New Zealand admits what America won't

NEW ZEALAND SEEKS TO AVOID "GENERATION RENT"

By Wendell Cox, New Geography, 10/29/2014 

The political leadership and others in New Zealand are talking about the consequences of its land use policies. Under the "urban containment" land use policy (also called by terms like "smart growth," "growth management," and "livability") in effect in every urban area, house prices have doubled relative to incomes over the last 25 years. The principal causes have been the restrictions inherent in urban containment policy, such as making most suburban land off limits for housing development, (which raises its price, like rationing oil raises the price of gasoline), and requirements for upfront payment of large development impact fees (which can also be higher than they need to be). The association between urban containment policy and unaffordable housing is consistent with both with both economic theory and also considerable economic research. The title of a report by Paul Cheshire, Professor of Economic Geography at the London School of Economics best indicates the reality: "Urban Containment, Housing Affordability, Price Stability - Irreconcilable Goals." 

New Zealand Housing Unaffordability and Consequences 

According to the 10th Annual Demographia Housing Affordability Survey, Auckland, the nation's largest city is now the 7th least affordable out of 85 major metropolitan markets rated. Obviously, when houses cost more than necessary, households have less discretionary income. The second consequence is greater poverty. When the price of housing rises, discretionary income can fall enough to force lower income households into poverty. 

Land Use Policies Blamed for Poverty and Greater Inequality

Minister English had previously expressed concern about the extent to which land use policy had driven up house prices, in his preface to the 9th Annual Demographia Housing Affordability Survey: "It costs too much and takes too long to build a house in New Zealand. Land has been made artificially scarce by regulation that locks up land for development. This regulation has made land supply unresponsive to demand (see: "Unblocking Constipated Planning" in New Zealand").

Other business support comes from ANZ Bank New Zealand Chief Executive Officer David Hisco. In expressing concern noting that" "The elevator of economic progress in New Zealand has always been home ownership for everyone - right across the socioeconomic spectrum. But at the current pace of house price rises we risk creating a generation of disenfranchised, second class citizens – ‘Generation Rent.’" 

In noting that the poor are the "biggest victims" of Auckland's land use policies, Eric Crampton (on Kiwiblog) says that Auckland should be allowed "to build both upwards and outwards: which would be a great step in reducing child poverty." Moreover, the Prime Minister, John Key, has expressed a particular interest in reducing child poverty.