Middle-Income Housing AffordabilityPresentation by Wendell Cox to the

American Dream ConferenceNovember 7, 2015

Brisbane

MIDDLE INCOMEHOUSING

AFFORDABILITY

G-20 Priorities:

Better Standard of Living

Alleviating Poverty

RequiresMiddle-Income

Housing Affordability

Discretionary Income (=)

Gross IncomeMinus

Taxes and Necessities(Such as Housing, Transportation

& Clothing)

Discretionary IncomeDEFINES THE STANDARD OF LIVING & POVERTY

From Levittown NY toLakewood

Democratization of ProsperityASSOCIATED WITH HOME OWNERSHIP

Lakewood, California

9 Nations86 Major Markets378 Total Markets

MEDIAN MULTIPLEMedian house price

divided byMedian household income

Rating Median MultipleSeverely Unaffordable 5.1 & OverSeriously Unaffordable 4.1 to 5.0Moderately Unaffordable 3.1 to 4.0Affordable 3.0 & Under

Table 1

Housing Affordability Rating Categories

Measuring Housing Affordability THE DEMOGRAPHIA SURVEY

Distance from City Centre

Land

Val

ue BEFORE URBAN GROWTH BOUNDARY

Figure 6

Urban Growth Boundary & Land ValuesTHE THEORY

AFTER URBAN GROWTH BOUNDARY

LOCATION OF URBAN GROWTH BOUNDARY (Land Value Gap)

Leading theorists:Lower costs of higherdensity housing would

negate land price increases

OUTSIDE UGB$16,000Per AcreINSIDE UGB$180,000Per Acre

Impact of Urban Growth BoundaryPORTLAND RAW LAND VALUES: ADJACENT TO UGB

House Price to Income RatioINTERNATIONAL:1980s-2000s

3.0 MaximumAffordability

Standard

All major markets werebelow or near 3.0

before urban containment.

Source: Federal Reserve Bank of Australia

Land Rationing is the Issue DESTROYS HOUSING AFFORDABILITY

Donald Brash, Governor, Reserve Bank of New Zealand

1988-2002Introduction to

4th Annual Demographia International Housing Affordability Survey

... the affordability of housing is overwhelmingly a function of just one thing, the extent to which governments place artificial restrictions on the supply of residential land.

Recognition of the Problem GOVERNMENT OF NEW ZEALAND

Bill English, Deputy Prime Minister

New ZealandIntroduction to

9th Annual Demographia International Housing Affordability Survey

Land has been made artificially scarce by regulation that locks up land for development. This regulation has made land supply unresponsive to demand.

Paul Cheshire ECONOMIST

Urban containment is Irreconcilable with

Housing affordability

Virtually allincreased inequality

is in higherhousing values

Much due toHousing regulation

-Rognlie, MIT

All Lost Equality in Housing?THE “DISAPPEARING” MIDDLE CLASS

London

Reduced employment in Amsterdam/Rotterdam

-Vermuelen & OmmerenNetherlands Bureau of Econ. Rsch.

Excessive Land Regulation: Lost GDPEUROPEAN & US RESEARCH

$2T GDP Loss: US-Hsieh & Moretti

UIC & UCB

20% less job growththan expected in

metropolitan areaswith strongest

land use regulation-Raven Saks

US Federal Reserve Board

Higher commercialDevelopment costs

-Cheshire & HilburLondon School of Economics

1950

1960

1970

1980

1985

1990

1995

2000

2005

2010

0

1

2

3

4

5

6

7

8

9

10Less Restrictive MarketsMore Restrictive Markets: Outside CaliforniaCalifornia (All More Restricted Markets)

Med

ian

Mul

tiple Annual Data Begins at 1980

Middle-Income Housing AffordabilityMAJOR US METROPOLITAN AREAS: 1950 – 2014

Median Multiple: Median House Price divided by Median Household Income

Derived from Census Bureau, Harvard University and Demographia.

California Mississippi0%

5%

10%

15%

20%

25%

23.4%

15.3%

Housing Adjusted Poverty Rates: 2013UNITED STATES, CALIFORNIA & MISSISSIPPI

Source: US Census Bureau

Mississippi has historicallyhad the

worst poverty

CaliforniaLegislative Analysts Report

CALIFORNIA:NEED TO

LIBERALIZEREGULATIONS

Far from helping, they are making it particularly difficult

for Latino and African American

households to own a home

"Suburbs rarely cease growing of their own accord.

The only reliable way to stop them …is to stop them forcefully. But the consequences of

doing that are severe."

welcomeforeigners

• New Zealand– Legislation– Productivity Commission

• Auckland– Affordability target

• Florida– Repealed Smart Growth

Progress: New Zealand & FloridaREFORM COMES FROM THE OUTSIDE, NOT PLANNING

Auckland

NEW ZEALANDPRODUCTIVITYCOMMISSION

Proposal

Housing affordabilitygreenfield

landrelease

The purpose of urban areas is to improve the

affluence of their residents

Outcomes….

•decline in home ownership rates;

•increasing shares of their income to housing, with associated impacts on wellbeing;

•a more uneven distribution of national wealth;

•ongoing overcrowding, with associated health and social costs;

•a greater risk of economic volatility and macroeconomic instability; •barriers to labour market mobility; •an undermining of the effectiveness of monetary policy to manage economy-wide inflation •pressure on fiscal policy, through direct and indirect paths.54

For example, through social housing.

The Commission does not have a preference for whether cities grow out or up. Our larger cities will always have an element of both. In any event, what matters ultimately are the preferences of households and whether they have available to them choice of housing types at different price points to cater for a range of income levels.

Non-Ideological Approach

Councils in our largest cities should be able to pursue the goal of a compact urban form if that is what their communities want.

The key test is whether they deliver sufficient development capacity to house a growing population while delivering a choice of quality, affordable dwellings of the type demanded by purchasers.

Where large discontinuities emerge between the price of land that can be developed for housing and land that cannot be developed, this is indicative of the inadequacy of development capacity being supplied within the city

OUTSIDE UGB$16,000Per AcreINSIDE UGB$180,000Per Acre

Impact of Urban Growth BoundaryPORTLAND RAW LAND VALUES: ADJACENT TO UGB

Productivity CommissionRecommendations

– Right to plan

– Obligation

– Plans not reflecting preferences

– Differential at UGB

– Creates national externalities

– Event based trigger: Release greenfield land

What we are saying is we have to take

into account the whole of New Zealand

and future generations…

"That's denying a whole generation of New Zealanders affordable housing options in areas where they want to live. We are going to say from central Government's view that affordable housing is a matter of national importance and we are going to require councils, like Auckland Council, to restrict the use of density and height controls so they can't be used to prevent affordable housing being built.""It will be a reduction in the veto power of existing residents. At the moment ... they put a premium on the right of neighbours to object in a community. What we are saying is we have to take into account the whole of New Zealand and future generations who desperately need affordable housing."