Guest blog: Hugh Pavletich responds to Herald criticism

By Hugh Pavletich The New Zealand Herald is to be warmly commended for fostering constructive public discussion on the housing issue with its Saturday, January 31, 2009 article, by the journalist Chris Barton - "Home Truths". Mr Barton did not communicate with me during the preparation of this article. The article follows the release of the "2009 5th Edition Demographia International Housing Affordability Survey" Monday, January 26^th , 2009, reported by Anne Gibson, Property Editor of the NZ Herald with "NZ no longer least-affordable housing market"   and the public statement  "Bringing better balance to the housing market"  by the New Zealand Government through its Housing Minister, Hon Phil Heatley on the same date. I responded with an article " NZ Government Housing Commitment Applauded" Friday, January 30^th 2009, congratulating the National led Coalition Government for its commitment to deal with the housing stresses too many New Zealanders have had to endure "“ unnecessarily. The major reasons why I initiated and co "“ author the Annual Demographia Surveys, was because of my deep concern back in 2004, that New Zealanders and Australians were being seriously misinformed about the structural problems of their housing markets.

Put simply "“ prior to these annual surveys being generated (the first was in early 2005) the vast majority of New Zealanders and Australians (including property professionals) didn't realize how much they were being "taken to the cleaners" with the excessive prices for housing. They weren't meant to of course "“ as it didn't suit most political, commercial and media interests at the time. These interests were keen to encourage gullible Kiwis and Aussies to get sucked in to the inflating housing bubbles. Mr Barton makes a misleading statement when he opines "What may be surprising about Demographia's analysis is not that it reflects a property developer's ultimate fantasy, but that the Government is buying its message". Mr Barton can be assured that my "ultimate fantasy" has nothing to do with housing! The statement is simply juvenile drivel "“ and a falls well short of the usual high standards of New Zealand's leading daily newspaper. One does not spend 30 years of one's life as a successful commercial property development practitioner and former industry leader, by living in fantasy land! Indeed it is a rather good school (sometimes referred to as "the University of Life") to gain a real appreciation of the problems and explore workable solutions to them. This is why I have spent these past four and a half years (in excess of 10,000 hours) working on a voluntary basis, stimulating public discussion of these issues internationally. As Keith Hall of the New Zealand Planning Institute quite rightly states, the causes of these "housing bubble problems" are wide - ranging "“ and it was necessary for me to do this work on a voluntary basis "“ so that I was in the position to "dish it up" left, right and centre - as need be. Indeed the New Zealand Planning Institute publicly announced its "strong support" for the Annual Demographia Surveys back in early 2007 and I responded soon after. The National Party (in opposition at the time) then initiated the Housing Affordability Inquiry and its Housing Spokesman Phil Heatley completed an extensive Housing Study Tour of the United Kingdom and the United States, with the Party Leader John Key speaking on housing / infrastructure / local government issues to the National Party, Contractors and Local Government as well. The New Zealand Government knows full well that it must get workable solutions in place "“ it will  repeat the mistakes of the former Howard Government (as the Rudd Government appears to be doing currently) in Australia (refer Fitch Ratings Research - SMH article) and the former NZ Labour Government. Come election time "“ voters do not thank politicians for making them poor, by encouraging them in to phony booms, flicking houses to one another and loading themselves up with grossly excessive household debt and taxes in the process. And the Government cannot afford to stand idly by and allow the New Zealand housing construction sector to wind down month after month (refer Statistics NZ latest Building Consents Report), so that on a population basis, housing construction collapses from the current 14,000 units per annum (it had peaked mid 2004 at in excess of 30,000 per year) to the current California level of approximately 7,000 "“ or worse still "“  the disastrous British levels of 3,500 new residential units per year (industry estimates for 2009). Back in March 2008 - I wrote a rather lengthy paper "Getting performance urban planning in place" outlining the causes of the housing bubbles and suggesting solutions. My extensive writings on these issues are available at the Performance Urban Planning website. Briefly "“ it's very clear to me that Central Government must - as soon as possible - get the appropriate structures in place so that there is a "performance based relationship" with Local Government. The rest of humanity has to "perform". It's long overdue Local Government is required to as well. It appears that Bob Hargreaves, Professor of Property Studies at Massey University is still rather surprisingly prepared to promote the technically unsound "mixed measures" Housing Affordability Indexes, which have no credibility within the property industry and with experienced property media. Mr Hargreaves needs to understand the importance of keeping the issues of housing affordability (house prices relationship with incomes) and mortgage affordability completely separate. It would appear Andrew Coleman of Motu Research and Shelter NSW need to understand this as well. Because of its widespread failures with respect to the current housing bubbles - the economics profession globally, is in what could be described as a "state of convulsion" (as I explain within a recent widely read article  Housing Bubbles And Market Sense). This will inevitably lead to a paraigm shift in the training and retraining of economists, planners and property appraisers / valuers "“ and sooner than most realize. The problems of these "mixed measures" and the data manipulation involved with too many of them, have been well known within the property industry for decades. Alun Breward - an economist with the State Government of Victoria, Australia explained this in rather colourful fashion, way back in April 2005 on the Australian radio programme Ockhams Razor  "Housing Affordability Measures Under The Microscope". In contrast "“ the Demographia Housing Survey approach "“ in employing the Median Multiples (median house price divided by the gross annual median household income) is a "clean measure" (house price, median income, multiple "“ clearly stated) "“ and one recommended by the United Nations and World Bank . Professor Shlomo (Solly) Angel "“ who contributed the Preface to this years Demographia Survey (Dr Don Brash last year) was the co architect (with the late Steve Mayo) of the United Nations and World Bank Urban Indicators Programmes. The Harvard University Joint Center for Housing Research Median Multiple Tables for major US urban markets going back to 1980 - are extremely helpful as well. These tables clearly illustrate that historically, the majority of growing United States urban markets sat comfortably through the normal building cycles between two and three times annual household incomes. Regrettably too "“ particularly for his students "“ it would appear Professor Hargreaves is "all over the place" with respect to the Law of Supply and Demand "“ in making the extraordinary statement that "research shows that freeing up land doesn't make much difference". The Annual Demographia Surveys repeatedly draw attention to reputable international research in this regard. Mr Keith Hall, Chief Executive of the New Zealand Planning Institutes comments are particularly helpful, nuanced and illustrate his deep understanding of these issues. It helps enormously that Mr Hall started his planning career in Houston. Mr Hall is quite correct in not recommending the United States Property Tax structures, which finance far greater service provision than our Local Authority Rates here in New Zealand and Australia. He "forgot" to mention however, that there are no State Income Taxes in Texas "“ and that overall (Local, State, Federal combined) Texans pay far less tax than in most other American States and of course New Zealand.  And too - that for homeowners "mortgage interest" (up to certain limits) is tax deductible in the United States. He appears to have "forgotten" to inform readers that the  affordable urban markets of Dallas Fort Worth, Atlanta and Houston are the fastest growing of the English speaking world. It would have been helpful too "“ if Mr Hall had informed us of the current contrasting fiscal positions of California and Texas "“ something I have been encouraging the Americans to do for quite some time now. And no thanks Mr Hall "“ we don't need any more taxes in New Zealand. Even if they fired every State employee in California "“ they couldn't wipe the current (before it gets worse again next month) budget deficit. We can of course quibble and intellectualize about the strengths and weaknesses of various measures (there are no perfect ones) and other matters "“ or "“ focus on the real issues and allow New Zealanders and Australians access to affordable housing as soon as possible. We are best to focus on progress in this life "“ and leave perfection to the next! The New Zealand Planning Institute with its support for the Demographia Surveys, the widespread support of the industry groups and the leadership of the New Zealand National led Coalition Government with its Housing Minister Hon Phil Heatley - has set the stage for real progress to be made on these issues in New Zealand. Let's get on with it. * Hugh Pavletich runs Performance Urban Planning -------------------- For interest.co.nz's home loan affordability reports, go here. To compare New Zealand cities using the median multiple approach, go here.