Hugh Pavletich: There are no perfect measures - so let's stop quibbling

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The New Zealand Herald is to be commended for fostering constructive public discussion on the housing issue with its article by Chris Barton "Home Truths".

The article followed the release of the 2009 5th Edition Demographia International Housing Affordability Survey.

I initiated and co-authored the surveys because of my deep concern that New Zealanders and Australians were being seriously misinformed about the structural problems of their housing markets.

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 realise how much they were being "taken to the cleaners" with the excessive prices for housing.

Mr Barton 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.

I have spent these past 4 years 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. Indeed the institute publicly announced its "strong support" for the Annual Demographia Surveys back in 2007. 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 Britain and the United States.

The Government knows that it must get workable solutions in place or it will repeat the mistakes of the former Howard Government in Australia (as the Rudd Government appears to be doing) and the former New Zealand Labour Government.

Come election time voters do not thank politicians for making them poor by encouraging them into 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, so that on a population basis, housing construction collapses from the current 14,000 units per annum to the current California level of approximately 7000 - or worse still - the disastrous British levels of 3500 new residential units per year. 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. It's very clear to me that central Government must get the appropriate structures in place so that there is a "performance based relationship" with local government.

It appears that Bob Hargreaves, Professor of Property Studies at Massey University, is still prepared to promote the technically unsound "mixed measures" Housing Affordability Indexes. However, it is necessary that critics understand the importance of keeping the issues of housing affordability (house prices relationship with incomes) and mortgage affordability completely separate.

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. 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" and one recommended by the United Nations and World Bank. Professor Shlomo (Solly) Angel who contributed the preface to this year's Demographia Survey (Dr Don Brash last year) was the co-architect (with the late Steve Mayo) of the UN and World Bank Urban Indicators Programmes.

Planning Institute chief executive Keith Hall's comments 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 US property tax structures, which finance far greater service provision than our local authority rates. However, 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. For homeowners "mortgage interest" (up to certain limits) is tax deductible in the US.

We can, of course, quibble and intellectualise 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. Let's get on with it.

* Hugh Pavletich is co-author of the annual Demographia International Housing Affordability Survey.

- NZ Herald

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