I would have liked to see more analysis of impact on rents in this piece. The data I've seen suggests a reduction in rents compared to other NZ cities that didn't have this change.
I also checked out the articles linked in the post about proponents for the change who were then unhappy about how it played out. I think these were presented in a misleading way: the problem identified in the article was carve-outs, ie specific areas that weren't upzoned and thus pushed the development into areas with less political power. In this case the problem was arguably not enough upzoning! You could argue that this will be the realpolitik of any such change, and should be taken into account as a possible downside. But the status quo seems to be most intensive development in areas with less political might, already.
Finally, the existence of a housing cycle doesn't, of itself, disprove a role for zoning. My understanding is that proponents of reform accept that there is a cycle - they just suggest that the cycle would be different without such zoning, with more properties being built at each different part of the cycle.
Interesting analysis. Do you have any explanation why Auckland's upzoning had a (seemingly) positive effect on rent and potentially house prices (https://onefinaleffort.com/auckland), if it was not through extra construction?
Rental impacts are something I want to look at soon.
It will be critical to look at rents on a like-for-like basis. There has been a massive compositional change in Auckland housing, with many more apartments and townhouses being built than in the past. Given this, the median rent is likely to be an unreliable guide to rent change. We will need to see composition-adjusted rents.
COVID caused a larger population shock in Auckland than elsewhere in NZ, Auckland being NZ's major migrant destination. So the post-2020 changes will be hard to attribute to the AUP. But the evidence of pre-2020 changes on the blog you linked to is still promising.
Lastly, in explaining rents it will be important to decompose the impacts of the AUP into supply-side change (which our column can't see evidence of) and demand-side change. Demand side change doesn't just come from overseas migration. Growing congestion and disamenity from higher-density living may well also have increased the outflow of residents, especially higher-income residents, from Auckland (consider the anecdotes in the Spinoff articles linked in our post). Traditionally Auckland sees a net outflow of NZ residents, which is more than matched by inflow of overseas migration (Sydney has a similar pattern). If that outflow grew, and was concentrated amongst higher-income people, that may have driven rents down.
If we can't see evidence of a supply increase due to the AUP any rental decrease must have been driven by the demand side.
Ryan Greenaway-McGrevy has just released a paper on rental impacts of the AUP, but I have not yet read it:
As a non-economicst, I'm always a bit sceptical of translating everything to either supply or demand, as I can imagine explanations that do not with either (in a layman's use of the words). There could changes in ability/biases in product-assessment, visibility of demand/supply, marketability, lock-in effects (cost of moving, fear of vacancy, etc)
If drop in prices are driven by outflow of higher incomes, that would fit with Murray's thesis that housing prices tend to stabilise around 20%ish of average income in an area.
It also offers a way that in the long term, there might be other financial benefits for Auckland residents. Congestion/density can drive public transport use and development, meaning people can/will do with less cars. This could mean that residents end up with both lower housing and transportation costs, two big factors in people's budgets in Australia (and I expect NZ). While the effect would be delayed, it would be interesting to see if there is data on that.
There was extra construction, just like most cities during the 2010s and rents fell in Brisbane, Sydney and other places too. Sydney asking rents fell about 25% compared to other capitals from 2016-2021. It is all cyclical. Rents will rise again in Auckland, the rate of construction will fall, and the cycle will continue.
What are your thoughts on the extension paper that Ryan Greenaway-McGrevy published in response to your criticisms of his initial study, and do you think it adequately refutes your criticisms of his initial study?
This blogpost doesn't seem to address much of the stuff that was in the extension paper, only what was in the initial study.
Why do you think the extension addresses our critiques? It doesn't. It still imposes a linear structure on a cyclical series. It assumes that without the AUP consents would have grown linearly instead of exhibiting the ups and downs of the real estate cycle. In fact by adding in the missing consents the non-linearity before upzoning is even more stark.
You can't decompose an exponential growth curve into two parallel straight lines, which is what you need for valid difference-in-difference estimation.
Also, an unpublished working paper can't fix problems in a published paper. The extension paper came out before the published paper. If the authors thought the extension paper was better, they would have published that, right?
The idea the extension paper either responded to our critique (it didn't) and fixed the problems (it didn't) is one of those weird internet myths. I can see its utility for people who want to believe the conclusions without understanding the methodological debates, however.
"Why do you think the extension addresses our critiques?"
I didn't think or say that the extension paper addressed your critiques. Your assumption that I did is unnecessary.
I didn't know if it did or not, and was uncertain about it, which was why I posted my comment asking you guys for your views on it, because I recognize your and Cameron's academic expertise and respected your right to respond.
If I'd already made up my mind that the extension paper debunked you guys, then I wouldn't have commented asked for your professional views on it.
I read your comment that we didn't seem to address the extension paper and your question about whether it refutes our criticisms as a view that the extension paper addressed or at least bore some important relation to our critique, which it doesn't.
That extension paper doesn't make any reference to our critique (indeed it precedes it), doesn't change the content of the published paper, and doesn't fix the problems we identified, so I've found the attention by many people to the extension paper a curious distraction from our actual substantive points of criticism of the actual published paper.
It's been as fascinating to watch the public conversation about this methodological dispute as it was to unpack the methodological issues themselves.
It's a critique of market-based approaches (commodification of housing) - rent control, expropriation measures, upzoning versus non market ones as examplified by Vienna's approach.
The Vienna article (and there are others like it) provides a good illustration of one way to make housing cheaper: provide it as a public service, and subsidise that service.
Singapore's HDB model is based on a similar philosophy, that markets alone won't house the poor.
Cameron has written a lot on the limitations of market solutions, including here:
Redressing inequalities in income that lead to fixed resources - land and short-term construction sector capacity - being allocated towards those with higher incomes is clearly part of the solution.
That can either be direct via redistributive policy (tax and welfare) or indirect via provision of housing services.
When you look to the government to solve an economic problem, you're looking in the wrong place. 'Upzoning' is a government solution. The problem with government economic solutions is this ... the governemnt only looks at the immediate issue, never taking into account the overall economic impact. Of course this strategy is great for 'granting favors' which is a nice way of saying 'vote buying.' The government 'boot heal' is so strongly afixed to the housing market, that it's probably not accurate to even call it a market. The government boot heal includes, massive taxation, massive regulation, massive zoning. Get rid of the 'massive' government 'boot heal' and the problem is solved. Most government economic solutions look like this, 'a few people win, and win big, the rest of the people lose.' The extention of this is total government control of the economy - socialism. And the end result is always the same, 'a few people (the overlord political elites) win, and win big, and the rest of us lose - big time.
Yes, agree. The limits of loosening zoning restrictions ("upzoning") in New Zealand were (1) the benefits were captured by developers; (2) developers priced new units far above cost; (3) it didn't offer renters security; or (4) didn't directly create the type of housing most needed, i.e. affordable housing.
Upzoning is often described as giving more freedom to the market and developers and government getting out of the way, by both supporters and detractors. Can you give examples of what you consider non-government interventions/solutions in the housing market?
Who decides the 'upzoning?' Is it the developers or the government? The developers don't have the power to make 'upzoning' laws, only the government does. Now this is where political 'favor granting' comes in ... the developers can lobby for what they want ... Government 'upzoning' requires government enforcement, not sure I see where the freedom is in that? 'Non-government iterventions' is a strange way to phrase the question. It seems to me, any 'intervention' requires the force to back it up. Since citizens living in a free society are not lawfully allowed to use force, I would say there's no 'non-government intervention' necessary - just free people trading in a free market, reaching agreements on their own, without 'top down, political overlord, government' intervention.
Tim, One can agree that 'Housing and property analysis struggles with the fact that markets are cyclical, locations are substitutes, consumption responds to price, and individuals migrate to improve their quality of life. Housing analysis faces many of the same problems as empirical macroeconomics—a lack of controls, idiosyncratic local factors, and more.'
There is no evidence that upzoning decreased housing construction, in a city with limited supply the counter could have been significantly detrimental.
I would have liked to see more analysis of impact on rents in this piece. The data I've seen suggests a reduction in rents compared to other NZ cities that didn't have this change.
I also checked out the articles linked in the post about proponents for the change who were then unhappy about how it played out. I think these were presented in a misleading way: the problem identified in the article was carve-outs, ie specific areas that weren't upzoned and thus pushed the development into areas with less political power. In this case the problem was arguably not enough upzoning! You could argue that this will be the realpolitik of any such change, and should be taken into account as a possible downside. But the status quo seems to be most intensive development in areas with less political might, already.
Finally, the existence of a housing cycle doesn't, of itself, disprove a role for zoning. My understanding is that proponents of reform accept that there is a cycle - they just suggest that the cycle would be different without such zoning, with more properties being built at each different part of the cycle.
Interesting analysis. Do you have any explanation why Auckland's upzoning had a (seemingly) positive effect on rent and potentially house prices (https://onefinaleffort.com/auckland), if it was not through extra construction?
Good question, MrJP.
Rental impacts are something I want to look at soon.
It will be critical to look at rents on a like-for-like basis. There has been a massive compositional change in Auckland housing, with many more apartments and townhouses being built than in the past. Given this, the median rent is likely to be an unreliable guide to rent change. We will need to see composition-adjusted rents.
COVID caused a larger population shock in Auckland than elsewhere in NZ, Auckland being NZ's major migrant destination. So the post-2020 changes will be hard to attribute to the AUP. But the evidence of pre-2020 changes on the blog you linked to is still promising.
Lastly, in explaining rents it will be important to decompose the impacts of the AUP into supply-side change (which our column can't see evidence of) and demand-side change. Demand side change doesn't just come from overseas migration. Growing congestion and disamenity from higher-density living may well also have increased the outflow of residents, especially higher-income residents, from Auckland (consider the anecdotes in the Spinoff articles linked in our post). Traditionally Auckland sees a net outflow of NZ residents, which is more than matched by inflow of overseas migration (Sydney has a similar pattern). If that outflow grew, and was concentrated amongst higher-income people, that may have driven rents down.
If we can't see evidence of a supply increase due to the AUP any rental decrease must have been driven by the demand side.
Ryan Greenaway-McGrevy has just released a paper on rental impacts of the AUP, but I have not yet read it:
https://cdn.auckland.ac.nz/assets/business/about/our-research/research-institutes-and-centres/Economic-Policy-Centre--EPC-/WP016%20-%202.pdf
As a non-economicst, I'm always a bit sceptical of translating everything to either supply or demand, as I can imagine explanations that do not with either (in a layman's use of the words). There could changes in ability/biases in product-assessment, visibility of demand/supply, marketability, lock-in effects (cost of moving, fear of vacancy, etc)
If drop in prices are driven by outflow of higher incomes, that would fit with Murray's thesis that housing prices tend to stabilise around 20%ish of average income in an area.
It also offers a way that in the long term, there might be other financial benefits for Auckland residents. Congestion/density can drive public transport use and development, meaning people can/will do with less cars. This could mean that residents end up with both lower housing and transportation costs, two big factors in people's budgets in Australia (and I expect NZ). While the effect would be delayed, it would be interesting to see if there is data on that.
There was extra construction, just like most cities during the 2010s and rents fell in Brisbane, Sydney and other places too. Sydney asking rents fell about 25% compared to other capitals from 2016-2021. It is all cyclical. Rents will rise again in Auckland, the rate of construction will fall, and the cycle will continue.
I would love to see you in a debate with Peter Tulip - https://josephnoelwalker.com/australian-policy-series-the-housing-crisis/
I have debated with Peter for many hours in person. Many times. I could get him on the podcast I suppose.
What are your thoughts on the extension paper that Ryan Greenaway-McGrevy published in response to your criticisms of his initial study, and do you think it adequately refutes your criticisms of his initial study?
This blogpost doesn't seem to address much of the stuff that was in the extension paper, only what was in the initial study.
Cameron beat me to it.
Why do you think the extension addresses our critiques? It doesn't. It still imposes a linear structure on a cyclical series. It assumes that without the AUP consents would have grown linearly instead of exhibiting the ups and downs of the real estate cycle. In fact by adding in the missing consents the non-linearity before upzoning is even more stark.
You can't decompose an exponential growth curve into two parallel straight lines, which is what you need for valid difference-in-difference estimation.
Also, an unpublished working paper can't fix problems in a published paper. The extension paper came out before the published paper. If the authors thought the extension paper was better, they would have published that, right?
The idea the extension paper either responded to our critique (it didn't) and fixed the problems (it didn't) is one of those weird internet myths. I can see its utility for people who want to believe the conclusions without understanding the methodological debates, however.
"Why do you think the extension addresses our critiques?"
I didn't think or say that the extension paper addressed your critiques. Your assumption that I did is unnecessary.
I didn't know if it did or not, and was uncertain about it, which was why I posted my comment asking you guys for your views on it, because I recognize your and Cameron's academic expertise and respected your right to respond.
If I'd already made up my mind that the extension paper debunked you guys, then I wouldn't have commented asked for your professional views on it.
Fair enough - my mistake.
I read your comment that we didn't seem to address the extension paper and your question about whether it refutes our criticisms as a view that the extension paper addressed or at least bore some important relation to our critique, which it doesn't.
That extension paper doesn't make any reference to our critique (indeed it precedes it), doesn't change the content of the published paper, and doesn't fix the problems we identified, so I've found the attention by many people to the extension paper a curious distraction from our actual substantive points of criticism of the actual published paper.
It's been as fascinating to watch the public conversation about this methodological dispute as it was to unpack the methodological issues themselves.
We have written a response here https://www.fresheconomicthinking.com/p/the-auckland-upzoning-myth-response
Makes you wonder what it takes to penetrate political minds. Have you covered a paper by Francesca Mari in The New York Times Magazine on 26 May 2023? For anyone interested the link: Mari, F. (2023). Imagine a renters’ Utopia — It might look like Vienna. The New York Times Magazine 26 May 2023. https://www.nytimes.com/2023/05/23/magazine/vienna-socialhousing.html?campaign_id=30&emc=edit_int_20230526&instance_id=93564&nl=theinterpreter&
regi_id=89307964&segment_id=134002&te=1&user_id=c8d535311e5bea12898677fdfcc839d6
It's a critique of market-based approaches (commodification of housing) - rent control, expropriation measures, upzoning versus non market ones as examplified by Vienna's approach.
The Vienna article (and there are others like it) provides a good illustration of one way to make housing cheaper: provide it as a public service, and subsidise that service.
Singapore's HDB model is based on a similar philosophy, that markets alone won't house the poor.
Cameron has written a lot on the limitations of market solutions, including here:
https://www.fresheconomicthinking.com/p/slums-are-how-the-free-market-houses
Redressing inequalities in income that lead to fixed resources - land and short-term construction sector capacity - being allocated towards those with higher incomes is clearly part of the solution.
That can either be direct via redistributive policy (tax and welfare) or indirect via provision of housing services.
When you look to the government to solve an economic problem, you're looking in the wrong place. 'Upzoning' is a government solution. The problem with government economic solutions is this ... the governemnt only looks at the immediate issue, never taking into account the overall economic impact. Of course this strategy is great for 'granting favors' which is a nice way of saying 'vote buying.' The government 'boot heal' is so strongly afixed to the housing market, that it's probably not accurate to even call it a market. The government boot heal includes, massive taxation, massive regulation, massive zoning. Get rid of the 'massive' government 'boot heal' and the problem is solved. Most government economic solutions look like this, 'a few people win, and win big, the rest of the people lose.' The extention of this is total government control of the economy - socialism. And the end result is always the same, 'a few people (the overlord political elites) win, and win big, and the rest of us lose - big time.
Yes, agree. The limits of loosening zoning restrictions ("upzoning") in New Zealand were (1) the benefits were captured by developers; (2) developers priced new units far above cost; (3) it didn't offer renters security; or (4) didn't directly create the type of housing most needed, i.e. affordable housing.
Upzoning is often described as giving more freedom to the market and developers and government getting out of the way, by both supporters and detractors. Can you give examples of what you consider non-government interventions/solutions in the housing market?
Apparently Vienna is the best example (in practice) or a non-market approach. It's well documented in a paper by Francesca Mari: Mari, F. (2023). Imagine a renters’ Utopia — It might look like Vienna. The New York Times Magazine 26 May 2023. https://www.nytimes.com/2023/05/23/magazine/vienna-socialhousing.html?campaign_id=30&emc=edit_int_20230526&instance_id=93564&nl=theinterpreter&
regi_id=89307964&segment_id=134002&te=1&user_id=c8d535311e5bea12898677fdfcc839d6
Who decides the 'upzoning?' Is it the developers or the government? The developers don't have the power to make 'upzoning' laws, only the government does. Now this is where political 'favor granting' comes in ... the developers can lobby for what they want ... Government 'upzoning' requires government enforcement, not sure I see where the freedom is in that? 'Non-government iterventions' is a strange way to phrase the question. It seems to me, any 'intervention' requires the force to back it up. Since citizens living in a free society are not lawfully allowed to use force, I would say there's no 'non-government intervention' necessary - just free people trading in a free market, reaching agreements on their own, without 'top down, political overlord, government' intervention.
Tim, One can agree that 'Housing and property analysis struggles with the fact that markets are cyclical, locations are substitutes, consumption responds to price, and individuals migrate to improve their quality of life. Housing analysis faces many of the same problems as empirical macroeconomics—a lack of controls, idiosyncratic local factors, and more.'
Yes, probably lots more.
On the other side of the ledger it may be worth having a look at the methods used here: www.centreforcities.org/wp-content/uploads/2023/02/The-housebuilding-crisis-February-2023.pdf
Congratulations
There is no evidence that upzoning decreased housing construction, in a city with limited supply the counter could have been significantly detrimental.