Five successful cities with cheaper houses than New Zealand - and what we can learn

It's no surprise, but overseas evidence strongly suggests many more new houses will be needed to have any chance of ...
PETER MEECHAM/FAIRFAX NZ

It's no surprise, but overseas evidence strongly suggests many more new houses will be needed to have any chance of restraining Auckland's house prices. Will the politicians take the plunge and let the city expand quickly?

Alarm and recriminations continue to grow as house prices rise at furious rates in more and more parts of the country but the absurdities of the Kiwi property market may be avoidable.

Overseas, fast growing cities much bigger than Auckland are managing to keep their house prices from becoming unrealistic in the way those in Auckland have. 

That's not to say there isn't concern in many of the more reasonably priced markets - mostly in the US - that property inflation has picked up in the past year or two. But mostly the increases are significantly lower than in many New Zealand centres and median prices are also much lower.

Columbus
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Columbus

Having enough homes available - supply, in other words - seems to be an important part of the answer. Maybe the available properties don't necessarily have to be single family homes and they don't even have to be for sale. For example, the Columbus metropolitan area in Ohio - far more economically vibrant than many Kiwis may realise - seems to have kept a lid on price pressures partly through a strong rise in the number of new apartments coming onto the rental market.

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Certainly some fast growing cities that avoided rapidly rising house prices did so while growing outward quickly. That's something many politicians and planners in this country, and in more expensive US cities, have fought against fervently. As Auckland house prices kept rising to startling levels, recent rhetoric has suggested more flexibility among some who previously demonised sprawl. But it's yet to be seen whether the words will turn into action on the ground.

Living beside the country club in Columbus.
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Living beside the country club in Columbus.

Among the criticisms of allowing a city to grow outward is that it will mean ever increasing commutes but it seems that isn't necessarily the case, at least in terms of average commuting times. Partly that's because - at least in much of the US - jobs tend to disperse through metropolitan areas as the cities expand.

Here is a look at five cities with essentially sound economies and growing populations - four in the US and one in Canada - where houses are far more affordable than in Auckland.

The affordability measure is based on the Demographia 2016 Housing Affordability Survey, which ranks metropolitan areas by something called the median multiple - the median house price as a ratio of median household income.

Atlanta
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Atlanta

US-based Demographia and its principal Wendell Cox - an opponent of forced urban densification, who considers car travel the most effective way to get around most parts of rich world cities - have their critics. But Cox seems to have worked hard to gather and make sense of mountains of data used in his calculations.

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Demographia 2016 put Auckland's median multiple at 9.7, Christchurch at 6.1, Wellington at 5.2, Sydney at 12.2, Melbourne at 9.7, and Gold Coast at 8.6. The report considers any place with a median multiple above 3.0 to have an unaffordable housing market. Only a small group of countries are covered by the survey -  the US, Japan, Canada, Ireland, UK, Singapore, Australia, New Zealand and Hong Kong. 

Columbus - median multiple 2.9: As well as being the capital of Ohio, Columbus is home to the main campus of Ohio State University, one of the largest universities in the US. Fifteen Fortune 1000 companies are headquartered in the metropolitan area, including 5 Fortune 500 companies.

Apartment living Atlanta style
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Apartment living Atlanta style

The metro area population is just over 2 million, up from 1.9m five years earlier. The unemployment rate is 3.8 per cent and jobs are up 1.9 per cent on a year earlier. Job numbers declined by 1.4 per cent a year from 2007 to 2010 as a result of the global financial crisis. According to the Columbus Board of Realtors, house sales in central Ohio rose 2.4 per cent in the year to May, with January to May sales the highest on record for the five month period. The number of houses and condominiums for sale was down 25.3 per cent from a year earlier. Prices were rising with the median price in May at US$177,900, up 5.3 per cent over the year.

Despite the rising prices, new home building in central Ohio is well below historic highs, Columbus Business First reported. Rising land prices and labour costs were part of the reason. Another factor was a preference among many people to rent rather than buy. As people married later, many singles were choosing upscale apartments downtown. Fortuitously, a glut of rental apartments was hitting the market, mostly in downtown Columbus and surrounding neighbourhoods, but also in the suburbs.

Atlanta - median multiple 3.1: One of four major US cities to have more than tripled in size between 1980 and 2010, according to a fascinating blog post by Issi Romem, chief economist at real estate site BuildZoom. Romem showed that US cities expanding in area at the fastest rate were the ones with the lowest increase in real home values. All four in the fastest growing group kept house price rises in check, while New York, San Francisco, Boston and Los Angeles, which became much more expensive during those three decades, expanded their footprint at a much slower rate. Interestingly, New York, Boston and Los Angeles did grow in area quite considerably but because they were so much bigger to start with the percentage change was much lower. Las Vegas, Austin and Raleigh were the other three cities to have tripled their size.

Houston
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Houston

Atlanta covered an area of 6550sq km in 2010, with 1600sq km of that being added in the first decade of the 21st century. In the 1990s and 2000s, it added far more area than any other US city. While not being uncritical of geographic expansion, Romem made the case that expansion was less expensive than densification. In any case, in more expensive cities as the population became more wealthy - because no one else could afford to live there - more barriers were placed in the way of densification. It's worth noting that a group of cities that didn't grow much in size also didn't grow much in value. Among them were Pittsburgh, Cleveland and Detroit.

The US Census Bureau estimated Atlanta's population grew at an annual rate of 1.7 per cent to reach 5.7m in 2015. The Atlanta Regional Commission projects annual average population growth of 1.5 per cent between 2015 and 2040, by which time the metro area will have more than 8m people. It expects employment to grow at 1.2 per cent a year, adding 1.04m jobs, taking the total to about 4m. Metro Atlanta had an unemployment rate of 4.6 per cent in May. The Atlanta Realtors Association said the median house price in May was US$250,000, up 4.2 per cent from a year earlier. Atlanta is a major transportation hub, with one of the world's busiest airports, and is home to such corporate headquarters as The Coca-Cola Company, Delta Air Lines, The Home Depot and UPS.

Houston - median multiple 3.5: The city that rode the US oil boom took something of a blow as oil prices plummeted in 2015. The metro area with a population of around 6.7m, had around 27,250 single-family new home starts in the year to the first quarter of 2016. That dropped it from first to second place among US metro areas behind the other big Texan city - Dallas Fort Worth, where building boomed. Metrostudy reported that builders were addressing Houston's affordability issues, with the largest number of new homes starts in the US$200,000 to US$299,000 price range.

Living near the massive Texas Medical Centre in Houston.
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Living near the massive Texas Medical Centre in Houston.

The fifth largest metropolitan area in the US, Houston has had annual population growth of 2.2 per cent for several years. The Greater Houston Partnership reported a marked slowdown in job growth to just 5100 in the year to May, way down from the 66,400 the year before, or the 98,500 jobs created in the 12 months ending May 2014. Until the fall in oil prices, many commentators in the US had lauded Houston as a place where people could achieve their aspirations. Among them was author and urban studies academic Joel Kotkin. An article he co-authored in mid-214 said the Houston model of development might be described as "opportunity urbanism". The city and its unincorporated areas had no formal zoning, so land use was flexible and could readily meet demand, the article said. Getting building permits was simple and quick, with no arbitrary approval boards making development an interminable process. 

Ottawa-Gatineau - median multiple 3.7: The capital of Canada had the second lowest median multiple in the Demographia report among non-US cities with populations of more than 1 million. The lowest large non-US city is Osaka-Kobe-Kyoto in Japan with a median multiple of 3.4. Ottawa-Gatineau is well below most popular big Canadian cities, with Vancouver on 9.6 and Toronto on 6.0. Many smaller Canadian cities are under 4.0 and some are under 3.0. Ottawa-Gatineau's population of around 1.3 million has been growing and is expected to keep doing so, although more slowly. 

As the national capital, it took a hit from federal government budget cuts between 2012 and 2015. The Conference Board of Canada estimated 18,000 public service jobs were eliminated between 2013 and 2015. Despite that, employment was 6 per cent above 2007 levels in 2015. From 2012-2015, real gross domestic product in the region grew at an average annual rate of only 0.7 per cent, but with a new government talking about running stimulus deficits the outlook is more promising. Also helping are several major construction projects, including a C$2.1 billion (NZ$2.22b) light rail project.

Ottawa
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Ottawa

Latest data shows house prices up just 1.4 per cent in Ottawa-Gatineau during the past year, compared to 10 per cent for all of Canada and a whopping 23 per cent in Vancouver.

According to the Canada Mortgage and Housing Corporation, the housing market in Ottawa - the largest part of Ottawa-
Gatineau - is in balance, but demand for condominiums is soft. The problem is a large number of condominiums built between 2013 and 2015 only being slowly absorbed by the market. Sales and prices of existing condominiums declined from 2012 to 2014, before edging up about 1 per cent in 2015. 

Raleigh - median multiple 3.7: With a metropolitan area population of 1.3m, growing at 2.5 per cent a year, Raleigh is part of North Carolina's Research Triangle, one of the largest and most successful research hubs in the US. It is a major centre for high-tech and biotech research, and is home to North Carolina State University.  The unemployment rate was 4.1 per cent in May.

Raleigh
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Raleigh

According to the US Department of Housing and Urban Development, the average sales price for existing homes in the Raleigh-Cary metropolitan area grew 8 per cent during 2015 to US$246,200. During the 2015 fourth quarter 1925 single-family homes were permitted, up 15 per cent from a year earlier and higher than in any fourth quarter since 2007. For the same period 550 multifamily units were permitted, only around a quarter of the average in recent years. The rental market was slightly soft with a vacancy rate of 6.3 per cent.

Raleigh was one of the four metropolitan areas calculated by Romem to have more than tripled in size between 1980 and 2010. For the purpose of his article, Romem joins Raleigh with the nearby town of Durham, and a diagram shows them growing from small nubs in 1940 until they appear to touch sometime in the 1990s. Romem puts the population of the combined metro area at 1.9m in 2010.

 

 

 - Stuff

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