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NZ Treasury Housing Affordability Paper

NZ Treasury Housing Affordability Paper - Pavletich Comments


It's a pity to have to be dismissive with this paper ... - but its just so all over the place. We should have been able to expect something of a much higher standard from Treasury. The writer has enough to deal with with the "research" being generated by elements within the property sector - where we have a major problem with "elastic calculators". We may just have to bring Michael Walker, Comptroller General of the US Government Accountability Office www.gao.gov ( click "From the Comptroller General" to read his speeches ) to give our guys in the public service here in Australia and New Zealand a "pep talk" or two !!

Its interesting that they "consulted" Dr Arthur Grimes - yet this paper appears ( although its not altogether clear ) to conflict with Arthur's ( and the wealth of American literature ). As you state, the Dem Survey does not get mentioned - although one gets the impression that it is attempting to attack it indirectly. I have no doubt the Dem Survey ( with my public musings about economists ) has raised the heart rates of a few in Wellington. I stand by my public statements that we do not have skilled urban economists in New Zealand and Australia at this stage. Let's hope the situation changes before too long.

Basic stuff like using averages instead of medians - then popping in both averages / medians in to the same calcs. And to even mention those Bank / University Housing Affordability Indexes. Simply extraordinary

The Dem Survey median multiple approach does not purport to be all encompassing or indeed the perfect measure. But it must surely pass the "adequacy" test in that it provides a satisfactory measure with the categorizations of affordable, moderately unaffordable etc etc as a gauge of affordability levels of the urban markets surveyed.

We know enough from the Dem Survey findings that "normal" markets should swing between 2.5 to 3.0 median multiple through the building cycle. Its interesting that Houston was 2.9 back in Sept 05 ( 06 Dem Survey data at this time ) and now in Feb it has fallen to 2,7 ( median housing prices gone from $145,000 to $138,000 ) as the market has weakened. We do know too that new starter homes in Houston ( with land ) cost in the order of $800 per square meter - $80,000 for a 100 sq metre exercise - $160,000 for a 200 sq meter one. The Houston Assn of Realtors www.har.com ( click homes for sale page then on right hand side ) provides extremely useful information on al the subdivisions within Houston, when they were put in and pricing movements ( incl on a sq ft basis ) over time. I am sure one would find the same or very similar "market behaviour" throughout the other North American urban areas achieving 3 median multiples or below. Its all there for the guys to read. That's once NZ and Australian economists, in dealing with land use issues, "discover" North America !

Its extraordinary of course that the Treasury paper made no mention whatsoever of any North American market whatsoever - but instead bought in ( of all places ! ) Britain ( and Australia ) - the property / planning disaster of the Western world. There is nothing we can learn from Britain - other than what not to do. I did some rough calcs yesterday that would indicate that on a per 1000 people basis Britain gets in just one ninth of the new residential floor space Houston does per annum. New housing construction rates - Houston near 9 per 1000 population ( last 12 months approx 48,000 units; population 5.4 mil ), Britain 3 and compounding this, the average new British home is about one third the size.

In Australia and NZ we are running at around the 6 to 7 per 1000 incidentally.

Importantly - the Dem Survey illustrated clearly that 24 of the 100 markets surveyed are currently "affordable" - and that most were 20 to 30 years ago. We all know that there are difficulties with Stats income figures ( that's Stats problem - not ours ) - but at least we can probably say that they are "consistently inaccurate". The key thing is consistency across markets and over time - for what we are attempting to explain. You will note that in the back of the Dem Survey that we are very careful in explaining this - urging readers to focus on the "categories".

There is enough in my view within the Dem Survey to then move on to further research such as median multiples within all local authority areas / significant urban markets, peripheral urban land pricing ( including breakouts of infrastructure charges levies etc ) and construction costs - currently and over time. I outline these issues within a recent letter to Bob Harvey and in a paper I did back in November ( both accessible on www.demographia.com ).

We could go on ( as the Treasury exercise does ) about all the other "changes" and factors that could be considered, such as changing house sizes, household composition, interest rates, climate, geography etc etc etc. but does this really assist us in progressing these issues? It is my view that if we can't articulate housing affordability issues in a way that people and policy makers can readily understand - we do not have the "foundation" in place to progress the issue and develop appropriate policies to deal with it. In fact, this is exactly what drove me to instigate the Dem Survey with Wendell Cox.

So lets hope the Treasury guys and others within the public service "get their act together" and assist in generating sound credible research that assists in moving these issues forward. People such as me have enough to deal with within the property sector in attempting to encourage sound and credible research. This is not always particularly easy with all the political and commercial pressures involved. So we should expect much higher standards from those within the more protected confines of the public service. I would suggest that the NZ Treasury guys read ( and memorize !! ) Michael Walker of the US GAO speeches - prior to launching in to further research.

- Hugh Pavletich

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