Do we have a housing crisis in New Zealand that is in need of a ‘policy fix’? It depends on where you are and who you are. Imagine, for instance, that you bought a house in Auckland in March 2007 and wanted to sell in March 2017, a decade later. Provided you chose to leave Auckland, you would have done very well financially. Over the decade to March 2017 the typical Auckland house doubled in value: the REINZ house price index (HPI) for the Auckland region showed an increase of 102%. By contrast, the price of the typical house in the Manawatu–Wanganui region increased by only 17%, which was slower than the rate of consumer price inflation of 21% over the same period. Figure 1 shows a time series for house prices (indexed to 100 in January 1992) for Auckland, Manawatu–Wanganui, New Zealand and New Zealand ex-Auckland.
Given these contrasting experiences, housing policies must be flexible enough to cater for differing circumstances in different regions. Section 2 of this article provides a framework to help understand what determines house prices and other housing outcomes; section 3 discusses policy issues in relation to this framework. Section 4 concentrates on a national-level housing issue concerning housing quality. Even in regions where housing stress – as reflected in rents and house prices – is absent, quality issues still abound and are an important area to be addressed.
The capital gain in Manawatu– Wanganui was less than the after-tax compound return (39%) on a bank deposit over the same period.1 Nationwide average hourly earnings rose by 32% during the decade. Quite clearly, housing would have been a poor investment in Manawatu–Wanganui over the past decade. More generally, an analysis of housing affordability conducted by the Ministry of Business, Innovation and Employment shows that national-level housing affordability for both first home buyers and renters in June 2015 was broadly on a par with affordability levels since 2005 (Ministry of Business, Innovation and Employment, 2017). However, given the rise in the HPI for New Zealand since 2015, first home-buyer affordability is likely to have deteriorated nationally since then. These contrasting experiences tell us two things: (1) the Auckland housing market is facing severe pressures, with house price rises greatly exceeding those in incomes and in prices of other goods and services; and (2) not all regions are suffering severe housing stress. In addition, these experiences affected different people in different ways. People wanting to purchase their first home were likely to have been priced out of the Auckland market, while, in real terms, houses in Manawatu–Wanganui became more affordable.