Tuesday 13 August 2013

In which we welcome Shamubeel Eaqub and revisit an old chestnut

The excellent Shamubeel Eaqub is now blogging as part of the team over at TheVisible Hand of Economics. Shamubeel has been a regular commenter at TVHE and is often quoted in the media; it is great to see him now blogging. Eric linked to Shamubeel’s first post yesterday in his Monday round-up.

Shamubeel was commenting on this story about National’s latest housing policy, in which “the number of first home buyers eligible for KiwiSaver deposit subsidies will double”, but buyers “will have to save a bigger deposit before they qualify for Government assistance”. Again, I find myself asking, What is it about housing policy that leads to people forgetting basic economic principles? The two quotes that jumped out at me were the following:
"Key said the requirement for a bigger deposit was necessary to avoid throwing fuel on an already overheated housing market in Auckland."
And David Shearer’s
"I am also determined to reduce speculation-driven demand in our housing market. Labour will restrict sales to overseas speculators and clamp down on speculators here through a capital gains tax on houses bought over and above their own home."
So Shearer  wants to make housing more affordable partly through taxing it and partly through a policy that restricts the nationality of who can own a rental property but won’t affect the number of people wanting to live in houses or the number of houses available for living. I have discussed these ideas before (here and here) so won't belabour the point. But now Key wants to join the party by promising to make housing more affordable by simultaneously shifting the demand curve to the right and then shifting it back to the left to prevent price increases! For sheer internal inconsistency, you have to say that National’s policy takes the cake here.

To be fair to both parties, both are also offering solutions to act on the supply side as well. And both parties think the other’s policy is crazy, so they have that right as well. But it wouldn't it be great if we could get beyond these silly games and have the political discourse focus on real policies?


  1. "To be fair to both parties, both are also offering solutions to act on
    the supply side as well."

    What are Labour's proposed supply side solutions? As far as I've read, they're not increasing the number of
    builders or architects, they're not increasing the supply of materials,
    and they're not increasing the supply of land. They've promised to build 100,000 extra homes, but that's just an increase in the (public) demand for housing construction. It's not clear to me that that'll do anything but crowd out private demand or bid up the price for housing construction.

  2. A gold star to James. The mechanism by which Labour's plan works, if it does, is by forcing councils to zone for that additional housing. Which will crowd out other housing, but could still be a net increase. Just less than they're promising.

  3. So they've actually said they'll hit councils up about zoning, despite simultaneously criticizing National's proposals to make councils adjust their zoning? Gee, it sure is easy to do economics when you don't have to worry about consistency.

  4. No, they haven't said that. That's just the only way that it can work.

  5. Fair point James. I didn't want to belabour the point so I didn't repeat what I said in my original post on Labour's policy: "It is easier to make sense of other parts of Labour’s housing policy. Building 100,000 houses would obviously reduce prices if it added to rather than displaced construction that would otherwise occur, although the policy is silent on how it would find the land on which to build the houses given council zoning restrictions." I have much more confidence in National's supply-side policy of regulatory reform. But at least with their supply-side policy, Labour is focusing on the right curve.

  6. Feed up with MoanersTue Aug 13, 07:22:00 pm GMT+12

    There is no housing crisis other than in the minds of politicans and newsmedia who, afterall, wnat your attention. If there was a crisis we would be reading about people living 29 to a garge in Mangare like we used to and rents would be rocketing up, which they are not.

    Problem is that Clark encouraged the training of too many drama queens.So instead of enginners and scientists we have drama, drama and more drama.