Setting an Unaffordable Target

Portland and San Francisco are not the only urban areas with housing affordability problems. Where the 2013 ratio of median home prices to median family incomes was 7.0 in San Francisco-Oakland and 3.8 in Portland, it was a wallet-busting 9.6 in Auckland, New Zealand.

In response, Chris Parker, the Chief Economist for the Auckland city council, has published a report that correctly identifies the problem as “excessive planning constraints” and a “limiting supply of greenfield land.” Unfortunately, his timid recommendation is that the city seek to reduce the value-to-income ratio to 5.0.

That’s like the Federal Reserve setting an inflation target of 50 percent. A 50 percent rate of inflation sounds pretty good compared with Zimbabwe’s peak inflation of 79.6 billion percent, but as a way of life, 50 percent inflation is still pretty awful.

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Parker offers 34 “tools” New Zealand can use to reach his modest target. Almost all of the tools he suggests to influence demand, such as restricting immigration, are beyond the purview of the Auckland city council. Some would be counterproductive, such as his suggestion that the government subsidize first-time homebuyers, which would only increase both demand and housing prices.

“Increasing greenfield land supply” is the very first supply tool he suggests, but he follows with “Permit more intensification” (densification). That recommendation is fine as long as the first one is also followed; but Auckland, like San Francisco-Oakland and Portland, is too likely to try to deal with the housing crisis solely through densification. (The president of Portland’s regional planning agency, for example, recently said he saw no need to expand the region’s urban-growth boundary despite increasing complaints about housing affordability.)

New Zealand is a small country, but it also has a small population, so its overall density is only slightly greater than Oregon’s (44 per square mile vs. 40). Thus, there is no reason for Kiwis to worry about “running out of land.” They only need to worry about running out of land that the government will allow them to develop. If the government ended restraints on development at the urban fringe, price-to-income ratios would quickly fall well below 5 and should be less than 3.