By which I mean here the New Zealand housing markets (though how many other glaring New Zealand policy failures could the term be used of?).
I’ve written a couple of columns for the Wellington magazine Capital on housing policy issues (here and here for the 2021 ones) and a few weeks ago the editor asked if I’d do another one. It had to be finalised before the election, which was fine with me as whatever superficial differences there were between the policies in this area of the two main parties none seemed seriously interested in, or to have policies to deliver, dramatically and sustainably lower house prices.
I noticed this morning that the magazine is on the news-stands, but I doubt it is a magazine that is much available or read outside Wellington, so here is a link to close to the final text. Word limits mean one can’t cover everything, or anything in great depth. With a bit more space I’d have made the point that squabbles over interest deductibility, foreign buyers’ bans/taxes and so on really should be peripheral to the heart of the issue, making it easy to bring land into housing use, and easy to build.
The two sides of politics have recently been offering competing (if overlapping) visions of a better-functioning market. Labour and its allies tend to be reluctant to see increases in the physical
footprint of our cities and they back the recent law change in which, for example, three-storey
dwellings can be put up almost anywhere. They are keen on encouraging intensification, almost as
end in itself. For them single-family homes, with a backyard and garden, in our cities are some
throwback to the 1950s, or a future preserve of the relatively wealthy. In and around greater
Wellington, the regional council seems intent on further restricting greenfields development.National, by contrast, is now offering a different model in which local councils can make choices: they
have to zone enough land residential to cover 30 years of future housebuilding needs, but that can
be done by focusing on intensification or by increasing the physical footprint of cities.Neither seems to offer a path towards a well-functioning market characterised durably by much cheaper prices for houses and peripheral urban land. Labour’s approach might well increase urban intensity, but nothing in the international experience suggests that will lower house or land prices. National’s approach will tend to increase the physical footprint of some cities – in others, probably
including Wellington, a council with an ideological commitment to density will probably opt to stick
with the Labour approach – but still falls far short of creating genuine competition, where owners of
land in and around urban area are aggressively competing to attract developers and buyers, keeping
down house prices (and, over time, rents).We need to get councils out of the mix completely, and enable real choice and competition. On the
one hand, allow any geologically-suitable land to be built on to any height, so long as the builders
and developers face the costs of providing water services etc. If someone wants to – although it is
hard to imagine – build a 20-storey apartment block on a big property in the Ohariu Valley there is
simply no pressing public policy reason to stop them. But we also need to enable small groups of
individual property owners (perhaps at the scale of a city block) to act collectively, and cheaply, to
limit development on their own properties, but only on their properties, if that is their choice.
This model seems to have worked very well in big and fast-growing Houston, which has seen not only
the expansion of the physical footprint of the city, but also a lot of intensification. Provide that
option – akin to the covenants seen in plenty of new private subdivisions, allowing for the terms to
be amended by supermajority (perhaps 75 per cent of owners) – owners can collectively make their
own choices, at their own cost, about the development rules for their own blocks of land.
Subsequent choices for more intensive development can also then be managed collectively.We could, and should, do so much better. Renting and buying should be easy and cheap. The path
to such outcomes – as in so many other sectors – is aggressive competition. Sadly, our councils and
our main political parties aren’t too keen on competition, and still think governments should get to
determine the shape of developments. The young and the poor pay the price.
That penultimate paragraph champions an approach I have been running for some years now. I wrote a post last year on the Houston experience, drawing from the book “Arbitrary Lines” by an American (centre-left I’m sure) urban planner, Nolan Gray. Here are the last few paragraphs of that post.
It is easy to develop on the margins of Houston, it is fairly easy to develop in much of the existing city, but those individual groups of landowners who want to have collective rules for their own properties can do so, and the local authority will enforce those rules on those properties. Deed restrictions are not set in stone for ever, but appear to be often time-limited and requiring a further (super-majority) vote of the then owners (a different group than 25 years earlier typically) at expiry to renew them.
It seems like a model that has a lot to offer here, and which should be looked at more closely by (a) officials, and (b) political parties exploring the best durable way ahead for New Zealand.
Those not operating in good faith – or at least much more interested in other agendas than a) widely affordable housing, and b) property rights (individual and collective) – would no doubt hate it. And, for the moment, they have the momentum – National and Labour last year rushed through legislation that stripped away many existing restrictions, and as a technical matter the government can if it likes force individual city councils to do as it insists. But governments can lose elections too, and if we are serious about much lower sustainable real house prices – and it isn’t clear how many central or local government figures are – we need durable models. The Houston model has proved to work, both in managing the politics and in delivering a city with widely affordable housing, and a wide range of available housing types. And if greenfields development is once again made easy – as distinct from say Wellington where the regional council is currently trying to make it even harder – urban and suburban land prices would fall a lot, and stay down.
One of the arguments some mount for over-riding local community preferences is that “people have to live somewhere”, suggesting that it is unacceptable (even “selfish”) for existing landowners (acting collectively) to protect their own interests and preferences for their own land. But that argument rests only on then unspoken earlier clause “because we will make it increasingly difficult to increase the physical footprint on cities”. Allow easy development, of all types (internalising relevant costs), and there is just no reason to ride roughshod over the collective interests of existing groups of landowners, providing they can restrict things only for their own group of properties.
Some might push back and argue that there is nothing to stop groups of landowners forming private covenants now on existing properties, and I gather that is legally so. But coordination issues and transactions costs are likely to be very high, and people seek to use political channels instead. How much better if we provided a tailor-made readily enforceable collective action model, and then got politicians right out of the business of deciding what sort of houses can be built where.
And, to be clear, as someone living at the end of a hillside cul-de-sac I would have no interest in a Deed Restriction for our property. My interest is ending the evil that is Wellington price to income ratios of 8x or more, and enabling ready affordability for the next generation.
