Thursday, August 16, 2018

Global city housing crisis and costly planning restrictions

BBC report August 15, 2018: How housing has divided the young 

I have discussed the impact of planning restrictions on property prices in the past (here for example) but while some, of course, are necessary, there is seldom an estimate of the cost — in 2015 Jason Furman, President Obama's chief economic adviser, cited a cost of 50% or more on a typical house in US urban areas; London School of Economics (LSE) research has estimated “that restrictive planning policies inflate the price of office space in the West End (of London) by about 800%. A square foot there is twice as expensive as in midtown Manhattan.” This year research published by the Reserve Bank of Australia estimated that that zoning restrictions raise detached house prices by 73% of marginal costs in Sydney.

Housing price rises in several commercial capital cities across the world have been on a tear in recent times and for example, in the year to June 2018, the median price of a housing unit in Amsterdam rose 19.1%. According to the European Commission, between 2012 and 2016, real house prices surged by 38% in Sweden and by 19% in Denmark, while average real house prices were almost flat in the euro area in this period. Sweden experienced one of the steepest house price increases among EU member states in this period, which has also been one of the highest in the country's recent history. See UBS Global Estate Bubble Index 2017. Dublin prices in 2018 have risen by an average of almost €155,000 (70%) above their low-point in 2012.

Population growth has been most prominent in the capital cities: it increased by 17% in Copenhagen and by 13% in Stockholm between 2008 and 2015, compared with the national average population increase of 3% in Denmark and 6% in Sweden during the same period. Stockholm and Copenhagen are expected to remain among the fastest growing cities in the EU.

The County Dublin population rose by 13% in 2006-2016.

This week Robin Harding of the Financial Times took issue with analysts and economists who insist that there is no problem with supply. For example in Vancouver, where the average house costs 11 times the median household income, John Rose, and academic, in a paper called “The Housing Supply Myth”, provided data that show net dwelling unit growth of 241,000 in 2001—2016 exceeded net household growth by 39,000 while in Toronto where prices rose 20% in 2016, the rise was 63,000 above the net household growth of 501,000.  

Harding says that in the UK where house prices growth has risen to about eight times average earnings, Ian Mulheirn of Oxford Economics claimed there is no shortage even in London. In Australia, Australian National University estimated the market had an oversupply of 164,000 homes between 2001 and 2017, with the greatest surpluses in the cities with the biggest price rises — Brisbane, Melbourne and Sydney

Robin Harding suggests that the researchers are like old-style communist (80% of the housing in capitalist Singapore are flats provided by the government with size related to family numbers) country statisticians who had a housing stock that was mainly the same.

The demand for housing today is related to age, jobs, schools, location within an urban area, size of family and so on. The overall supply may be positive but it may not meet the range of properties that are in demand in an urban area — and at a cost that is not artifically inflated by zoning restrictions.

The Nimby (not in my backyard) syndrome coupled with unnecessary restrictions by planners impose a huge stealth tax on buyers — Paul Chesire, emeritus professor at the LSE, a leading British expert on housing, has said that 1.6m housing units could be built on the Greater London green belt (about 7% of London’s green belt consists of golf courses. Over half is agricultural.) and in the 12 months to March 2017 only about 40,000 units were completed.

In research published this year, Prof Chesire and colleagues showed how tight supply results in vacant dwellings!

Empty homes, longer commutes: The unintended consequences of more restrictive local planning 

The rise of single person households  

Eurostat says that the most common type of household comprised a single person in 2017, with one third (33.6 %) of the total number of households. This group also recorded the highest increase from 2007 to 2017 (3.7 percentage points (pp)). 

The data are from the EU labour force survey, which also reveals the differences across EU member states. The proportion varies from just under 20% in Malta, 22% in Portugal and Slovakia, 24% in Ireland, to 41% in Germany, 43% in Lithuania, 44% in Denmark and 51% in Sweden. 

On the number of persons by household, almost two-thirds of all households in the EU-28 were composed of one or two persons in 2017

In 2017 in the EU-28, 29.6 % of private households were households with children. Across the EU member states, the highest percentages were observed in Ireland (40.2 %), Poland (37.4 %) and Cyprus (36.7 %), the lowest in Germany (22.3 %) and Finland (21.9 %). The share of private households with children was particularly high in Turkey (51.9 %) and the former Yugoslav Republic of Macedonia (49.5 %), by far exceeding the average of the EU member states.

Eurostat: Household composition statistics 2017

United Nations: Household size and composition around the world in 2017

Related: 

Irish Housing Crisis: It’s time for radical solutions — Part 1the Irish development land valuation racket

Average Irish housing size lowest of EU's rich countries — Part 2 the taboo on high rise

Irish real house prices up 175% in 50 years, UK +405%, Germany -1%

AirBnB under siege in Europe- accounts for 50%+ of Dublin rentals