by Phil Hayward
The annual Demographia Housing Affordability Report always brings out a bit of discussion but little or nothing in the way of strong committal to reform. On the core issue of housing supply, this is a sensitive issue of ‚Äúlocal democracy‚ÄĚ.
The battle for public opinion has obviously been dominated by the supporters of ‚Äúcompact city‚ÄĚ, anti-car planning; Auckland‚Äôs democratically re-elected Mayor is the personification of this ideology, and the Councillors who have been re-elected are largely the same people who signed off on notification of the grossly flawed Spatial Plan.
The arch-Greenie urban planner Joel Cayford has now posted a criticism of the latest Demographia Report that is typical of the arguments mounted by the compact city ideologues and vested interests.¬†
He actually has the gall to accuse the NZ Herald and the Auckland Council of ‚Äúgiving the Demographia Housing Affordability survey an easy ride‚ÄĚ, which is rich given the entrenched position of both in support of the grossly flawed and under-scrutinised Spatial Plan and the whole compact city concept.
One form that denial of the existence of a housing affordability problem takes, is that ‚Äúeveryone had it tough in their day and our young people should harden up‚ÄĚ. Principally this involves the argument that mortgage repayments relative to income might be not a lot higher now in comparison to historical episodes of very high interest rates when house prices were lower. Cayford‚Äôs ‚Äúdebunking‚ÄĚ covers this ‚Äď Demographia ‚Äúdoesn‚Äôt take interest rates into account‚ÄĚ ‚Äď shock, horror.
But why should it? Demographia are demonstrating the difference between housing markets with well-functioning supply of houses, and those without. In the latter, house prices inflate as fast as interest rates are cut, leaving no buyer any further ahead; and the lower the interest rate (and larger the loan) the higher the risk of future interest rate hikes leaving young first home buyers dangerously exposed. The large size of the principal really matters.
But if the advocates of a measure of ‚Äúaffordability‚ÄĚ¬†want¬†one that does take interest rates into account, perhaps they should examine the affordability¬†under this criteria, of houses in the¬†affordable-price¬†cities in the USA. Here is a graph of the rates at which a mortgage can be obtained in the USA, with¬†rates fixed for 30 years.
¬†Approximately 4.5% Read more »