Spinning the Housing Affordability Crisis: Don Brash and Demographia try shift the blame, and the New Zealand Herald goes along for the free ride.

Anne Gibson’s unbalanced article: “NZ houses world’s least affordable” in this morning’s New Zealand Herald brings together a couple of themes I’ve been mulling over recently: housing affordability and PR “spin”. The article reports on the release of an international study of housing affordability and associated policy suggestions by Demographia (full report here).

Bob Burton (“Inside Spin”, 2007, Allen & Unwin) has described ‘Think Tanks’ as the intellectual ‘Battletanks’ of corporate PR. There are think tanks of all flavours, but because of the resources required, Think Tanks are overwhelmingly a tool of business and the wealthy. Usually secretly funded by large corporations and the ultra-rich, Think Tanks produce purportedly independent policy analysis in an attempt to gain media coverage for policy agendas favoured by their funders.

Corporate media, increasingly thinly staffed, and ever more dependent on pre-packaged “news” report the findings of Think Tank studies, and, unless they ask critical questions about the study and its funding, wittingly or unwittingly lend credibility to the policy ideas. Ideally, from the proponents point of view, a kind of public ‘echo-chamber’ effect can happen, as the themes are picked up and repeated by other commentators, sympathetic politicians and organistions.

Ms Gibson’s article asks no such critical questions, simply repeating the key messages of the Demographia report as it pertains to New Zealand. She facilitates the ‘echo chamber’ with interviews of two vested-interest commentators who repeat the themes outlined in the report. She does not interview anybody representing the policies that are being criticised (City and Regional Councils, and the Minister of Housing), and she does not interview anybody who could reasonably be considered an independent commentator.

So much for the reporting. What are we to make of Demographia, and of the ideas their study is promoting?

Demographia is unashamedly pro-sprawl development and pro-roading. Furthermore, after the briefest of all possible web-searches, I found evidence that suggests Demographia founder Wendell Cox has strong funding and political links with pro-roading and pro-sprawl interests. The Demographia study, then, is highly unlikely to be truly independent and unbiased.

Former National Party leader, and Reserve Bank of New Zealand Governor from 1988-2002, Dr. Don Brash wrote an executive summary for the Demographia report. Dr. Brash, of course, is well-known in New Zealand for his climate change skepticism and, of course, for his support of policies favourable for bankers and financial capitalism. That is relevant, because Dr. Brash’s comments on the report seem aimed at deflecting attention away from the role financial deregulation and easy credit has played in the current asset bubble/housing affordability crisis.

Dr Brash makes this claim: “Once again, the Demographia survey leads inevitably to one clear conclusion: the affordability of housing is overwhelmingly a function of just one thing, the extent to which governments place artificial restrictions on the supply of residential land.” (Introduction, 4th Annual Demographia International Housing Affordability Survey:2008 Ratings for Major Urban Markets). Certainly, the evidence of the report supports the conclusion that restricting the supply of residential land affects the cost of housing. And that is as one would expect.

But availability of land is only one factor in the affordability of housing. The New Zealand Treasury, in its introduction to a 2001 working paper “Financial liberalisation and housing wealth” says:”Housing markets across countries differ in part because of variations in regulations of the rental sector, differences in the tax treatment of owner-occupied housing and mortgage debt, and demographic factors. Another important factor is the availability of mortgage debt.” Other factors include household size and occupancy rates (i.e. smaller families and more unoccupied holiday homes will, all other things being equal, push up residential property prices), other government housing policies around housing (building regulations, provision of social housing, housing allowances), income levels, and the competitiveness (or lack of) of the building supply industry.

Even if, as Dr. Brash asserts, easy credit only leads to an ‘asset bubble’ in the case of restricted land supply, it remains true that restricted land supply without easy credit is unlikely to cause rapid price rises and consequent affordability problems.

The previously mentioned Treasury working paper notes that across a range of countries the ratio of mortgage debt to household income increases with the level of financial deregulation. In New Zealand, in less than 3 years (December 2004 to November 2007), the total value of mortgage lending increased by almost 48%, according to Reserve Bank of NZ statistics. (The rapid rise started long before then, of course, but Reserve Bank mortgage statistics on the web do not appear to be available for earlier than December 2004). The connection between financial liberalisation and rising debt levels in general is also clear. A June 200 Reserve Bank of New Zealand study states: “Household debt remained below 50 percent of personal disposable income from 1978 to 1987, then climbed steadily to exceed a 100 percent level by 1997. Household liabilities increased from 24 to 39 percent of the value of housing from 1979 to 1999.” (p.5 RBNZ). This explosion of debt, of course, followed directly the period of financial market liberalisation in New Zealand. Only the most credulous and self-interested of commentators could consider such rates of debt growth as sustainable, and lenders need to take responsibilty for their part in this financial recklessness. And our government needs to take responsibility for monetary policies and financial regulations that allow such reckless lending, particularly given our high international indebtebness as a nation, and the economic risks that entails.

The other contention of Demographia is that sprawl is a viable option for our society. I am not going to spend time on that issue here, as I do not believe it is a seriously tenable position. The Sierra Club’s Urban Sprawl overiew is as good a place to start as any if you do want to look into the case against sprawl, while Wikipedia’s Urban Sprawl page has arguments for and against, some useful links.

Of course, if one denies that land restrictions are the only (or the central) cause of housing affordability problems, then one opens the policy debate up to discussion of all those other various causes and of the policies that relate to those causes. If one denies that sprawl is a viable option (as our local authorities have, for the most part), and allows that in that in some circumstances housing affordability issues are a predictable effect of policies to contain sprawl, then one naturally asks: ‘where are the policies to provide for affordable housing? ‘ and: ‘If the local authorities were failing to act, where was the central government response to this failure?’.

I would love to see those questions opened up for meaningful, wide-ranging public debate.

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