We’re all paying a terrible price for outrageously unaffordable housing – and it’s entirely unnecessary

“Relative to incomes, housing in major New Zealand cities is now some of the most expensive in the world,” Don Brash, chairman of the Centre for Resource Management Studies, told the Parliamentary select committee looking into the affordability of housing today. “And that is entirely unnecessary.”

“A study published earlier this year covering 159 major cities throughout the English-speaking world looked at the ratio of the median house price to median incomes in each city – the so-called Median Multiple – as a measure of housing affordability. It found that the 25 most unaffordable cities, with median multiples between 6.6 and 11.4, had all adopted the policies of “Smart Growth”, involving city governments placing tight restrictions on the availability of residential land.

“By contrast, none of the 39 cities with the most affordable housing, with median multiples between 2.0 and 3.0, had adopted such policies.

“So major cities in the US and Canada such as Pittsburgh, Atlanta, Houston, Quebec City and Ottawa have much more affordable housing than cities such as Auckland, Wellington, Christchurch, or even the Tasman District.

“This influence of tight restrictions on the availability of residential land – often in the form of Metropolitan Urban Limits – has been amply confirmed in a recent study undertaken by Arthur Grimes and Yun Liang for Motu Economic and Public Policy Research. They found in a study of land prices in Auckland that the price of land just inside the Metropolitan Urban Limit was between eight and 13 times the price of land immediately outside the Limit.

“A rapid increase in the levies and ‘contributions’ required by local governments of those developing residential sections over the last few years has made the situation even worse.

“We’re all paying a terrible price for these policies: housing has become so expensive that many young people simply can’t afford to buy a home, and the momentum which has built up behind house prices has forced the Reserve Bank to keep monetary policy much tighter than would otherwise be the case – so that borrowers are paying more for their mortgages, and exporters have been suffering from an over-valued exchange rate.

“Quite frankly, Metropolitan Urban Limits and similar restrictions should simply be outlawed, no ifs or buts. And Parliament should establish an RMA Regulatory Review Committee to ensure that all rules, regulations and levies imposed by local governments are consistent with the RMA. I have no doubt that these two measures would do more to improve the affordability of housing in New Zealand than anything else policy-makers could do,” Dr Brash concluded.

Inquiries: Don Brash, 021 420 144

Author's Picture Owen McShane is Director of the Centre for Resource Management Studies (www.RMAStudies.org.nz), a privately sponsored New Zealand-based “think tank” specialising in resource management matters. The Centre’s activities are funded by the Centre for Resource Management Studies Trust, which is registered as a charitable trust for educational purposes. He has New Zealand degrees in Architecture and Town Planning and also studied Urban Economics at UC Berkeley towards a Masters Degree in City and Regional Planning. He writes a fortnightly column for New Zealand's National Business Review, titled “Straight Thinking” and has been published in many magazines and newspapers including the Wall Street Journal and the Far Eastern Economic Review