Rising house prices blamed on lack of land - report

An Australian report that lays the blame for rising house prices on a lack of land for development, rather than a "price bubble", could have reached the same conclusions here, a free-market think tank says.

The report, by the Sydney-based Centre for Independent Studies, said Australian house prices had risen at an annual rate 3 per cent higher than inflation since the 1970s.

Author Stephen Kirchner said foreign and domestic property investors had been made a scapegoat when the real problem was zoning and planning rules. They restricted the availability of building land and prevented the more intensive development of existing residential areas.

The supply squeeze in Australia was compounded by taxes such as stamp duty and capital gains tax, he said.

Kirchner's report found the supply of new land for housing had declined by an average of 21 per cent over the last decade in Australia's five largest cities. That had pushed the price of new housing land up by 148 per cent to an average of A$504 (NZ$537) a square metre, he said.

There was no reason to think rising house prices were in an unfounded "bubble" when they were "well explained by economic fundamentals", he said.

NZ Institute research fellow Jason Krupp said the same factors were at play in the New Zealand housing market.

"Overplanning" was a feature of all English-speaking Commonwealth countries, he said.

"The more rules you have in place to restrict the supply of land and building the more that will feed back into house prices and cost of living expenses."

The think tank says its goals are neither Left-wing nor Right-wing but it "prefers Adam Smith's invisible hand to government's visible fist", referring to the 18th century free-market economist.

Krupp said the institute favoured allowing developers to build "out and up" by opening up new land for development and loosening building-height restrictions.

But local authorities' funding mechanisms made them reluctant to pay for required new infrastructure such as schools, roads and parks, he said.

"There is a reluctance among councils in growing regions to continue expanding their infrastructure networks," Krupp said.

"In Auckland everybody makes a big issue about the metropolitan-urban limit restricting the outward spread of the city, but what no-one mentions is there are also binding height restrictions on large parts of Auckland, so not only can't you grow 'out' but you also can't go 'up'."

While the cost of materials and inefficiencies in the construction sector might also be factors in housing affordability, 60 per cent of the cost of new housing was tied to the price of land, Krupp said.

The world's least-affordable cities were those that had chosen to restrict their city limits, he said.

"In Houston, Texas, which has said you can spread out as much as you want, you can buy what we would consider a mansion over here for $400,000 and what you can buy for $200,000 we would consider a very nice upper-middle class home."

However, Krupp said that had come with the tradeoff of a "huge big sprawled city that didn't have a town centre".

Fairfax Media