Planning is the externality

Matt Burgess
Insights Newsletter
9 April, 2021

Data from the OECD reveals extraordinary increases in the cost of housing in most countries.

Since 2000, house prices in OECD countries have gone up 39% after inflation. The worst-performing countries include the United States (up 46% since 2000), Great Britain (85%), Australia (119%) and Canada (159%).

At the top of the list, coming dead last, is New Zealand. House prices here have risen a whopping 177% after inflation since 2000.

And this dreadful result precedes the Reserve Bank’s quantitative easing which began in March 2020.

Since 1991, when the Resource Management Act passed, real house prices have risen at nearly 10% per year. The OECD average for the same period was 1.5%. New Zealand has made it too hard to build a house.

In theory, urban planning promises to bring better knowledge, information, data, theory and methods to land use.

In practice, planning is the no-nothing recent graduate from the University of Whatever who declines your request to put a turning bay on your property because that would affect the aesthetic appeal for passers-by. Your family will just have to reverse out onto the four lane urban motorway.

For thirty years, the RMA has led to nonsense like this for the crime of trying to build a home.

It does not have to be this way. Planning exists to protect homeowners from ‘externalities’ – the risk that a factory or skyscraper could go up next door.

But planning can do this job without making life so difficult for house builders. The US economist William Fischel has shown the invention of comprehensive zoning in 1916 did not lead to rising house prices. Only after environmentalism found planning in 1970, and later when houses came to be a class of investment, did house prices take off.

Planning has become the externality, and nowhere more than in New Zealand. Our runaway house prices are the inevitable result of putting delays and risk onto developers.

The solution to the housing crisis is not more planning, as last year’s Randerson report on the RMA concluded. And it is not more subsidies and taxes.

Instead, we must recognise planning’s core function, re-consider the role of central and local governments in land use decisions, and fix the council incentives underlying all of this chaos.

Rocketing house prices suggests New Zealand has got urban planning more wrong than any other OECD country. Above all else, planning reforms must make it easier to build a house.

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