A report to Auckland Council.
The Auckland housing market has become a key economic, social and political issue. At the heart of the matter is the widespread view that the market is over-valued, and this is largely due to a failure of housing supply to meet demand pressures.
In this report we provide an alternative forward-looking lens to view the debate that is based on the modelling framework used in the NZIQ publication. If the prices people are willing to pay for houses factor in the potential for intensification then the “high” current prices are not necessarily a sign of market failure – they may reflect higher potential rental earnings streams and capital values. And if the Auckland Unitary Plan has enabled a change to higher levels of intensification, or provides more certainty about which areas can be intensified, then we should expect to see prices rise in anticipation.
We test this by developing housing valuation models across different regions of Auckland that allow for differing levels of intensification. Our modelling suggests that intensification roughly halves the over-valuation estimated for Auckland, with the largest impacts in the North Shore and central Auckland where the potential for intensification is highest. We also find that under current construction and other cost structures terraced housing and high rise apartments offer better prospects for intensification than medium-rise developments.
We still find that even with intensification Auckland’s housing market is significantly over-valued. But the high prices in part reflect a signal to intensify land usage, and enabling this can over time make a significant contribution towards improving affordability.