With two-fifths of the country caught in the grips of it, and the rest watching with a mix of awe, jealousy and sheer horror, it is easy to forget that Auckland’s housing market is more than an exciting exhibition.

Figures like those released by Barfoot & Thompson this week do little to dispel the perception that housing in the country’s biggest city is anything but a fantastic spectacle, with March sales setting new records across a range of measures.

By the numbers, the average sales price in the city rose almost 4% compared to February, topping out at an all-time high of $776,729. On a median basis, prices for Auckland houses hit $711,000, marking a 9% increase on the same month last year.

Amid frenzy a narrative has emerged, pitting bad guys in the form of foreign buyers and buy-to-rent investors against a hardworking younger generation, doomed to perpetual renter status by an upward spiral of prices.

The problem with this compelling story is that it ignores the real losers: the poor.

This was underscored recently by a paper – published by Matthew Rognlie, a graduate of the Massachusetts Institute of Technology – which took aim at Thomas Piketty’s now infamous book Capital in the 21st Century.

Wrong on three fronts

Without delving too deeply into the details, Rognlie contends Piketty got it wrong on three fronts:

• The French economist failed to consider that returns to capital decline over time due to the law of diminishing returns;
• In Rognlie’s view, Piketty overestimated how high the returns to capital will be in the future due to the difficulty in automating functions currently carried out by people; and
• Third, Rognlie contends that when you strip out housing, returns to capital have been largely flat since the 1950s.

Put more explicitly, it’s not the factory-owning fat cat who’s responsible for the gap between the haves and the have-nots but the lovely middle-aged couple down the road, living in a four-bedroom house they bought in the early 1990s.

It should be noted Rognlie’s research was based on US data and we should be cautious about carrying the findings over. However, they do tend to hold up when looking at measures of poverty in New Zealand.

Research by Jonathan Boston and Simon Chapple showed child poverty rates have largely pinged between 20% and 25% of the total population since 1990, as measured by those earning less than 60% of the median income before housing costs. However, when housing costs are added into the equation, the rate shoots up to 30% at its peak.

Several factors account for this, such as changes to the benefit system but, most recently, it is rising house costs that have been hitting the poor hardest. Clearly, if we want to tackle poverty, we need to fix the housing market.

That a lack of supply is seen as the main problem is a victory of sorts but measures to increase supply where we need it most are not keeping pace.

This was acknowledged by Auckland mayor Len Brown last weekend in a televised interview, when he said the city’s 84 special housing areas were likely to deliver 50,000 homes if all goes to plan.

However, less than a minute later, he also noted that the city’s population had grown by 70,000 in the past two years, mainly off the back of immigration. At a growth rate of 35,000 a year, the city’s population is going to quickly outstrip any new supply that comes on to the market from the special housing areas.

Demand exceeds supply

Where demand exceeds supply, prices will always rise, to the benefit of those who already own property.

These are the people who are rewarded by championing Nimby (Not In My Back Yard) policies, which take the shape of fighting efforts to increase inner city housing densities and height limits in Auckland.

These are the people responsible, albeit indirectly, for increasing the cost of housing for the poor. If you have to spend more to keep a roof over your head, there is less left for essentials like food and heating.

So what can be done? Compact city advocates argue for building up, while the other side of the debate believes building out is the only way to deliver affordable houses.

We at the Initiative believe a combination of up and out is needed. Up allows you to house more people. But if you relied on apartments to house Auckland’s growing population, you better be prepared to wait decades to see results.

Out is quicker and cheaper but difficult trade-offs need to be made against the cost of infrastructure provision and congestion.

Both require a commitment from officials to keep red tape to a minimum, which has been shown to be a factor in the price of housing. It seems the more rules you have, the more it costs to produce a house.

This is where Auckland Council needs to show leadership. The special housing areas legislation has reduced the time it takes to process a major building development to six months from three to five years previously.

However, the legislation was imposed on the council by central government. Furthermore, it will be automatically repealed in a few years, potentially paving the way for the city’s planning system to slide back into its moribund ways.

Second, city leaders need to avoid hanging policy millstones around the necks of future generations. Height limits in the green leafy suburbs may have seemed like a great idea when they were passed but have become a major challenge to opening the housing market.

Careful thought needs to go into the long-term effects of policies such as preserving view shafts. Yes, the Resource Management Act enables these decisions but it doesn’t force councils to make them.

Lastly, we need a mechanism to turn Nimbys into Yimbys (Yes In My Back Yard). After all, appeals to the better nature of champagne-swigging suburbanites is unlikely to see them forsake their self-interest.

All of this hinges on the awareness that if housing isn’t fixed, poverty levels can’t be fixed.