Housing games

Dr Eric Crampton
Insights Newsletter
8 April, 2022

New Zealand’s longest-running, most-damaging, and stupidest game of Cluedo might finally be over. The killer has been nabbed. But dealing to the motive still matters.

The median house should not cost more than five times median household income.

Auckland crossed that line 17 years ago, with the country as a whole following about seven years later. Pundits and politicians have played a stupid game of Cluedo ever since, trying to find the culprit. Was it the speculator, in the backrooms, with cheap money? Or was it the immigrant, in the auction room, with British pounds or a Chinese-sounding name?

Meanwhile, economists like Arthur Grimes built evidence pointing to the real killer: restrictive land-use planning rules.

The game played on. Checking the cards to identify the real killer would make it harder to keep blaming speculators and migrants. Why fight NIMBY homeowners who like rising property prices?

This week, the Infrastructure Commission’s Peter Nunns and Nadine Dodge bludgeoned everyone into looking at the cards.

The culprit cannot be immigration. Population grew more quickly in the 1950s and 60s. House prices did not explode.

Maybe construction capacity got sucked into building larger houses? Nope. Houses are bigger now. But the country’s builders provided more growth in total dwelling floor area in the 1950s than 2010s.

The problem goes back decades.

The 1961 Auckland District Scheme provided capacity for the downtown population to more than triple. The 1970 Scheme halved development capacity. Emphasis shifted from development to protecting existing residents’ amenities.

The Town And Country Planning Act 1977 made it harder to build and easier to object. The RMA made things worse. A district scheme of less than 200 pages helped Auckland grow in the 1960s. Modern ones take over a thousand pages to stop building.

Development at city fringes kept things in line for a while. But infrastructure could not keep pace with congestion.

And now we have a disaster that has only started to unwind with the Auckland Unitary Plan, the National Policy Statement on Urban Development, and the Enabling Housing Supply legislation.

The culprit has been obvious for years. Restrictive planning rules and failure to build infrastructure to accommodate growth killed housing affordability.

But solving the problem also requires unravelling the motive. So long as councils have every incentive to restrict growth, they will find new ways to do it.

Change the incentives to finally end this destructive game.

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