Not many new homes being built are in the affordable range. Currently, three to four bedroom houses in Auckland are being delivered at an ‘entry level’ price point of $700,000 to $1,000,000 including GST. This is variously because of the size of the house (floor area), the size of the section the house is on (land value), or construction costs (apartments).
While the symptoms of the problem of high house prices are all too clear and distressing, the underlying causes of the problem are harder to detect.
It is not totally clear why house prices have got so high and so far ahead of incomes, apart from saying the obvious: that demand must exceed supply. If that is the case, then the solution must be to increase supply. Which is basically the thinking behind the NPS-UDC and its proposed replacement.
But if supply lags demand, then why does Statistics NZ estimate that in June 2018 there were 1.74 million households in New Zealand and 1.87 million private dwellings? Private dwellings include occupied and unoccupied dwellings as of the night of the most recent census, and therefore include holiday homes and second homes.
This is a ‘surplus’ of over 120,000 dwellings. In 1991, this surplus was 55,000 dwellings. So the surplus has grown, not shrunk.
Perhaps the houses are in the wrong area – too many in Gisborne and not enough in Auckland? Perhaps the number of households is lower than might otherwise be the case because too many people are having to live together in the same house because of high costs? Perhaps the 2018 estimates are too low or too high, given that the last solid reference point was the 2013 census? These are all possible explanations. What seems certain is that the percentage of owner occupied dwellings has dropped from 74% of all private dwellings in 1991 to an estimated 63% in 2018.
Granted, these are national figures. The Auckland Region appears to have a housing ‘shortfall’. But if there is a shortage of houses and home ownership is falling, then rents will be rising, right? Trends in rental prices are an important indicator of housing markets, as rents are a direct measure of demand for housing as a place to live, relative to supply.
Between 1998 and 2019, median rents in the Auckland Region have basically doubled. But rents have to be considered in the context of some sort of reference point. One reference point may be inflation. According to the NZ Reserve Banks inflation calculator, a general basket of goods and services that would have cost $1.00 in 1998, now cost $1.51 in 2019. So rents have grown faster than inflation, which sounds bad.
But if we measure rents against household incomes, then things are not so different.
The following graph shows median weekly household income in the Auckland Region between 1998 and 2019 as calculated by Stats NZ. Also shown are mean weekly rents for the Auckland Region, as calculated by MBIE. The income information is collected as part of the Household Labour Force Survey each year during the June quarter. Only households where at least one member is within the 18- to 64-year age range have been included in this data. This rental data comes from MBIE’s tenancy bond database, which records all new rental bonds that are lodged each month.
Maybe household income has had to rise to meet the higher rents - people have had to work longer hours, for example. Maybe as incomes rise, then rent as a proportion of income should drop.
And this is not to say that households on low to modest incomes do not face housing stress. MBIE evidence suggests that 31% of Auckland households who rent, spend more than 30% of their income on housing. But this percentage has dropped from 40% in 2003. See the graph below.
In a good article - Tackling the UK housing crisis: is supply the answer? - Ian Mulheirn points this disjuncture out. Housing has two different 'values': "demand for housing is an ambiguous concept because housing has two distinct attributes: houses (and the land they sit on) represent valuable assets, but they also provide a flow of services to the occupier on a day-to-day basis".
He suggests that the jump in house prices in the UK since 1996 was caused by the demand for housing assets vastly outpacing their supply, owing to the plummeting cost of capital. In short, housing supply has kept up with demand for housing as a day-to-day place to live, but not kept up with demand for housing as an asset. The number of houses being built will be related to demand for housing as a place to live. Hence trying to address high house prices by more supply is not going to work very well. This is true of places like London as it is for the national housing market.
His main point is that: The distribution of housing has become more unequal. Reversing this requires distributional policies and is not amenable to general market supply.
Back to the NPS. At a simple level the NPS-UDC was just asking for housing opportunities enabled in plans to match demand for housing. But isn't this something which planning has always done? Is the new NPS-UD really going to help solve the affordability problem? The NPS does help to push back against the NIMBYs, but the Statement seems a crude way to do this. And yes, plans constantly need updating to include new capacity.
Anything in the NPS-UD about getting a fairer distribution of the housing pie, rather than just hoping to make the pie bigger (while not increasing the size of any of the ingredients and cutting down the time the pie is in the oven?).
