Sound Housing Market Measures Required

Hugh Pavletich FDIA

Performance Urban Planning

Christchurch, New Zealand
1 December 2010

This article from the Wall Street Journal “Finding a Post Crash Economic Model”, outlines the important current discussions underway within the international community of economists, with respect to the problems with economic modeling.

Following the triggering of the Global Financial Crisis in California in 2007, it became clear that there are major problems in the field of economics with “economic modeling” – something I wrote about back in January 2009 with “Housing Bubbles And Market Sense”.

I agree with Professor Frydman of New York University, in that it is impossible to model economic activity and behavior accurately (the fatal mistake of central planners too) – and that imperfect knowledge is the reality.

The WSJ article states –

“In Mr Frydman’s view, the best that policy makers can do is try to limit extreme swings. A central bank might, for example, set indicative parameters for the price of assets, such as stocks, bonds and houses. If prices exceed these parameters, potential buyers will be forewarned that they are taking on added risk of a big loss – and might even think twice about doing so.”

For example – focus on simple and clearly understood measures of housing affordability.

The “Annual Demographia International Housing Affordability Surveys” (and the “Harvard University Median Multiple Tables”) clearly illustrate that if housing exceeds three times household income, there are political impediments to a properly functioning housing market that need to be dealt with.

The “glaring contrast” of California and Texas illustrates this, as explained by Wendell Cox of Demographia within The New Geography article “How Texas Avoided the Great Recession”.

Texas clearly leads the way, with its open land market policies, appropriate infrastructure financing arrangements (the Municipal Utility District bond financing model) and its sensible Mortgage Consumer Protection laws (refer “The Lone Star Secret | The Big Money”). In Texas, sound Loan to Value Ratios (LVR’s) are required and people are encouraged not to use their homes as ATM’s.

On the front page of the writers website “Performance Urban Planning”, a clear and easily understood definition of an affordable housing market is provided. This should be incorporated within all local government planning documents. Back in early 2007 the New Zealand Planning Institute recognized this.

The New Zealand Labour Coalition Government at the time and the current National Coalition Government, have failed to take the necessary steps to inculcate performance thinking in to the Local Government culture, as suggested by the writer in early 2008 within a paper Getting performance Urban Planning in Place.

ENDS

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