.
Perhaps a tax can be introduced just covering the capital gains over time or some other fairish scheme (although even that is just taxing on inflation).
And yet NIMBYs introducing laws to accumulate wealth in property at the expense of non property owners was another interference in the market that this is balancing out.
Creating situations so bad that legislation is introduced to reduce the gains is a risk people take when they try to take advantage of horrible systems.
I think the core of your argument distills down to “tax them”.
Maybe you get an inheritance, or a job at Google, or win the lottery, but at some point “them” most likely becomes you.
I am middle aged and I bought my first home a few years ago. I have wealthy friends and I have poor friends. Real estate is fucked, and I would love to see solutions to make homes affordable for everybody. I don’t appreciate the commonly regurgitated one-eyed political arguments.
He used the example of the newly developed Dreamworld out in Dripping Springs outside of Austin. Its construction led to a rise in property value because it made Dripping Springs a more appealing place to visit and live. So in theory an LVT could disincentive development of underutilized land because improvements would be “punished” with more taxation.
The dynamic plays out differently in area with a higher population density.
Tangential, I would like more legislation written around population density. It means the same general policies can be put in place but in a way that smoothly scales… LVT is one example. Gun control is another… firing a weapon out your front door in a densely populated neighborhood is much different than firing a weapon out your front door at the end of a long dirt road.
Tax laws have also changed considerably also since then to make legal vehicles like trusts very advantageous for owning property.
Finally, in the same era the central government and local governments were big landlords with the majority of the market between them.
Consider an area with 100 equal sized lots all with the same land value, and each with a one family home on it, with all the families about the same size. The area uses a property tax that is based on the value of the property including land and buildings.
That area needs roads, water, sewer, trash collection, electricity, schools, parks, and emergency services sufficient for 100 families. Each family pays approximately an equal share of that via their property taxes.
Now 10 of those lots have their single family houses replaced with 100 family apartment buildings. The area now has 1090 families instead of 100 families, and needs to greatly expand infrastructure.
Under the property tax the owners of the 10 lots with apartment buildings pay a much greater share of that expanded cost than do the owners of the lots with single family homes, which presumably gets reflected in the rents of those 1000 apartments.
It probably won't end up with each of the 1090 families in the area paying an equal share of the area's infrastructure. I expect the share for the apartment families will be less, but not massively less.
Compare to a land value tax. If the tax is just based on the land value won't each of the 100 lots pay the same amount? To pay for the need for 10x as much infrastructure the tax rate will have to up by a factor of 10. The result is that families in the single family homes will be paying per family about 100x as much for the same infrastructure services as those who live in the apartments.
And if some people build even bigger apartments, those tenants will be paying less for the same infrastructure than the people in the smaller apartments.
What is the justification for different families having to pay such different amounts for the same infrastructure just because some live in denser housing?
1) Most (that I have heard of) plans for Land Value Tax do still include a smaller portion of property taxes. This does not completely solve the problem you pose but does ameliorate it a little.
2) Some of those infrastructure things are paid for via utility payments on utilities used. The 100 families in the apartment building will use much more water than a single family home. Some part of that money should be budgeted and used for improving the utilities available. That doesn't account for things like parks, fire department, etc. but does take up some of the slack.
3) lastly and most importantly those homes will be paying more than their fair share on purpose! If they live in a neighborhood where it is economical to build 100 unit apartment buildings then a lot with just a single-family home is being wildly underutilized. The higher tax costs will encourage owners to redevelop those properties into apartments or other higher value uses to make efficient use of that land. This is the entire point of Land Value Tax! It makes it in the interest of land owners to upgrade and improve their property (whereas traditional property taxes have a negative incentive because building a new building will increase your taxes).
edit: formatting
The other reality is that the single family homes in the area which just got a massive boost in infrastructure spending are benefiting from those improvements disproportionately; their land could be providing access for 100 families to those services but instead are only allowing access for 1 family. Their land value will have skyrocketed hugely because of the improvements around them, so they should pay the tax to return to society the land value they gained.
If it doesn't make fiscal sense for them to pay that tax, then they can sell their now hugely expensive piece of land for a tidy profit and live somewhere it makes more sense for them to be, allowing their land to be developed into a 100-family apartment.
Because this premise is wrong:
> If the tax is just based on the land value won't each of the 100 lots pay the same amount? To pay for the need for 10x as much infrastructure the tax rate will have to up by a factor of 10. The result is that families in the single family homes will be paying per family about 100x as much for the same infrastructure services as those who live in the apartments.
Energy = force * distance = mass * acceleration * distance. People in single family homes on their own quarter acre lot will use a lot more infrastructure than people in apartments, simply because less dense living requires mass to travel much farther.
Namely, single family lots make public transit not viable (simply because individual cars are more convenient and so people will prefer and politically support car infrastructure). And the knock on effects leader to ever more consumption of infrastructure, such as more roads, more parking lots, bigger lots (since driving makes traveling those distances easier), which then leads back to more infrastructure to push more mass more distance.
I'm sorry to be so terse (and it'll probably get me horribly downvoted) but: What the absolute f**? Just ... What? Huh? Housing crisis ... Fixed? Who paid you? And how much?
It most certainly, absolutely, positively is NOT fixed.
And if I recall correctly, the recommend changes that are linked in TFA were not adopted because of a NIMBY backlash and Auckland council caved (like they always do). All they ended up doing was scrapping the "green belt" border allowing the awful urban sprawl to resume full tilt.
The only "maybe" meaningful change that has happened was by central government at the end of 2021 by tweaking the RMA Act and essentially forcing councils to allow denser builds. (https://www.rnz.co.nz/news/political/457924/resource-managem...)
And that won't be enough. Deep structural changes have to occur: economically (introduce capital gains tax), politically (both major parties are currently useless on the matter) and culturally (everyone pours money just into housing rather than more productive investments just because the stock market detonated in 1989) to have any chance of fixing this.
I also love how there are no graphs on incomes, house prices, housing affordability, immigration, crime, homelessness, the massive price inflation during covid, or the current housing bubble deflation that's occurring.
I'm sorry. This article is a giant load of insulting rubbish. I can't figure out if it's just very poorly researched or some sort of propaganda piece.
edit grammar
Casinos maybe not, too much traffic. Though I don't see any reason why they wouldn't be in a shopping mall for example.
But it may also be a cultural difference between Germany/Austria and US/UK - bars/pubs are just not that troublesome here.
But even if it did, why should we use zoning to determine where crime is allowed to happen and where it isn't? Address the problem, don't just push it off somewhere else.
But why would you want to do that from a business perspective? You want these places to have good access, parking, and other retail businesses nearby ("oh maybe I'll grab a beer after the groceries") which residential areas often do not have. Same for industries too, there are certain needs which you are going to get much easier being in an industrial area where there are similar businesses nearby.
In the city center almost all residential buildings have commercial units <100m2 on the ground floor, outside of the "core" of the city they are usually occupied by independent niche retail businesses. If you want to get an alcohol license you require permission of the building owners, but other than that everything is fair game. A while ago I bought a newly built apartment, and then in the commercial units opened: a nail salon, Italian bar / restaurant, travel agency and a sales office for a plumbing company.
In suburbs there's usually a small shopping center, which has a supermarket and a number of small commercial units all in one building. 3 minutes drive from where I live now the shopping centre has a vet, post office, butcher, coffee shop, bar, bakery, restaurant, and then a playground and skate park for kids.
2. ...Is Auckland suddenly more affordable? As someone who grew up there but currently living overseas, it’s news to me. A lot of my friends are saddled with large mortgages they could only get with help from their parents. In a low wage economy they will struggle to pay if interest rates rise from their historic lows.
NZ as a whole doesn't have a declining population, and Auckland usually does not.
NZ is terrific if you’ve got family wealth to fall back on, but without you’re doomed.
I wanted to stay, but in spite of graduating top of my computer science class, couldn’t find decently paid work.
I moved to Aus 5 years ago and immediately >doubled my salary, could afford a house, and lived in an exciting city instead of a low wage semi rural small town.
Australia of course has many problems of its own, and in particular, treats poor disadvantaged people terribly. But NZ is grim for everybody except the already well off property owning class.
Now I have a family and gonna be moving back to NZ, there isn't a chance in hell I would go to Auckland as the prices are out of control. The house I grew up in my parents bought for ~200k and sold for like ~600k, I recently checked and it last sold for 2.4m 2 years ago.
Prices are slowly coming down now that overseas buyers are barred from purchasing houses. But when you've had decades of housing prices going up and up its difficult for people to accept the house is worth less than when they bought it.
Theres many other problems causing housing prices to be high than just 'zoning'. The amount of effort to build your own house is absurd, people don't want to buy land and get an architect etc, too many rules and regulations, getting approval every step of the way takes forever. And the government is dragging its feet to get houses built themselves.
These are the points that I have experienced in Christchurch, New Zealand:
1. Buyer sentiment matters. Prices were cheap 3 years ago, but I couldn’t convince friends to buy, even offering to help my friends with the deposit. Then Suddenly everybody wanted to buy a house and prices went up 30%+.
2. Demand outstrips supply by at least 3X. It is virtually impossible to increase supply enough: people invest, people buy second homes, wealthy people with empty houses because they don’t get enough rent to make it worth letting, everyone wants their own home instead of sharing, children and marriage breakups want their own homes.
3. People will bid as much as they can afford to pay. All disposable income is dedicated to paying off the mortgage. If their income increases, many people move to a more expensive home. Edit: so house prices on market are a fn(income distribution, mortgage rates, irrationality). Some poor people have to miss out because they are below some median earnings figure and can’t afford the minimum bid.
4. Popular areas will always be expensive. Home prices are a status symbol, perhaps even a Veblen good. You can’t fix that by increasing supply in a popular area. New York ain’t cheap even with high density housing.
The proper way to fix the housing crisis is to allow the population to decrease, or for people to not live as long (which also increases house demand). However that causes structural problems to the economy (see Japan). Edit: that is tongue-in cheek. In New Zealand, one major problem is that property is a better investment than a business. I made more money by owning two properties than by owning a moderately successful business over the last few years. New Zealand lacks a capital gains tax if you own a home for more than ten years, so the taxation advantage of property is huge compared to investing in any business. Wealthy New Zealanders invest in multiple properties because our government sets the incentives for property, and our government relatively penalises business owners or investors.
Edit: anyone that bought at the peak in Auckland, and whose property still meets the bright-line test, and the value has gone down significantly in value, should consider selling their home and claiming the capital gains loss? Just a thought the CGT can probably be used to your tax advantage significantly if you overpayed for your home, or a second investment? I am guessing that is possible, but consult a tax specialist! Say you are on 32% marginal tax, and you lose $200k moving homes, then you can claim back $64000 on tax which is big biscuits to me.
2... I disagree with, in the sense that you should still try to reduce the gap and we arent doing enough. You can make it less attractive to own multiple homes or curb airbnb etc to somewhat alleviate supply issues. It is not a panacea but you can reduce the issue.
There is a lot of demand remaining, but if you look at a graph of house prices, there’s a very steep wall at the lowest house price and you can’t buy anything below that wall price. Where does that wall come from? From unmet demand and the amount that a person with an average wage can only just pay the mortgage. Everybody bids against everyone else to get a house (a true zero-sum game for the New Zealand economy), and house prices are set by that bidding process.
Adding some houses won’t fix that, until you reach a point when there are a few too many houses and prices crash due to #1 and everybody who had a lifetime of savings in their home from working is sad.
Also we get people on the benefit who inherited a property, and then get paid more in capital gains than a working person (one working couple I know have saved a few hundred thousand over decades, while a mum with teenage kids on the benefit has “saved” twice as much by doing nothing but owning her home).
Meanwhile there are people that don’t earn enough to save for a deposit, or get a big enough mortgage to compete, who have to rent. So we get landlords profiting off their circumstances.
There must be a market for rent-to-buy for flatmates??!
In summary: there is a lot of trite solutions out there, usually with political party affiliations. The problem is deeply complex, and some parts of the system have to be unfair because by definition not everyone can live in a high status area. The only fair way is to make everybody equal by removing wealth from the rich (which unfortunately still doesn’t fix the status issue because status is not just money - see non-capitalist societies).
This wouldn't be much different than the post WW2 construction boom.
The difference now though is we all know the system is so captured that this could never happen in the US. Wallstreet would never let this happen. There would be bullshit arguments about market efficiency and how this would be harmful to single families. The right political palms would be greased and the whole idea would be dead on arrival.
Problem solving at this level is literally a type of kayfabe from Pro Wrestling style performance art in 2023.
This wasn’t true in the 50s. Sure a single family townhome in the West Village will always be expensive, but it was possible for people to own 3-bedroom apartments within a 20 minute train ride from work on a median salary 60 years ago. And this was back when Manhattan had more people living there than do today.
NYC made zoning choices that reduced the city’s density, and made building even the same kind of dense housing that was built in the 20s and 40s essentially illegal with zoning laws passed in the 60s. Neighborhoods like Park Slope and the West Village have a ton of demand, but a 2-story single family townhome cannot legally be built into a 6-family 6-story condo building in most cases.
That’s what this article is arguing: zoning laws prevent new housing costs from dropping to be near a floor of (cost of land + cost of building) / (number of units on the land).
I get two ideas from that. Maybe we need fewer tech companies from San Francisco, even if not necessarily fewer tech companies overall. Same for {biotech, Oxbridge} and {finance, New York}.
Second, perhaps the causality implied by the article here is backwards. What if only the highest financially productive companies can be formed in these places (due to their high costs)? Spreading out tech companies allows more people to benefit from being employed there and allows “gentler” (for lack of a better term) business models to thrive. If I don’t need to feed the San Francisco real estate market, I might not have to adopt a winner-take-all business model, but could focus on making something sustainable where we make something for $50 that is valued at $100 by its users.
Another premise "People closer are more productive" which also is meaningless with WFH and many white collar jobs.
European municipalities association (might have the translation wrong...) pushes instead fir large cities deurbanization and the support of livable a few hundred k people cities. This planning includes high tech hubs in each city, proper city planning which also includes investment and work related incentives cross cities network development, obvious improvements in quality of life, properly distributed civil services hospitals etc. Currently the global smaller gov policies have delayed such projects especially in Germany who was the main driver.
Disclaimer: I was employed as an engineering business and sustainability consultant a few decades back for one such commitee. The plans seemed to me sustainable even without WFH.
Also there are few examples when bureaucratic idiots came up with similar ideas and actually made it into reality from scratch on green fields, ie Brasília in Brazil or some other examples. Half-empty cities, empty vast highway, tons of resources poured into failed ideas.
I think this article is making an (incorrect) assumption that an increase in new builds and land sale drives the prices down which is not necessarily the case.
Everyone everywhere thinks they are personally succeeding in the face of the greatest adversity.
> The authors ask the obvious question: if homebuilding is a competitive industry, then why don’t prices fall to the cost of building a home?
Well in dense cities, it's all about the land value.
Every country has seen increase in rent and property values in their largest city. Meanwhile value in rural area and not attractive cities is also dropping in many parts of the world.
Is this because of regulation? Probably not as it is happening in various countries with different law and policies.
It's probably more about where people want to live and the centralization of economy to only a few large cities. In Europe to get the best jobs you have to move to London, Dublin, Paris, Amsterdam. Those cities are getting more and more expensive. In the US, SF, Seattle, New-York (and I miss others) see the same phenomena.
So limiting this to "that's a regulation" issue looks pretty narrow sighted. If your model doesn't work, change the model instead of trying to change the world to suit your model.
In a few years you will plead for mercy watching them turning any blank spot into arrays of 25-story buildings of 400 sqft apartments which you can buy for a cost of a new good car.
I'm not sure why having low cost airlines is considered normal but low cost housing is a no-no. Isn't it supposed to be the other way around?
Affordable housing is a desirable result, not an undesirable one.
Note that I'm not suggesting cities are bad or people should not like them. It is merely that people will begin living where they want to live vs where they have to - a good thing imo. I think that this will most likely re-shape things over time.
Yes, but virtually all downtown jobs can be done remotely.
Since the white collar jobs can be done from anywhere, my thesis is that downtowns don't strictly need to exist. Maybe that is a bad thing and we should try to keep downtowns more vibrant via artificial means (change taxation, etc.) but it is always more difficult when unsupported by economics.
From my perspective, downtown is the central part of the city rather than an office desert. Roughly speaking, 25% of people prefer urban living, 50% prefer suburban living, and 25% prefer rural living. The numbers vary a bit from place to place and time to time, but the general idea is like that.
25% of the population is a huge number of people that need a lot of services. Downtown is the most accessible part of the city for those who travel by foot and public transport. That makes it the ideal location for services that people who live in an urban area use occasionally.
Some services, such as theaters and museums, prefer downtown locations, because their audience consists mostly of tourists and people who live in urban areas. And some services prefer to locate near the edge of the downtown, as they serve both urban and suburban people.
This means a large amount of inflation gets funneled directly into the housing market. This skews economic signals and turns housing into a financial asset for the wealthy. The wealthy don't complain, because they are already on the property ladder.
So our entire financial system is fundamentally broken and this brokenness manifests most visibly in the housing market.
Anyone who lives in Auckland: bahahahahhaha
The author has updated the title of the article, presumably in response to the backlash from people actually familiar with Auckland.
This post is slowly drifting from the front page to where it belongs, but if someone were to update the title to match the article’s title it would be a small mercy to those of us who left NZ and are now priced out of returning.
This really needs a (recent) reference. What is output being measured, and what's the cost of this output?
The policies might've helped by now, but then Covid. And Covid intersected with the legacy of successive governments who were really into neoliberalism from the mid 80s until the early 2000s, which, for the purposes of building houses, manifested as the fact that we had sold nearly all of our manufacturing capacity, and either the land that produced the raw materials, or the rights to harvest those forests, to overseas companies, in the name of a belief in the Invisible Hand.
The end result is that New Zealand's forest products are largely owned and harvested by foreign companies[0] who ship the logs overseas for value-added processing in their own mills (China imports 54% of the logs we export), and then we import our building products, because we no longer have the ability (or desire, I guess) to process them domestically.
So when Covid disrupted global supply chains, any potential significant increase in construction due to regulation changes was immediately inhibited by building supply shortages and massive price spikes. And given how very far away from everyone New Zealand is, we were rather low on the priority list for resumption of supply.
I'm very much in favour of the regulatory changes, but very sad to say that Auckland hasn't fixed anything yet.
Oh, and friends don't let friends do neoliberalism, and Substack writers writing about the NZ market, should perhaps run it past an NZer first.
[0]: https://www.stuff.co.nz/business/farming/agribusiness/116369...
https://www.newshub.co.nz/home/money/2022/03/new-zealand-ran...
Summary: whenever such issues exist, look for the fundamental reason: government. Human beings left free to use their minds to solve problems, will solve problems. It's the dead hand of force that stops that process cold. The solution is removal of the force, never more of it.
Btw, I have this amazing bridge for sale….