stockvault-beautiful-house132348The Auckland Council’s Housing Project Office estimated the housing shortage to go from 15,000 currently to 25,000 in 2018. Yes that’s right, believe it or not the housing shortage can actually get worse.

Some would argue that the private sector has failed and that government is the only solution. Australian treasurer Joe Hockey said those who could not afford to buy in Sydney, with a median house price in excess of one million dollars, should just get a better job. Contrary to what some may believe, home ownership statistically is not tied to incomes but is directly influenced by government policy. You see, at the heart of the problem is not the cost of the physical house, but the underlying land. The Reserve Bank, The Productivity Commission and the New Zealand Initiative all recognize that over regulation has caused this mess we’re in today.

In recent years there has been a movement away from proactive building that we have seen during the post World War Two times. Nowadays there has been a large movement that stems largely from a small group of intellectual elite, particularly in higher education, that see individuals as chess pieces that should conform to a perfected way of living in their eyes. In planning regulations we’ve seen a large focus of design, how houses should look, their size, impermeable surface areas and even how much landscaping they must have – death by a thousand regulations. Academics have also demonized urban sprawl over the years, fundamentally because the decreased land restrictions improved property rights reduce academics ability to design the city as they see fit.

However the war on sprawl is not just an attack of property rights, but also an attack on housing affordability. One of the arguments is that houses will swallow up productive and green land. This on the face of it seems legitimate, however, less than 1% of land has been built upon and we have seen huge innovation and productivity gains that produce more with far less need for land. Arbitrarily drawn urban limits and excessive planning regulations have also meant that residential developments take significantly longer to build. In cities with more relaxed land use regulations, like Houston and Kansas City, developers are able to quickly respond to changes in demand reducing the supply lag significantly and creating more elastic supply. This is important as we have seen in Auckland there is a systemic under-supply of housing, which creates dangerous bubbles and a boom bust model creating huge amount of harm. The cities with liberal land use regulations which I’ve mentioned before, not only are able to provide greater home ownership rates and economic prosperity and mobility, but the lack of regulations helped prevent a bubble in those cities leading up to the Global Financial Crisis. While many cities were massacred, those cities that favoured property rights over the urban planners false utopia shielded their population from huge economic hardship.

Historically home ownership has not always been possible with Kings previously ruling the land individuals now own today. But we shouldn’t take home ownership for granted. The ‘savings bank’ nature of real estate has helped create new businesses, produce extra income and improved our standards of living. So it’s definitely worth defending. However, an easy political tactic to garner favour has been to subsidize home ownership. First home-buyer’s grants & government loans, amongst others tactics sound like a good idea. However the nature of these actions is that they only add more demand to often already inflated markets, like Auckland. When developers can’t possibly meet demand with development often taking years to complete when land is harder to source and regulations throwing a wrench in the wheel of productivity. The net result is often reducing affordability and also getting people into more debt for overvalued property.

What we are seeing in Auckland need not be the case. We not only need to shift the focus from controlling where and how housing should be built but to also focus on what the property buyers want. Nowadays we wonder why developers aren’t building cheaper housing, but high land costs change the behaviour of developers who then typically build more expensive houses rather than the entry-level housing we’ve seen in the past.

Apartments are an important aspect of any housing market, but they serve a more limited use and forcing apartments on us in the way the current council sees fit, means many of the working class just wont be able to own a free standing home or have a family. Yes the very people that decry inequality are, maybe unintentionally, causing a big increase in material and opportunity inequality with more people being stuck in neighbourhoods with poorer education because the have been price out of the housing market. Not only this, but statistically Apartments have a far lower rate of home ownership and are seen as ‘cash cows’ by investors. It is important that we avoid regulation on minimum affordability that would constrain how much the future own can on sell the property to keep it ‘affordable’, usually in some token amounts. It may lower the cost to buy for a handful of people, but it is wrong that people on lower incomes should have less rights in a property because of the mess various governments have caused.

The grandiose ideas the urban planners come up with are indeed very desirable on paper. However the economic effects are vast. The restrictions of property rights has caused a lining of the pockets of our parents generation of home owners, simply because they were born at the ‘right time’; economic hardship through planning delays and creating a boom bust market; material and opportunity inequality by denying people the ability to access the market and force housing upon them that they don’t want. But this doesn’t need to the new norm. We must focus on allowing more intensification where the market sees fit, but also much more new suburb development, which has historically been the choice for the ‘kiwi dream’. To say simply, we need to let people start building houses again.