Via the Radio New Zealand podcast, I just heard a story about the “catastrophic” condition of New Zealand’s housing market. The piece referred to a report claiming New Zealand’s housing market is the least affordable of the 22 countries it analyzed. My attention: you have it. This article is a shorter version of the radio piece.
The presenter maintained neutrality about the cause, but thankfully Property Countil chief executive Connal Townsend spelled it out for listeners:
It’s a catastrophic regulatory failure.
Decisions were made years ago to artificially constrain the availability of land and it’s the golden law of economics that when you, through regulation, constrain the supply of a commodity it drives the price up.
Prices are signals about resource allocation. In rising they signal to producers to increase production. If they don’t respond, there must be a reason.
I can’t remember the name of the Green Party spokesman who presented the other point, and it’s not included in the web version, but he suggested the problem was…wait for it…a lack of government action.
If I can be forgiven for using Thomas Sowell’s phrase “a conflict of visions” for my own purposes, it’s the perfect phrase here. The rational choice worldview that considers incentives has a very elegant and empirically-supported answer. The social creationist worldview imagines the whole thing to be the result of society’s inability to adjust itself, for mysterious reasons, which planners must counteract by conscious effort.
New Zealand readers may object that I know nothing about the specifics of the situation. They’d be right. I’m not from New Zealand, have never been there, and mainly listen to the podcast for the great accents while I do Saturday morning chores. But there are constants in human behavior. People in New Zealand, like people everywhere, respond to incentives unless prevented from doing so.
It may be that land use restrictions intended to minimize the impact of humans on New Zealand’s famous natural beauty are at the same time 1) the culprit in the housing price situation and 2) justified anyway for other reasons. That’s a reasonable position to hold—as long as you acknowledge the cost.
Bonus question: which segments of New Zealand society are worst off in this situation?