Top 10 housing links for the beginning of 2018

Article written for Interest.co.nz -published 26.01.18

1. For the last 14 years, at the end of January, New Zealand has engaged in intense housing debates. This is because January 22nd is the publication date for the annual Demographia report. This report shows which global cities have affordable housing and which ones do not.

During these years New Zealand has found itself increasingly in the unaffordable camp. Yet this year’s housing debate seems to lack the intensity of previous years. Perhaps for the following reasons;

The latest chapter of New Zealand’s housing story -that small town Tauranga’s housing affordability has become worse than big city Auckland’s, was not as angst provoking as previous reports of Auckland rapidly climbing up the list of least affordable cities?

Or perhaps the public is giving the new coalition government the benefit of doubt, so giving the new government a chance to implement housing reforms before it passes judgement is the reason for housing issues lacking its usual political venom?

Perhaps the intellectual argument in New Zealand has been won -that most people accept restrictive land-use laws is a major cause of high house prices, there being only a few disputing intellectual holdouts?

Certainly very few members of the public supported the economists from Auckland Council recently on Interest.co.nz, when they attempted to argue that land-use restrictions were not an important factor contributing to high house prices.

The Auckland Council econometric model indicates that $240,000 of the $405,000 total change in Auckland’s (average? median?) house prices since 2007 is due to population growth. The model does not explain why population growth leads to house price increases, not more house building like successful cities elsewhere (see point 7 for more discussion of this issue).

Also the Auckland Council economists claim the Unitary Plan allows up to one million extra dwellings for the city. This is not the feasible supply of developable urban space. To be true it would require that every house in Auckland be demolished and replaced with the maximum number of dwellings the Unitary Plan allows. In fact, recent Auckland Council reports estimate Auckland’s feasible housing supply has decreased by a quarter and for intensification by a half.

2. Michael Reddell the economist who writes the Croaking Cassandra blogsite, critiques Auckland Council’s econometric model in an article titled -Land use regulations matter. Also for those of you who want a good description of Demographia’s report, Michael has written a succinct economic summation.

Source: Croaking Cassandra -based on information from the 2018 Demographia report

Hugh Pavletich is the Christchurch/New Zealand based co-author of the Demographia report. In New Zealand his public profile is fading, partly by his own choice. I think it is worth acknowledging the huge effort Hugh Pavletich has provided to raise the profile of the housing affordability issue. He has dedicated thousands of hours since 2004, when he first started publishing the ratio of median house prices to median household incomes for international cities.

3. At a global level, it is now possible to discern a housing affordability movement, which almost certainly has been influenced by Hugh Pavletich’s housing affordability ratios.

This global housing affordability movement is beginning to provide successful political and advocacy examples. There has also been an increase in academic reports on urban land-use regulations. These factors I think will increasingly influence how New Zealand responds to its own housing crisis.

Vancouver for instance has major problems with housing affordability. The latest Demographia report has Vancouver as being the third least-affordable city out of 293 metropolitan markets analysed. The pressure to improve Vancouver’s housing situation must be intense and last November the city initiated what seems like reasonably significant reforms to ease restrictions on land-use regulations

The Housing Vancouver Strategy, unveiled Thursday less than a year out from a civic election in which housing is expected to be the top issue, touches on everything from creating affordable housing and taming speculation, to expediting the approval process and combating homelessness.

Of particular interest to observers is the city’s proposal for the “transformation of low-density neighbourhoods,” which would see parts of the city zoned for single-family houses — almost 80 per cent of Vancouver’s residential land — opened up to other housing options such as townhouses and row-houses.

Gil Kelley, the city’s general manager of planning, said the new housing strategy includes “big moves” that haven’t been done before in Vancouver.

Among them is the idea of setting home production goals based on local income levels, Kelley said, “So we’re actually meeting the needs of Vancouverites, and not only for investors. That’s a big shift.”

“The underpinning here, philosophically, is to make sure that Vancouver remains a place for all people, all incomes,”

Hugh Pavletich will be particularly pleased that Vancouver aims to improve house production goals in relation to income levels –a concept he has long championed.

Housing advocacy and reforms is not just limited to Vancouver in Canada. Over in Toronto, for example, a new activist group called Housing Matters was founded in mid-2017 with a simple mission: to advocate for land use rules that would allow for more homes in more neighbourhoods. In 2018 its aim is to scale up its advocacy efforts.

4. Across the US, housing advocacy by academics, activists and politicians is gathering pace. In the north-west the progressive Sightline Institute has made a clear argument that cities can build their way to affordable housing and there is in fact a number of successful urban development strategies to choose from.

5. Further south in California, there is a State Senator -Scott Wiener whose background is in housing advocacy -Yes in my backyard type movements. Scott Wiener has a significant set of housing reforms that he is building legislative support for.

New Zealand’s new Minister for Transport, Housing and Urban Development Phil Twyford has tweeted in support of Scott Wiener’s legislative package. This is interesting information as a stand alone fact. But it also demonstrates a wider point -housing affordability advocates, academics and politicians are aware of each others contributions, in real time, due to the internet and social media and this creates a supportive environment and a kind of critical mass effect.

6. Over the summer I read a book called The Color of Law -A forgotten history of how our government segregated America by Richard Rothstein. This book was written from a race reconciliation perspective and provides a fascinating look (in the way that horrifying things sometimes do) at how US housing policy has been used to segregate cities.

The following Bay City Beacon article argues that Scott Wiener’s proposed housing legislation is an opportunity to reverse some of that segregation.

Until 1968, the Federal Housing Administration (FHA) enforced an explicit policy of racial discrimination in mortgage lending. Under redlining, one black family was all it took for the FHA to demarcate a neighborhood as “undesirable” and refuse to guarantee loans for nearby houses. It incentivized homeowners to deed-restrict the sale of houses to white families only, creating all-white neighborhoods. White families sought to expel racial minorities in their neighborhoods by threatening black families with burning crosses.

The Fair Housing Act banned explicit racial discrimination in housing like race-based deed restrictions and redlining. But it did not ban density limits which resulted in race-based housing segregation.

White homeowners were still loathe to share their schools, parks, and roads with black families, so after the Fair Housing Act, cities around the country began implementing low-density zoning in order to ensure that black families could not afford to live in their communities. Race-based rules were replaced by land use regulations mandating single-family homes, minimum setbacks, minimum lot sizes, and parking requirements.

Optimistically, there is some new evidence that integrated communities are becoming more inclusive and stable in the US.

7. I have recently written an article about the disappearance of boom towns. The guts of the article is the following quote from Yale law professor David Schleicher. Interestingly, in the US the law profession has produced some of the strongest affordable housing advocates.

Why is it hard to enter: Land Use (Pages 114 to 117 of Stuck! The Law and Economics of Residential Stability, Yale Law Journal, Vol. 127)

Of limits on mobility, the best understood in the legal and economic literatures are land-use regulations. Before the 1970s, land-use restrictions (zoning laws, subdivision regulations, historic preservation, and so on) limited access to some towns or communities, usually rich suburbs. They did not, however, cap housing construction in entire metropolitan regions. Builders could always construct new housing, either in downtowns or on the urban fringe.

Something dramatic happened to land-use regulation in the 1970s and 1980s: it became much, much stricter. Importantly, while this phenomenon affected all types of municipalities — from urban downtowns to inner-ring suburbs to exurbs — it only occurred in particular regions of the country. In particular, coastal metropolitan regions like San Francisco, New York, and Boston restricted construction in cities, suburbs, and exurbs. Because these popular regions restricted new housing, demand for living space outpaced supply. Housing prices soared, but population growth did not.

In contrast to these coastal regions, Southern and Southwestern metropolitan areas like Houston, Phoenix, and Atlanta continued to impose minimal land-use restrictions. Though demand to live in these regions grew as well, this demand led to increased housing construction and population, rather than substantially higher housing prices.

Because the most restrictive regions tend to be the nation’s richest, their lethargic population growth has reduced levels of wealth in the United States as a whole. As previously described, Hsieh and Moretti estimate that GDP would be 8.9% higher if land-use restrictions were reduced in three restrictive regions: Silicon Valley, San Francisco, and New York. And once again, because barriers to mobility reduce the capture of information spillovers, land-use restrictions may indirectly impede growth as well.

Land-use restrictions also contribute to economic inequality. Because these restrictions raise the cost of housing, they disproportionately prevent poor and working-class people from taking advantage of high-wage job markets. Housing costs eat up a larger percentage of a poor person’s paycheck than that of a wealthy person. Thus, even in a city that can provide marginally higher wages, low-income persons simply may not be able to afford the cost of living in rich, land-use-restricted areas. While nominal incomes for janitors in New York are much higher than in poor states in the Deep South, real incomes, factoring in housing costs, are lower. As a result, restrictive land-use rules have meant that poor and middle-class people have little incentive to move to places where higher incomes are available. Therefore, these restrictions reduce labor income at the bottom of the income distribution….

This is no small effect. Thomas Piketty famously argued that increasing returns to capital relative to economic growth are a major driver of economic inequality. But Matthew Rognile and others have found that nearly all of the increased returns to capital in Piketty’s work came from housing capital: “The long-term increase in capital’s net share of income in large developed countries has consisted entirely of housing.” This is a stark and important finding: Piketty’s result about capital is almost exclusively about real estate. Why? The most important reason is land-use restrictions.

8. Also in the United State’s North East another set of academics have authored an excellent academic review debunking housing supply skeptic arguments. A trio of US female professors -Vicki Been, Ingrid Gould, Ellen Katherine O’Regan from the NYU Furman Center, NYU Wagner School and NYU School of Law, produced a report titled -Supply Skepticism: Housing Supply and Affordability

Professor Vicki Been is extensively quoted in the following New York Times article.

the expectation that homeowners should be able to reach beyond their property lines has become deeply embedded.

Urban planning rules around zoning and land-use being the main method that these expectations have grown (although private sector housing development covenants is another method). These rules were often created with the best of intentions, to assist residents to be more invested in their community, but now urban land-use regulations are so extensive they have come at a cost, in the form of unaffordable housing, poor residential mobility and limited access to urban amenities such as employment and business opportunities.

9. To me the failure to share opportunity and wealth with newcomers makes me think the American Dream is struggling to deliver. This is a serious loss which may be contributing to the radicalisation of politics and to the rise of populist movements such as Donald Trump and Brexit.

Certainly in the UK, Brexit has added to the intensity of housing debate. Tony Blair’s Institute for Global Change has linked Brexit with the UK housing crisis in a recent video presented by Tony Blair, while podcasts and reports from the Institute have called for housing reforms to be introduced. These include land value taxation, rezoning -up, out & in, creating a sovereign property fund to directly finance an affordable housing programme, investing in rapid transit networks and renewing the renters social contract.

Last year the Conservative UK Chancellor (Finance Minister) Phillip Hammond in a budget speech threatened to compulsory purchase land to build 300,000 homes a year. This caused the shares of Britain’s main urban land bankers and housebuilders to fall 3% during his half-hour speech.

The nine housebuilders in the FTSE 100 and FTSE 250 hold 615,152 housing plots in their landbank, according to financial disclosures. This is four times the total number of homes built in Britain in the past year. Source; The Guardian, Dec 2015

At the local level in London, a ‘Yes in my Backyard’ organisation has formed with the purpose of finding a culturally acceptable formula for removing restrictions on building affordable homes. London Yimby have a well researched report detailing their proposals, titled -Yes in my Backyard, How to end the crisis, boost the economy and win more votes.

London Yimby’s main proposal is that individual streets, given a two-thirds majority, should have the automatic right to negotiate themselves the ability to upzone, up to 5–6 stories high, or perhaps an additional 2–3 stories above existing structures, whichever is lower. The resulting street development needing to adhere to a uniform building style also negotiated at the street level.

London Yimby are active on social media. Often using photos to make their point.

10. Ultimately, like in the past, it is political will that is needed to break the regulatory logjam. The Financial Times has written that New Zealand’s new government’s “proposals to tackle the homeless crisis could make the nation a global test case”.

Around the world progressive housing policy work is making advances and a head of steam is developing. Where the policy implementing steam will be successfully released cannot be predicted. But the pressure is such that housing reforms are inevitable.

Trying to optimise amenity and affordability values for urban areas

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