Rising house prices not a natural law

12 September 2013

MEDIA RELEASE

Rising house prices not a natural law

Germany, Switzerland, and Texas show house price stability.

Predictable planning, right to build, and economic incentives key to supply.

Wellington (12 September): Would-be home owners don’t have to resign themselves to ever increasing house prices according to the latest research from the New Zealand Initiative, which found three overseas markets who are getting it right.

In brief, the research found:
•          In Germany and Switzerland, where the right to build is entrenched and local government funding is linked to population growth, house prices were stable but high;
•          In Texas, where projects outside of zoned municipal areas are run by private developers, house prices had been maintained at a low level for an extended period; and
•          Britain’s planning system, which shares many attributes with New Zealand, has delivered housing shortages, steep house price inflation, and smaller, more urban dwellings.

“Our research shows there’s no great mystery as to why house prices are stable in some countries whereas in New Zealand and Britain they are rising so fast that first-time buyers are rapidly being priced out of the market,” said Dr Oliver Hartwich, Executive Director of the New Zealand Initiative.

“It’s about supply, and the jurisdictions that have the right economic incentives and frameworks in place to encourage new home construction are the ones where prices and affordability are the most stable.”

Other key findings from the report, the second in a three-part review of New Zealand’s housing affordability, show:

Switzerland
•          Switzerland’s system of competing cantons and municipalities, where revenue is correlated to population size, delivers services to citizens that are price sensitive and competitive at tax level.
•          Switzerland has a planning culture where planners come from different backgrounds, and must be cognisant of the political realities and the costs policies impose on current and prospective residents.

Germany
• In Germany, where real house prices have remained stable since at least the 1970s, the local government system relies on capitation grants from state governments, based on numbers of businesses and people in their area. So more people and more businesses mean greater income for local authorities.
• Germans traditionally buy one house in a lifetime. The concept of a ‘starter home’ is foreign, and home ownership is not culturally important.

Britain
• The right to develop in Britain has been virtually nationalised.
• Britain’s Town and Country Planning Act has led to an inexorable rise in Nimby-ism:  an entrenched anti-development culture, where ‘greenbelts’ are considered sacrosanct.
• The government structure is highly centralised, meaning local councils get little benefit but greater cost from new developments.

Texas
• There is no zoning outside cities, so subject to environmental compliance and the provision of infrastructure, a new development can take place anywhere.
• The Municipal Utility District (MUD) was formed as a private way for paying for this infrastructure, allowing for debt-financed water infrastructure through a tax free bond, issued off the back of value already present in the development.
• More broadly, planners in Houston see themselves as regulators rather than interested parties in town design. Property rights are strong in nature and limited in scope: they cover little more than the land itself.

Different Places, Different Means: Why Some Countries Build More Than Others is written by New Zealand Initiative Research Fellow Luke Malpass and Dr Michael Bassett.

About the New Zealand Initiative

The New Zealand Initiative is an evidence-based think tank and research institute, which is supported by a membership organisation that counts some of the country’s leading visionaries, business leaders and political thinkers among its ranks.
Our members are committed to developing policies to make New Zealand a better country for all its citizens. We believe all New Zealanders deserve a world-class education system, affordable housing, a healthy environment, sound public finances and a stable currency.
The New Zealand Initiative pursues this goal by producing well-researched reports and hosting high level conferences and events.

Report: Different_Places.pdf

ENDS

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