“Recent comments by two Bank economists ( NZ Herald – “Low incomes blamed for affordability crisis” – by Anne Gibson – 25 January 2005 ) in response to the 2006 Demographia International Housing Affordability Survey, are seriously wide of the mark, in suggesting that other factors besides land and housing supply, explain why our housing is so unaffordable”, said Hugh Pavletich, co author of the Survey.
Anthony Byett of ASB Bank said that people’s poor earnings are the reason why housing is unaffordable. He is confident that the market will come back in to balance, when house prices stabilize and incomes rise. Darren Gibbs, Chief Economist of Deutsche Bank, questioned the reports value and asked whether it was meaningful or had any predictive value.
“Mr Byett would need to explain why housing in New Zealand and Australia was affordable or near affordable ten and twenty years ago, when peoples incomes were of course much lower” said Mr Pavletich adding “ and why urban markets have remained affordable in many North American cities”.
“To suggest that rising incomes will solve this serious problem is an extraordinary comment from a professional economist” he said.
The Demographia Survey uses median house price and divides it by the median household income to establish the “median multiple” of the 100 major urban markets of the six countries surveyed. It illustrates that most markets were historically affordable, in that house prices achieved median multiples of 3 or below.
“Within this years Survey, we explain in the clearest and simplest terms possible, why supply is the key determinant of urban property market performance and how any constraint on this, drives prices higher” said Mr Pavletich.
Pavletich is of the view that Darren Gibbs of Deutsche Bank may not adequately understand the important relationship between house prices and incomes. Over the past twelve months, New Zealand’s housing prices have increased by 14% and higher in many smaller cities and towns.
“For too long, property commentators have acted as cheerleaders for artificially created excessive house price increases, whilst completely ignoring the incomes that underpin them” said Mr Pavletich, adding “ The 2006 Demographia International Housing Affordability Survey will hopefully encourage more relevant and informed property market research and commentary in the future.”
Mr Pavletich contends that the main reason NZ housing is so expensive is that Council’s are applying the Resource Management Act to stifle new housing developments. This is cutting the supply of residential land and massively inflating the price of sections.
Mr Pavletich told “Morning Report” on Monday “people are paying more than $100,000 for a section that should be worth 30 or 40 thousand.”
For a thorough analysis of the report check out the several articles on Peter Cresswell’s Not PC.