Want to solve the housing crisis? The answer is deregulation

Politicians generally have no real solutions, preferring instead to ban, regulate or tax to achieve outcomes.

In the UK there is now evidence showing that regulation of housing has contributed massively to the housing crisis besetting the UK.

New causal evidence on the impact of supply constraints on house prices shows land use regulation to be a major culprit of England’s current housing affordability crisis. Absent regulation, house prices would be lower by over a third and considerably less volatile. Young households are the obvious losers, yet macroeconomic stability is also impaired and productivity may suffer from constrained labour supply to the thriving cities where demand is highest.

Thank you very much politicians.  

The UK problem sounds very much like the one currently being experienced in Auckland.

Place matters for productivity and for jobs that involve the creation or exchange of ideas – cities are the place to be. Great cities attract great minds that benefit from being nearby. Glaeser (2011) documents how such agglomeration benefits, in conjunction with the benefits that urban density offers to consumers, have fuelled a stunning urban revival. However, regulation prevents some of the most successful cities from growing, thus limiting the number of people that share in their riches. The economic cost may be steep. Hsieh and Moretti (2015) estimate that lowering regulatory constraints in high productivity cities like New York, San Francisco and San Jose to the level of the median city would increase US production by 9.5%.

The social costs of land use regulation extend well beyond the misallocation of labour across places. Supply constraints render housing artificially scarce and they reduce its affordability. This has been a vital policy concern in Britain for the larger part of the past two decades, leading many to speak of an ‘affordability crisis’. Furthermore, land use regulation may raise house price volatility. For example, Glaeser et al. (2008) find that US metro areas with inelastic supply experience stronger house price growth during boom phases. This may affect the volatility of consumption and reduce stability at the macro level in turn. Against this background, it is important to understand how exactly land use regulation affects local housing markets vis-à-vis other supply constraints.

So the problem isn’t unique. You’d think politicians could find solutions.

In a nutshell, in our paper we use this unique data to test our prediction that house prices respond more strongly to changes in local demand in places with tight supply constraints. In doing so, we carefully disentangle the causal effect of regulatory constraints from the effects of physical constraints (degree of development and topography) on local house prices, holding other local factors constant and accounting for macroeconomic fluctuations induced, for example, by changing lending conditions or interest rates.

Both regulatory constraints and the degree of physical development are arguably endogenously determined. To address this econometric concern, we use exogenous variation from a policy reform, vote shares and historical density, allowing us to identify the separate causal effects of all three supply constraints measures. In a similar vein, local earnings – our measure of local housing demand – may be endogenous. To address this particular concern we employ a shift-share approach to come up with a measure capturing labour demand shocks.

Everyone wants to live in Auckland. The idiot Council wants a compact city and so has constrained development. House prices have skyrocketed.

So how can it be fixed?

The first step would be to remove all the regulations that are impeding development and land supply, along with the council staff and politicians who are causing that.

 

– Vox EU


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As much at home writing editorials as being the subject of them, Cam has won awards, including the Canon Media Award for his work on the Len Brown/Bevan Chuang story.  And when he’s not creating the news, he tends to be in it, with protagonists using the courts, media and social media to deliver financial as well as death threats.

They say that news is something that someone, somewhere, wants kept quiet.   Cam Slater doesn’t do quiet, and as a result he is a polarising, controversial but highly effective journalist that takes no prisoners.

He is fearless in his pursuit of a story.

Love him or loathe him.  But you can’t ignore him.

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