Tim Hazledine: Panicky housing policies may be missing target

Tim Hazledine is a professor of economics at the Auckland University Business School.

Opinion

Quite good news on the housing front. The latest OECD data show that the ratio of housing cost to household incomes in New Zealand increased just 3.4 per cent over the six years from 2010 to 2016.

That is, our incomes increased, and so did the cost of housing, but only at about one half of a per cent more per year, on average.

True, this was the ninth highest increase among 29 developed OECD economies (for which the average change was just over 1 per cent), but given the enormous buffeting we have taken on both supply and demand sides of the market - record in-migration, record inward tourism growth, the Christchurch rebuild, and now a commercial building boom in Auckland - 3.4 per cent over six years seems like a pretty moderate outcome.

Hang on, I hear you cry: what about our famous house price bubble? Didn't, for example, Herald columnist Mary Holm report last Saturday that, over the same six years, the ratio of house prices to incomes in New Zealand went up 33 per cent - more than in any of those other economies? Well, yes, that did happen, but I am not talking about house prices, I am talking about housing - that is, the cost of getting shelter: a non-leaky roof over your family's head.

The cost of housing is measured by the rental price index, and Mary Holm also reported that the same data (www.tinyurl.com/HouseGraphs) reveal that the ratio of house prices to rents increased by just over 29 per cent. It is the difference between those two numbers that I have used to calculate that the cost of housing (ie, rental costs) in New Zealand went up just 3.4 per cent, relative to incomes.

Just who is suffering from the house price "crisis"? Not the nearly two out of three of households (64 per cent) who already own the house or apartment that they live in. Lucky us! Not, surely, the 4 per cent who live rent-free, presumably in one of their family's spare houses. Not the 1 per cent who report no fixed abode - they have other problems.

That leaves the 31 per cent of households (according to the 2013 Census) who rent. But not all of these people are upset. Many New Zealanders choose to rent, as do much larger numbers in Europe and other countries. Many - perhaps most - of the others live in poverty or on low incomes, and could still only dream about owning their own house even if house prices suddenly collapsed to 2010 levels (as they may indeed do). Many stand to inherit, and need to show a little patience - just give us over-entitled baby-boomers a few more dignified years to shuffle off this mortal coil.

It must be a very small number of individuals and families who really, really want to own a house in an expensive location like Auckland, and have seen their goal become increasingly unaffordable over the past few years.

I do personally feel sorry for these people, but I query whether their concerns should be the target of government policy - especially the panicky policies that are being thrown around, such as abandoning sensible town planning at a time when our building industry is already fully stretched.

Does that mean nothing should be done? Not at all. High house prices are symptomatic of some real strains on our economy, and, indeed, our society. We should be cutting back both inward migration and inward tourism (the latter with some kind of visitor tax). This is not because we don't like immigrants and tourists, but because we do like them, and want to continue to do so.

But it is seldom justifiable for government to concern itself with asset prices for their own sake - shares, gold, paintings or property - all the zero-sum numbers for which any movement yields equal gainers and losers.

We should indeed be interested in keeping that rental price index within limits, and with ancillary programmes and regulations, such as "warrants of fitness" for house and flat rental properties. But, so long as families are able to live in warm, dry, sanitary accommodation, with just about enough space, what does it matter who is paying the mortgage?

Tim Hazledine is a professor of economics at the Auckland University Business School.