How to reduce Auckland house prices

Arthur Grimes, the former chair of the Reserve Bank board, caused a stir with his proposal to crash Auckland house prices by 40% by building lots more housing: My call for policies to drive a house price collapse is driven by my personal value judgement that it’s great for young families and families on lower incomes, to be able to afford to buy a house if they wish to do so. My concern is not for older, richer families, couples or individuals who already own their own (highly appreciated) house… Research at Motu (accessible from www.motu.org.nz, and published in international scholarly journals) shows that (given current interest rates and incomes) …
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Remember the last time house prices crashed 40%?

More commentary on this later on, but for now I’m just going to drop in some data. Former Reserve Bank chair Arthur Grimes commented last week in The Spinoff: In March 2016, the REINZ Auckland median house price reached $820,000. Four years previously, it was $495,000 – that’s a 66% increase in 4 years. What’s more alarming is that in 2012, many people considered that house prices were already getting out of reach for most people. That was particularly the case for young people and low income earners. That extraordinary increase – coupled with the already high level in 2012 – was behind my call to a recent Auckland Conversations …
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Geography and housing supply dynamics

Last week, I introduced the concept of elasticity of supply with respect to price as a useful measure of housing market dynamics. Supply elasticities measure how responsive builders are to an increase in demand. In other words, when people turn up wanting dwellings, how quickly do the tradies start building more? Supply elasticity can in turn have a big, long-run effect on prices. If the building sector is consistently slow to respond, it creates the condition for an ongoing shortfall in supply, which means that people will bid up prices more. My post last week took a look at some of the (limited) international comparisons of planning regulations, which seem …
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Briefing papers 2: “Understanding housing affordability”

AUT’s Briefing Papers initiative has kindly allowed us to syndicate their recent series on housing. The second briefing paper is written by Motu Institute economist Arthur Grimes: Housing affordability is a multi-faceted, complex issue. Concentration on just one aspect of the issue – be it housing supply, land supply, interest rates, construction costs or migration – will miss important aspects of why house prices vary in different locations at different times. In this briefing paper, we illustrate how differing facets of the housing market combine to produce diverse housing outcomes. Common sense and observation of recent trends indicates that house prices reflect variables such as: population and migration, land availability …
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The urban planning conundrum

Since I moved to Auckland, I’ve been trying to make sense of local trends in house prices. Why have they risen over the last decade? Will they keep going up, or crash back down to earth? What’s driving all this? Over the last few years, a lot of the focus has been put on the role of planning regulations in pushing up prices. I’m sympathetic to this focus, as it looks like there may be a few barriers to building the kind of city I’d like to live in. But I also suspect that the causes are a bit more complex than planning alone. After all, housing markets are big, …
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Parking is massively oversupplied in US cities

When people discuss the costs of car-centric transport systems, they tend to tend to talk about congestion, fuel costs, crashes, or, if they’re environmentally-minded, carbon emissions. However, one of the largest costs of auto-dependency is hidden in plain sight: the cost of providing parking spaces. The financial cost of providing parking spaces can be staggering. According to Todd Litman, “most communities have three to six parking spaces per vehicle (one a home, one at the worksite, plus spaces at various destinations such as stores, schools and parks)”. As car parks occupy around 30 m2 apiece, this means 90-180 m2 per car. In Auckland, where suburban land prices range from around …
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What will happen as we build our “missing modes”?

Last year I started to take a look at demand for new transport investments. I found that demand for toll roads has massively underperformed, showing that people are unwilling to pay for new roads. On the other hand, demand for new public transport facilities has taken off more rapidly than projected. All alternative modes are growing rapidly in Auckland, while driving has stayed flat for the past decade. The conundrum is, basically: Why is this happening? I argued that declining willingness to pay for new roads is consistent with a saturated market – i.e. all the people who value driving are already on the road. But that doesn’t explain why …
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