New Zealand is far from the only country in the world facing a housing affordability crisis, according to the latest international report. 

According to the International Monetary Fund’s Global Housing Watch, surging property prices are a global epidemic, with GDP-weighted house prices having risen steadily for seven quarters in a row.

According to the IMF, house prices in relation to income and rents, ‘remain well above the historical averages for a majority of countries’. Worldwide, house prices are up 3.1 percent on a year ago. The Economist shows that between 2007 and 2014, the percentage change (in real terms) in inflation-adjusted house prices have increased by 4.4 percent.

But we should not draw solace from the fact that housing affordability is a global problem – far from it.

New Zealand’s House Price-to-Income Ratio at 29.7 (deviation from historical average, in per cent), is one of the highest (read: worst) in the developed world, surpassed only by Australia, Canada and Belgium with ratios of 31.7, 33.2 and 49.5 respectively. This indicates that house prices are severely out of reach of household incomes. Furthermore, the national House Price-to-Rent ratio currently sits at 80, the second highest after Canada with 87, illustrating that house prices are also misaligned with rents.

In order to reduce the risk of another housing crash, immediate action is necessary.

One of the most effective methods for cooling the housing market – and one that has long been advocated for by the New Zealand Initiative – is to liberalise the planning process.

The UK, which has one of the most restrictive land-use planning regimes in the world, is also facing a severe housing crisis. Senior Research Fellow at the Institute of Economic Affairs in the UK, Kristian Niemietz states ‘virtually every empirical study on the subject shows that such restrictions raise housing costs’.

As described in our third housing report, Free to Build, while the liberalisation of financial markets during the mid-1980s led to greater availability of credit, it also coincided with a progressive tightening of regulations in building and development.

The consequences of these supply-side constraints were also illustrated in our report on urban form, Up or Out? Auckland in particular is characterised by a severely unaffordable housing market as a result of urban growth constraints and inner-city height limits, not to mention caving to demands of NIMBY (‘Not In My Back Yard’) groups who represent the already well-housed.

The importance of supply-side reformation was reiterated yet again in our latest report, Empty Nests, Crowded Houses, to ensure that there is ample housing for our future population and to prevent further exacerbating housing affordability.

The solution is simple economics: supply and demand. Remove restrictive regulation, and open up supply so that housing prices reflect the property’s fundamentals rather than arbitrary zoning.