- Higher housing construction would have given a more moderate housing price development in the Oslo, says Professor Albert Saiz (MiT) who attends the Real Estate Norway conference 2017.
Lundesgaard: You have done research on the relation between public regulations and house prices in the US. How do public regulations affect house prices?
Saiz: Yes. We conducted a survey among city and town officials in Zoning and Planning boards across the USA, with more than 2,300 jurisdictions responding, and covering all large metropolitan areas of the United States.
We asked public officials about the details of their public planning, zoning, and project approval process, with special emphasis on anti-development policies (e.g. large lots sizes that make it impossible to build multifamily housing, construction moratoriums due to lack of investment in infrastructure, long delays in project approvals).
The combination of strong State (regional) legislative power and municipal home rule means that land use regulations and practices vary widely within the United States. We found that, contrary to the hypothesis that anti-development regulations are targeted to specific problems, some jurisdictions tended to make real estate development difficult in most dimensions. These jurisdictions and metropolitan areas have become more expensive in terms of constructions cost, land costs, and housing prices.
Lundesgaard: In Oslo house prices increased with over 20 percent in 2016. Do you think it is likely that the increase in prices would have been weaker if the completion of new residential buildings had been on a higher level in the Oslo-area?
Saiz: Yes, most definitely. A more long-term flexible and accommodating supply can better respond to increases in demand. This is especially true in situations where we see sustained and robust growth in prices over 2-3 years or more.
Often times, the fear exists that overbuilding during hot markets will be exaggerated in areas where it is very easy to build (as in Las Vegas, Phoenix, and Florida in the United States during the past boom-bust cycle). However, there are much more effective ways to curtail housing demand if one thinks that speculative or irrational dynamics are driving the demand side.
Limiting the supply side will not have the desired impact on a growing demand: on the contrary it will exacerbate the effects of demand growth on housing prices and affordability.
Lundesgaard: It has been a lot debate on housing policy in Norway in 2016. There is consensus that the regulations for housing and real estate in Norway are too complex. If you should give advice to Norwegian policy-makers concerning simplifications of the housing regulations to create a more well-functioning supply-side in the Norwegian housing market, what advice would you give?
– It is important to focus on quality and not quantity. Quantitative restrictions (e.g. limits on new development) should be eliminated or be as loose as possible. Impact fees should be used to finance any infrastructure or municipal costs associated with development, rather than opposing development based on the existence of such costs. Developers prefer transparent and visible levies than unpredictable costs and delays.
Municipal Master Plans have to provide a clear, generous, and adjustable temporal path for urban land release and prospective reclassification of rural land before its need becomes dire. Leapfrogging can be better avoided through modulated impact fees. In rezoning situations, transparent monetary payments by land owners to municipal governments are preferred, in lieu of other ways of value capture or other takings during the land readjustment processes. While adhering to the city Master plan is important, individual parcel owners should be allowed flexibility in its implementation. Larger private projects should also be encouraged, where the master planning is conducted by a consortium of developers in cooperation with the local government. For large projects, a public-private clear master plan and flexibility in its phasing allows developers to have predictability and the ability to react to market realities. Speed is of the essence: many regulations are good, but faster implementation makes them even better.
Local participation in planning is good and necessary, but mechanisms should be in place to avoid NIMBY attitudes to dominate public hearings and the political process.
In unionized environments, there should be a focus on “German” style agreements where quality, speed, and productivity are taken into consideration together with (necessary and just) improvements in working conditions and salaries.
See Professor Albert Saiz Key Note at Real Estate Norway Conferance 2017 here: