Housing

Published in The National Business Review (Auckland), 23 May 2014 (PDF) Budget day last week was dominated by the usual focus on the return to surplus, some new spending pledges and discussions of potential future tax cuts. Soon afterward, however, commentators and politicians discovered the Treasury papers contained some political dynamite outside the core of fiscal […]

It is good to see housing high on the policy agenda. That is where it should be. As anyone with a stake in the housing market knows, there is a massive undersupply of housing. This is what is responsible for high and rising prices.

In recent years, however, the hitherto boring German property market has become a bit more interesting. House prices have actually increased enough to make the Germans speak of a housing boom or even a bubble

In most markets, we are used to products becoming cheaper and better over time. Why should housing be any different? Perhaps we should think more about houses as homes, not primarily as a financial investment. Now that’s a radical thought.

In considering housing and planning reforms, we need to understand why New Zealand’s housing market is failing to adjust to increases in demand. This is the core question. Once we have found the answer, we will be able to design policies that will restore housing affordability.

Stop population growth, and solve the housing crisis. That’s the simple mantra of the ”small Australia” brigade. But what at first sounds like a straightforward proposition turns out to be based on bogus logic. Population size certainly plays a role in determining our housing needs. But it is by no means the only factor – let alone the decisive one.

While the rest of the world wonders what the next phase of the GFC will bring; and while the rest of Europe discusses the future of their common currency; the British are pondering an entirely different question: How can they protect the last blades of grass on their small island from being concreted over?

Unlike the market models they teach in undergraduate economics courses, the housing market is not a sanitised place behaving in an always rational, easily predictable fashion.