Helen Clark and many others see affordable housing as one of the big political issues of 2008.

Unfortunately her thinking about the issue errs in two main respects. She sees the problem as one of a lack of supply of houses, and she equates "affordable housing" with "affordable property ownership".

Housing - meaning a place to live - is a basic necessity of life. It is a legitimate role of government to intervene where necessary to ensure that everyone can have a safe and healthy place to live.

The market in housing, as a place to live, is the rental market. Equity in residential property, however, is a financial asset, like shares and bonds. It is not a responsibility of government to make it possible for everyone to acquire risk-laden financial assets.

Further, the argument that there are social benefits in having a very high proportion of a country's residents living in homes that they own is often assumed but rarely examined. Indeed, living in new housing subdivisions may actually have substantial disadvantages (see "Dead end streets" in The Aucklander, February 6).

Can we realistically argue that communities in relatively new mortgage-belt suburbs such as Henderson Heights or Flat Bush have stronger social cohesion than Mt Albert or Grey Lynn, where substantial numbers of rental homes are interspersed with owner-occupied dwellings?

The fundamentals of the housing market are simple. The normal market-clearing price of a house and section is a function of its rental value.

For example, if landlords require a 5 per cent return on their asset, then the capital value of the asset will be approximately 20 times the rental value. If the supply of housing is relatively fixed (as we are told it is) then changes to the rental value of housing are determined mainly by changes in the demand for places to live.

Changes in the demand for housing are determined by the rates of population growth and income growth. And by other demographic factors such as the rate of divorce and the propensity for adult children to leave home.

Rental values of housing in Auckland increased substantially in the five years to 2003. But since then rental values have not increased much. There has in fact been very little growth in the demand for places to live in Auckland since 2003.

There is no housing crisis. On the supply side, the value of residential property as a financial asset is influenced by returns on other assets. Thus, if interest rates increase, the capital values of the housing stock fall, because landlords can now get much better returns on bonds than on property.