Housing Affordability: A Vicious Cycle
Posted January 21, 2008on:
The Herald has reported on the results of a recent survey which show that New Zealand is now the least affordable place to buy a house in the world. The study reaches this conclusion by examining average wages and house prices.
Given the well documented gap between wages in New Zealand and overseas, the housing bubble and some of the worlds highest interest rates it isn’t really surprising that we have the least affordable houses in the world. The problem is of course exacerbated by the the fact that our Reserve Bank is mandated to control inflation and thus the increase in house prices has caused interest rates to rise: It sucks to buy a house right now!
So we know why houses aren’t affordable, but should we really be the least affordable place in the world to buy a house? It’s not like we are struggling for land to build houses on: We have the population of Sydney spread over roughly 20 times as much land. This is why the authors of the study suggest that freeing up more land on city limits could help solve the problem, something that Don Brash has apparently suggested previously. This seams like a logical solution for a country like New Zealand.
One can only wonder where the government got it’s advice for the Housing Affordability Bill. The Property Council and Master Builders Federation point out that requiring developers to include low cost houses in any new development will just force the developers to subsidize this by increasing the price for the other houses in the development. The best this policy can achieve is a zero sum.