Crampton on housing

Eric Crampton has a lengthy post at The Spinoff on Auckland housing. He looks at what won’t and will make a difference.

First why there is a problem:

Auckland is adding houses less quickly than it is adding households. But it cannot be as simple as that. Avocado shortages aside, high migration figures haven’t led to shortages of anything else that people buy – and I would not blame migrants for the avocado shortages either. Auckland doesn’t have a barber crisis induced by the tens of thousands more people who need haircuts every month as compared to the same time last year.

Fundamentally, the problem has to be constraints on supply: either the building industry simply cannot keep up, or the council isn’t zoning enough land for either building up or building out.

The constraint, so far, has not been the construction industry. When I was at the University of Canterbury, you couldn’t walk between two buildings during the earthquake rebuild without meeting Irish accents in fluoro vests. Markets can scale up to meet demand if they expect that demand to be sustained. Builders can come in from overseas. Cement plants can be expanded and upgraded. Unexpected housing demand can then cause price blips, but you shouldn’t get the years-long rolling maul we’ve seen in prices.

The series of three reports the Initiative released in 2013, our reports since, and the Productivity Commission’s reports, point pretty strongly to council-level constraints on new building. Pro-density activists made it too hard to expand at the outskirts of town; Not In My Back Yard activists made it too hard to build apartment towers or terraced housing close to downtown. When a city can’t go out or up, prices can only go one way when population increases.

Auckland needs both up and out.

He then looks at the red herrings:

• 33,000 empty houses at the census – is lower than most centres as a proportion, and consists of houses being sold. renovated or holiday rentals
• Capital Gains Tax – will cause a one off drop in house prices, but not stop them appreciating again.
• Migrants – Atlanta has gone from 3 million to 5.7 million people but houses there are only three times median household income- because they build to keep up
• More state houses – The Government also has to obey the Auckland zoning rules. Unless Parliament legislates over the top of the Auckland Unitary plan, they are also limited to where they can build
• Land banking – agrees with Phil Twyford the solution to land-banking is eliminating the RUB and allowing development to “leapfrog” over existing land-banks

So what does Crampton suggest:

• Give Councils incentives to have houses built such as the GST revenue from the construction costs
• Change zoning to allow housing to build up and out
• Amend RMA to make it easier to subdivide, easier to change district plans and harder to block new developments