The Auckland Housing Crisis – politics and economics in conflict.

I end my latest futuristic novel (editing in progress) with the protagonists searching for a better economic system. Now, some may say, we have an excellent one now, so what is wrong with it. The Auckland housing market illustrates one symptom that something might be wrong. Yes, by itself, apart from those living there, who cares about the Auckland housing market? The fact that other cities also have ridiculous house prices may indicate the problem is more general, even though the causes will probably be different in detail, but that in turn is not the problem, in my mind anyway.

The problem in Auckland appears to be simple. House prices are so high that many people are paying up to half their income in servicing mortgages, in short, they are working their butts off for the benefit of banks. A secondary problem is that right now we have record (ridiculously?) low interest rates, so what happens when these revert to more usual levels? Now the banks have a problem, but so does every other saver, because if the banks go bankrupt, the elderly lose everything and the economic system collapses. And it is not the poor who are in this position; the poor tend to be packed in like sardines into whatever accommodation they can find for they cannot afford a family home. The reason: there are not enough houses.

As to why not, the problem goes back to politicians. Some long time ago, local politicians decided that Auckland occupies too much area, and it needs to stop sprawling and go up. The advantages are obvious, if it happened. The denser the living area, the more successful is public transport. Currently, the sprawl makes it difficult to pay, or provide, so the automobile is king; well, up to a point, as one could argue at times the road system is more a slow moving parking lot. So what happened is that in a fit of enthusiasm, politicians passed regulations to stop the sprawl by not giving building permits outside certain limits. They also did not help by putting in a whole lot of building regulations, and started raking in money through fees for obtaining permits.

What they forgot was just because they insisted in going up, not everyone wanted to go up, but worse, nobody was particularly interested in providing the apartment blocks. That was partly because nobody was sure they would work, and some that were tried probably did not work. The reason why not was that developer greed took over, and they built to maximize return, and not to maximize desirability. Postage stamp sized apartments with few facilities are not big sellers! So, with no agreed design that was acceptable to the regulators, and probably serious legal/regulatory difficulties in trying to bring in something like terrace housing, what happened is, well, nothing. With immigration increasing, all we got was price being the allocation tool. Even then, when rules on obtaining new land were relaxed, it appears much of the potential land is “banked”; recently a small number of sections were released, and a huge number of people queued up to purchase them at over the average price for house and section elsewhere in the country. These were at the very edge of the city, and with rural land nearby, and the interesting thing was, the land was going for at least an order of magnitude more than its value as a productive asset. A final problem may well be that ever-increasing prices make a speculator’s heaven.

This is not “market failure”; the market is doing exactly what is expected. The politicians have imposed strategy, but they have done so without any idea whatsoever as to how it should be implemented, and this is plain incompetence. Strategy is incomplete unless there is a clear method for how it could be implemented, and that method must be practical. And that, to my mind, is the basic problem with modern politicians: they are never happier than when devising rules but they never consider the unintended consequences, and they are always happy to plan, based on what they think ought to happen based on inadequate analysis, but they seldom work out how to implement it to give the outcomes they expect. The exceptions are taxation and spending money.

So, what to do about it? In my “First Contact” trilogy, I had it that candidates putting their names forward for election to an office had to demonstrate that they had the necessary skills to carry out the functions of the office properly. Of course, the trilogy also had the underlying subplot or subtheme of why this would not work either. Fortunately, in my next book, it ends with the protagonists “forming a new Constitution”, but nothing that is in it is mentioned. Whether I shall ever do a follow-up depends on whether I can think of what it should be. If you have any thoughts, please comment.