Scream it from the rooftops: Supply!

Jason Krupp
Insights Newsletter
22 April, 2016

With Auckland’s housing crisis now a permanent feature on the Herald’s front page, it is worth restating how this problem started: not enough homes were built to keep up with natural demand. When too many buyers chase too few goods, prices have to rise. It is a basic fundamental of economics, but one that gets lost in the rolling maul that sometimes passes for a debate around how to fix the housing problem.

If you are looking for reassurance that this diagnosis is correct, consider a recent infographic published by the Wall Street Journal, which we have made our Graph of the Week. Quite simply, it shows the US cities that expanded their residential capacity the least have the highest house prices.

San Jose, for example, saw home values increase by over 180% between 1980 and 2010, while the city’s developed residential area only increased by 30%. The phenomenon is repeated in Boston, New York, Los Angeles, and Seattle, albeit to a slightly lesser degree.

Conversely, cities like Phoenix, Atlanta, and Las Vegas experienced the opposite. There, values rose between 10% and 30% in the period due to significant expansion in residential housing capacity. In the case of Austin and Raleigh by over 200%.

It is a powerful graph and one that needs to be shown to local and central policymakers. If, as publicly stated, they are serious about tackling the high cost of housing, then they need to focus their attention on measures that free supply.

Practically, that means lifting artificial density restrictions in the inner city, but also freeing land at the edge of cities for housing. There is not a shred of evidence that shows compact city planning has improved housing affordability, but plenty to suggest it has made the problem worse.

Infrastructure investment is an important consideration. Auckland planners proudly state that the city has seven years of greenfields land available for development under the Unitary Plan. The point of building houses in Pukekohe or Warkworth is questionable if the people living there cannot access the areas of the city where the agglomeration returns are the greatest.

All of this has of course been said before. But it bears repeating over and over until the message that we need to free up supply to make houses affordable sinks in.

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