Tony Alexander’s Economic Report – 29 April 2015

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Tony Alexander, BNZ economist.

MIL Analysis+Reportage – Source: Tony Alexander – Bank of New Zealand Economist – Economic Analysis:

Headline: Sporadic 6 – 29 April 2015

Tony Alexander, BNZ economist.
Tony Alexander, BNZ economist.

JUST HOW BIG is the housing shortage in Auckland? Common estimates in the media range from near 7,000 to 30,000. But what if we calculated how many houses Auckland would need to give the same 2.58 persons per dwelling occupancy rate as the rest of the country? The number is big.

Auckland Housing Shortage Is How Big? Sporadic 6 All but a few people now accept that there is a housing shortage in Auckland. How big is that shortage? There have been a number of estimates made and the ones we could find from a quick trawl through the publications are these. The Ministry of Business Innovation and Employment in their post-election briefing to the Minister Dr Smith last year estimated the shortage to be 18,000 dwellings. Page 7. http://www.mbie.govt.nz/about-us/publications/BIMs/2014-bims/building-housing.pdf

The Salvation Army in their 2015 State of the Nation report estimated the shortage to be between 12,000 and 13,000. Page 75. http://www.salvationarmy.org.nz/sites/default/files/uploads/20150211SOTN2015%20update%20WEB.pdf

The Auckland Council state “There is no definitive estimate of the housing shortage in Auckland, but it’s likely to be between 1 and 2 years worth of supply at the current levels of consent activity.” That adds up to between 7,500 and 15,000. The Council were previously frequently cited as estimating the shortage to be between 20,000 and 30,000 houses, but this was cut when the 2013 Census revealed less population growth in Auckland than estimated between 2006 and 2013. http://www.aucklandcouncil.govt.nz/EN/AboutCouncil/businessandeconomy/Documents/housingmattersde cember2013.pdf

The work which we highlighted in February 2011 when trying to raise awareness of the property shortage was the New Zealand Housing Report 2009/10 put out by the Department of Building and Housing. They estimated a shortage of dwellings in Auckland at the end of 2011 of 27,112 then an increase in that shortage by the end of the 2011-16 period of 22,179, then another 22,068 from 2016 -21 and so on out to 2031. Start reading at page 63. http://www.dbh.govt.nz/UserFiles/File/Publications/Sector/pdf/2009-2010-nz-housing-report.pdf

But what is it one defines exactly by a shortage? Sufficient to keep people out of garages, tents, caravans and sleepouts?

Sufficient to have one family per house and not two or three? Sufficient to have one bedroom per child? Sufficient to give a level of price which allows young people to buy at the same age as in some comparable location of reference? Take your pick.

Usually the calculation involves picking a starting point in time, assuming no or minimal change in the average number of people per dwelling, then comparing subsequent construction with recorded population growth while allowing for some houses being pulled down, and assuming no change in the normal proportion of houses sitting unoccupied. The exercise is not straightforward.

What if it was something as simple as this.

To deliver the same number of people per household on average as somewhere else? In that case we can note from the 2013 census that average house occupancy outside of Auckland was 2.58 people. The Auckland occupancy rate was 3. How many extra houses would you need to get Auckland’s ratio down to the rest of the country? The answer is 76,000.

No-one uses a figure near this, but hopefully what we have illustrated is that a simple restating of what shortage means can lead to an estimate well away from other numbers. And hopefully we have illustrated too that unless one were to see a massive building surge adding 76,000 dwellings on top of normal supply, it is completely unreasonable to expect any great convergence of Auckland and rest of NZ dwelling prices in the future.

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Selwyn Manning, BCS (Hons.) MCS (Hons.) is an investigative political journalist with 23 years media experience. He specializes in reportage and analysis of socioeconomics, politics, foreign affairs, and security/intelligence issues. Selwyn has extensive experience as a commentator and has provided live political analysis to a wide range of television and radio organizations broadcasting in New Zealand, Australia and globally including the BBC (Five Live, London) and BBC (World Service). He is currently a correspondent to Australia's FiveAA radio, and is a regular live-on-air panelist on Radio New Zealand's The Panel with broadcaster Jim Mora.

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