BNZ’s chief economist has been dubbed a “show-pony” following his suggestion a whopping 76,000 houses need to be built in Auckland to curb the housing crisis.
Tony Alexander’s headline-grabbing estimate surpasses that of the Government four-fold, the Salvation Army six-fold, the Auckland Council seven-fold, and the NZ Institute of Economic Research (NZIER) nearly 10-fold.
Yet NZIER principal economist, Shamubeel Eaqub, says Alexander’s way of pin-pointing the enormity of the housing supply shortage just doesn’t make sense.
So how has Alexander done his maths?
He’s focused on how many more houses Auckland needs for the average number of people living in each house to match the average outside of Auckland.
The average number of people living in an Auckland home is 3, while the average across the rest of the country is 2.58, according to the 2013 Census.
“What we have illustrated is that a simple restating of what shortage means can lead to an estimate well away from other numbers,” says Alexander.
“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.”
Eaqub believes Auckland only needs another 8000 houses.
“If we really had a shortage of 76,000 homes, we would see lots of people who are homeless, and we would see significant crowding right across Auckland, and we don’t see that,” he says.
Eaqub says Alexander hasn’t considered the fact that Census figures show Auckland’s growth is coming from a growth in families, rather than through growth in small units of households.
He says Auckland’s population is younger, and more families will naturally push up the average number of people per household.
Furthermore, Census figures show the number of “complex” households, or households not only comprising of mum, dad, and kids; but mum, dad, kids, grandma and boarder, is increasing. This may also be spurred by immigrants, for whom it’s in their cultures to live with their extended families.
Although recognising there are overcrowded homes in Auckland, he says some people are choosing to live under the same roof as several others.
“We have enough bedrooms for everyone in Auckland. The problem is there are a number of people with excess bedrooms in the rich areas, and there aren’t enough bedrooms in the poor areas,” he says.
“It’s very much a distribution issue.”
In other words, Eaqub believes the supply of housing in Auckland shouldn’t increase at the same rate as population growth.
He says looking at vacancy rates and crowding are better ways of measuring a housing shortage, or the impact created by housing unaffordability.
Coming back to Alexander’s theory, he points out the average number of people living in an Auckland home has increased from 2.9 in 2001.
The average in Wellington has remained at 2.6 since 2001, the average in Canterbury has remained at 2.5, and the average in the Waikato has dropped from 2.7 to 2.6.
Alexander says it’s a question of how you define “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.”
19 Comments
Mr Alexander has been quiet recently, since he ended his regular 'Economic Update' emails and replaced them with the much less-frequent 'Observer'.
The media haven't had much to quote him on recently.
As I suspected, it's all been too quiet for him, in fact. Now he has introduced 'Sporadic'. So he can get comments out more often, and get the public profile up again.
No use of the royal "we" in his recent 'Sporadics' though.
If readers ignore the pompous approach though, Tony often has something interesting to say.
So who is right ?
Here's a totally unscientific non-empirical assumption made by me to get a sense check
We know the Housing New Zealand waiting list is about 4000 housing units
Add
We know we get 55,000 new migrants annually at 3 per household , that's 20,000 housing units (more or less)
Add
People from Chch still moving here or intending to , say 2,000 housing units
Add
Kiwis returning or planning to return from Australia with families , say 5,000 units in the next 2 years as that economy slows
Add
Young people like my offspring who are entering the market , say 2,000 housing units
Total 33,000 housing units at the very least
That time-honoured problem - never goes away - keep them in the dark and the prognosticators will guess away
There is no data, or if it exists, it's not available, we don't have the data
What we do know is that
100,000 PLT's arrive in-country a year, we don't know where they are going to
45,000 PLT's depart every year, we are not told where they are leaving from
That's your net 55,000
Without that level of information they are simply guessing
Wow, so in spite of all the bleating, the housing situation in Auckland has barely changed since 2001. Does this knock the 'housing shortage' meme out for the count? Probably not. Given all the ranting and raving about immigration, and lack of building etc. I would have thought the number of people per unit had risen through the roof. Not even. The housing situation is about the same as it was when house prices were affordable.
He is highlighted that people in their 30's tend to have kids - thus a higher number of people per household - relative to say people in their 50's where their children have moved out.
Shifts it demographics tend to impact the overall mix in people per household. Therefore, what is being argued, that urban areas tend to be more densely populated as they naturally attracted younger immigrant households, which doesn't to the same extent extend itself into provincial areas.
It makes sense.
Here's an interesting piece from The Irish Times from 2006 : http://www.irishtimes.com/business/how-the-housing-corner-stones-of-our…
By 2007, no shortage of housing was being mentioned..
Gosh it's almost as if Tony takes his salary from an entity that has a critical, immediate and vested interest in wanting people to be confident that prices will only go up, that they better buy quick, and one that makes a huge economic gain in lending money to them. Funny how empirical evidence shows that bank economists are time and time again overly bullish on all things that can benefit their employers.
Imagine a swimming pool with a tiny leak, and a hose refilling the pool at a rate 5x as fast as the leak.
Auckland spruiker thinking would only look at incoming water at a rate 5x the ability to absorb it (the leak). They forget how big the existing body of water in the pool is and so don't realise that it could take decades of this before any real change in the level of the water (over crowding) is seen.
Exactly Mr Equab's figure represents what is needed to maintain the status quo increasing pressure.
What is required to keep over dense population, high price _increases_, and maintain the "anything will rent out in a week" unusual status.
Neither figure allows for loss or temporary effects like the roadway upgrades.
It always has only ever been sentiment fear and greed spurred by vested interests and the sight of anyone asian at an open home or auction that has been causing Auckland prices to rise.
PLEASE SOMEBODY CONDUCT THIS SURVEY:
take 100 random people (someone better at stats than me could design this better selecting appropriate sample sizes) in auck, another 100 in welly, another in gisborne and ask if they are planning on buying property in next 12 months.
I bet u auck has at least 2x the % of welly and maybe 4x gisborne.
The supply-demand that matters when price setting is NUMBER OF BUYERS VS HOUSES FOR SALE. This is where auck is different in a material way. And it is all based on nothing more than sentiment, able to vanish overnight.
Has he factored in the large percentage of homes owned by foreigners that are left vacant as they cant be bothered with the hassle of tenants?
Auckland will soon look like Vancouver - read http://ottawacitizen.com/news/national/glavin-canadas-unhappy-affair-wi…
China’s massive Operation Skynet fraud squad is now rummaging through Vancouver’s real estate industry. British Columbia’s police agencies won’t say whether they’re cooperating, but even if they were, it wouldn’t be easy work. Over its final decade or so, the Immigrant Investor Program drew more than 30,000 Chinese millionaires to British Columbia.
Vacancy rates in Vancouver’s posh new condo districts are perhaps 30 per cent. The city doesn’t keep track, but University of British Columbia geography professor David Ley has been tracing the trend relationship between the rise in Vancouver residential property prices and the influx of immigrant investors over the years. The lines run in direct lockstep.
Last year, Macdonald Realty opened an office in Shanghai to directly market to Chinese buyers after finding that a third of its Vancouver house sales for the year had gone to buyers with “mainland Chinese names.” Ian Young reckons that, in dollar terms, near half of Vancouver’s detached housing market in 2014 probably went to Mainland Chinese buyers.
well in a condo you can still claim the expenses of untenanted properties to offset the income, as long as the cashflow isn't negative the empty places still hold value. bugger for cashflow but if you're playing a long game that's not really an issue (think of it like a loss leader campaign for developing market share)
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