Gordon Campbell | Parliament TV | Parliament Today | News Video | Crime | Employers | Housing | Immigration | Legal | Local Govt. | Maori | Welfare | Unions | Youth | Search

 

The Last Global Housing Bubbles

"THE LAST GLOBAL HOUSING BUBBLES"

Hugh Pavletich

Co author

Annual Demographia International Housing Affordability Survey

DEMOGRAPHIA (http://www.demographia.com/)

Christchurch

New Zealand

September 18, 2008

Artificially created urban housing bubbles are very popular with the wider public and politicians. The reason for this is because for most people, bubble or fake wealth is the closest they will ever get to creating significant (in reality - "fake") wealth in their own lives.

It is however an illusion.

Creating real wealth is extremely difficult - requiring exceptional commitment, energy and skill. So the "easy road" to fake or bubble wealth has wide appeal.

For politicians - bubble or fake wealth creates excess tax revenues - allowing them to engage in excessive spending.

The finance sector welcomes them too - to load households up with excessive debt - effectively turning their customers in to "mortgage slaves". (Refer "Herb (http://blogs.marketwatch.com/greenberg/2007/12/straight-talk-on-the-mortgage-mess-from-an-insider) Greenberg Blog Archive Straight Talk on the Mortgage Mess from an Insider".)

The "fiction" of fake and bubble wealth is further reinforced in the media - as commentators' and economists inform the public that housing "inflation" is "growth". Indeed economists have to date been more than willing to explain to the public the "wealth effect" of housing inflation.

But as the saying goes - "there is no such thing as a free lunch".

All bubbles eventually burst - which is what we are currently experiencing globally within distressed and inflated urban housing markets - creating massive economic, social and political disruption.

The reason for getting the Annual Demographia International Housing Affordability Surveys underway in 2004 ( (http://www.demographia.com/dhi.pdf) "2008 4th Edition") - was to illustrate in the clearest terms possible - that urban housing markets should not exceed three times gross annual household income - and that if they do, there is likely some regulatory impediments to the supply of new housing that needed to be dealt with.

"Bubble bunnies" (from all walks of life) were more than happy to scoff at the notion - that the important relationship between household incomes and house prices was a "fiction" - and that bubble pricing would continue indefinitely.

But as explained within the recent Planetizen Op Ed "The Housing Bubble: The Planner's (http://www.planetizen.com/node/34208) Role and Lessons Learned" and "Getting performance urban (http://www.demographia.com/pav-performance.pdf) planning in place" the focus must be on quickly getting policies in place at local level - with the assistance of State / National Governments - to allow affordable housing to be built as soon as possible on the urban fringes.

The fringes are the only inflation or supply vent of an urban market. Local Government simply does not - or should not - have the right to deny the construction of affordable housing on the urban fringes.

In many distressed urban markets - getting housing construction performance back to internationally acceptable levels of affordability will take many years. Generally "bubble markets" have severely degraded the performance of their housing construction industries as explained in "Scoop: (http://www.scoop.co.nz/stories/print.html?path=PO0804/S00406.htm) Urban Planning Degrades Housing Productivity".

Indeed - in a number of the distressed urban markets globally (United Kingdom, California, New South Wales - Australia), in employing the "build rate per thousand population" measure - housing construction levels have likely already fallen below those of the Great Depression - when adjusted for population. (Refer "Scoop: (http://www.scoop.co.nz/stories/print.html?path=PO0808/S00303.htm) Housing: The Disaster Zone Of California")

The collapse of the housing bubbles globally will also bring to the fore, the urgent need for "structural urban economics" training within the economics, planning and property appraisal / valuation professions globally as well.

It would appear too - that many within the finance sector globally are in urgent need of this training.

The only way to develop "market sense" is by practical experience - something these professions will not likely experience during their working lives. So it will be important going forward for them to be educated to better understand relevant measures and indicators - so that in particular - they clearly understand the difference between "real" (at or below three times gross annual household income) and "fake" or "bubble" housing value (above three times gross annual household income. (Refer Scoop: Understanding (http://www.scoop.co.nz/stories/BU0808/S00149.htm) Housing Bubbles and Scoop: (http://www.scoop.co.nz/stories/print.html?path=PO0808/S00311.htm) Does The Economics Profession Understand At All?)

ENDS

© Scoop Media

 
 
 
 
 
Parliament Headlines | Politics Headlines | Regional Headlines

Gordon Campbell: On The Ch-Ch-Changes At IRD

job cuts aren’t happening at the IRD, exactly. Instead, there’s apparently a ‘transformation’ in store, and jobs won’t be axed ; no, they will be ‘transformed’ before our eyes into… non-jobs, if you happen to be among the unlucky legion of 1,900 who are being lined up for transformation, which seems to work rather like a secular version of the Rapture.

Except that at IRD, not even your shoes will be left behind. More>>

 

Christchurch Mental Health: Hospital Too 'Awful' For Reviewers To Visit

Jonathan Coleman has to stop the stalling over a new building for mental health services in Christchurch to replace the quake damaged Princess Margaret Hospital, says Labour’s Health spokesperson David Clark... More>>

ALSO:

Greens Call For Govt Action: Children Sick Because Of NZ Housing

The Royal Australasian College of Physicians president-elect said today that children with preventable respiratory illnesses are being re-admitted to hospital because they're being sent back to cold, damp homes. More>>

ALSO:

Less Tax Cut, More Spending: Labour Launches Fiscal Plan

“Labour will invest $8 billion more in health, $4 billion more in education and $5 billion more for Kiwi families through Working for Families, Best Start and the Winter Energy Payment than the Budget 2017 projections for the forecast period.” More>>

ALSO:

Gordon Campbell: On The Greens’ Room For Political Pragmatism

The Greens here are currently being criticized by the commentariat for not making the same kind of pragmatic choices that sunk the Democrats in Australia. More>>

Gordon Campbell: On Being Humane About Welfare, Child Support, And Tax

It made for an unusual Venn diagram, but Greens co-leader Metiria Turei and Finance Minister Steven Joyce were briefly sharing some common elements this week in the set that says – hey, don’t use the powers of the state in ways guaranteed to make the system you’re trying to defend worse, not better. More>>

ALSO:

 
 
 
 
 

LATEST HEADLINES

  • PARLIAMENT
  • POLITICS
  • REGIONAL
 
 

Featured InfoPages

Opening the Election