Monday, 23 January 2012

All Wrong


Demographia have released the findings on housing affordability.  It's got some good points and some bad points.  Robert Winter has spotted some of the bad points here.  I concur.
One of the report's authors was on Radio NZ this afternoon, unwittingly revealing the flaws in his logic.  Here's the theory, according to Demographia, and our government (from National Radio):
·         Rules on landuse need to be relaxed to bring house prices down,
·         Councils are to blame, because they are not freeing up land on the fringes of cities
·         A house is unaffordable if it costs more than three times the annual average household's income
·         "All councils are quite conscious that land prices are what have driven house prices to an unaffordable level" Phil Heatley
So, it's land prices that are the problem.  If we pay for a house and land package, on the edge of town in a new subdivision, let's say we get it for $400,000.  Sounds nice, right?  Let's say it's split $150,000 for the section and $250,000 for the house.  With an aveage household income of $60,000, that gets the affordability into the right order.
But the land's the problem, according to the hypothesis put forward by National and Demographia.  So let's say the land is free.  Hard to believe, but I'll run with it.  The cost of the house alone is still more than four times the household income, and still in the unaffordable bracket.
But the whole idea of free land, that's ridiculous, let's just say it's "cheaper".  As it is, land on the edges of town is marginal for farming.  Farmers can make some money off it, but when they can make more by subdividing and selling, that's what they do.  If the land were to become cheaper, farmers would be less inclined to sell because they can make more money off the land by farming it.  Making the land cheaper will do the opposite of what Demographia want, and what they say should happen.
And almost the only way to make the land "free" is for the taxpayer to buy it and gift it to developers.  Is that the kind of market intervention that Demographia believe in?  I doubt it.  I'd ask the same of National, but I suspect they do support this kind of market intervention, in their heart of hearts.
Another way would be for the government to seize the land from the owners without redress or compensation.  It could be done, but it would also be the downfall of the government.
So it's actually the cost of the house that is the main contributor to the problem.  National have helped contribute to this by destroying the apprenticeship system in the 1990s, growing the wage gap with Australia to encourage migration of skilled tradesmen and adding regulation, more of which is due on 1 March this year.
Demographia make a concerted effort to discredit themselves.  They note that they do not normalise across dwelling types, so it's not an apples-with-apples comparison.  The equality of affordability in New York vs. Wellington is an apartment vs. a detached house.  Uh-huh.
They try to link "restrictive landuse planning practices" with low affordability, with a dinky graph.  Funny thing is it shows a definite trend with "restrictive landuse planning practices" and "liveableness", which is reported in an entirely separate report.  It's obviously slipped their minds that the cities that have less restrictions on landuse are the ones that have a reputation for poor living environments.
Finally, their report references the 2025 Taskforce Report.  Hang on – didn't that get panned by just about everyone, including the government who commissioned it?  Hardly a reliable source.
So, what did I like about this whole embarrassment of a report?  Well I heartily agree with Mr Pavletich when he says:
"The government has been...callous in ignoring the plight of [Christchurch] people..."
There was some discussion about the optimal size of local authorities on Radio NZ, which identified the Auckland Council as risky to its large size creating an unwieldy bureaucracy.  I agree, Labour took the local out of some local government in 1989, and National are making it worse.
But neither of those good points comes close to the steaming pile that is Demographia's report, or the poor journalism that failed to identify the most basic of flaws in the aforementioned steaming pile.

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