Housing is still deeply unaffordable. But New Zealand’s housing markets have been making international headlines for a much better reason.
Much of the anglosphere suffers from a longstanding housing shortage. When city plans don’t let cities grow up or out in response to changes in demand, prices move instead – along with overcrowding statistics.
It seems obvious enough to economists – much like water flowing downhill. But demonstrating it in the data isn’t always simple.
Auckland’s Unitary Plan provided an excellent natural experiment for economists wanting to check that water really does flow downhill, along with its speed of travel.
In the latest issue of Regional Science and Urban Economics, Auckland University’s Associate Professor Ryan Greenaway-McGrevy demonstrated the longer-run effects of Auckland’s Unitary Plan, which introduced new medium- and high-density residential zones.
He estimates that, because of the upzoning, Auckland will enjoy about 24% more residential floorspace than otherwise. Without that increase in supply, Auckland housing would have been between 15% and 27% more expensive.
It is only the latest in a series of studies demonstrating that when New Zealand’s cities allow people to build more houses, housing supply goes up and housing costs go down – at least compared to what otherwise would have happened.
And so, in December 2024, The Atlantic’s headline on New Zealand housing was just a bit different from the Guardian’s 2016 headline. The Atlantic’s interview with Kiwi housing expert Eleanor West was titled, “An American-Style Housing Crisis in New Zealand: What the United States can learn from the Pacific Nation.”
The lesson for America? Letting cities build up, and build out, matters. Local politics can make that hard, so mandates like the National Policy Statement on Urban Development can help.
But there is much work yet to be done here at home – despite recent declines in valuations.
When the Reserve Bank’s monetary policy was very loose in 2020 and 2021, house prices skyrocketed. Declines in house prices since then need to be seen in that context.
Investment website interest.co.nz tracks median house prices in our major cities against a measure of median household income: a measure of the ‘median multiple’.
At the end of 2024, the median New Zealand house cost 6.7 years of the median household’s earnings. At the Covid-peak in 2021, the median multiple was 9.4. Nationwide, we are only back to where we were in late 2019.
Wellington’s median multiple of 6 is the same as it was in 2018. Before 2016, the median Wellington home cost less than five years’ earnings for the median household.
Wellington’s new urban plan is far more enabling than its predecessor – helped in part by the evidence demonstrating the link between enabling more supply and delivering greater affordability. So the city should be on track to become more affordable.
Auckland’s multiple of 8 has brought the city back to where it was in 2016 – when Auckland was making international headlines for its unaffordable housing. In 2008, the median house in Auckland cost less than six years’ earnings for the median household – and housing had been far more affordable before 2008.
In Christchurch, the median home costs just over six years of the median household’s earnings – about where things were in December 2020. When I left Christchurch in 2014, the median multiple was 5. When I moved to Christchurch in 2003, the median multiple was 3.
New Zealand’s housing policies make international headlines because we have shown that allowing more housing can help turn the tide. Housing is more affordable than it otherwise would have been in the cities that have allowed more housing. Getting to actual affordability will require enabling more housing.
Wellington’s district plan is set. Other cities will be redoing theirs, potentially opting out of medium density rules that provide broad-based upzoning. Central government will require those opt-out cities to put up credible plans demonstrating that they’re enabling enough housing – but cities may well try to game those rules.
An additional tweak could help.
The National Policy Statement on Urban Development requires councils to set height limits no lower than six storeys near mass transit.
If land inside that zone’s boundary, or just inside a rural-urban boundary, is a lot more valuable than land just outside of it, that price difference demonstrates a lot of pent-up demand to live in the neighbourhood.
Councils could be required to approve private plan changes extending boundaries when price differences are large, so long as the development could cover its own infrastructure cost over time. It would provide additional flexibility.
It’s great that New Zealand now draws international headlines about its improved housing policies. It will be even better when housing affordability is restored.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was first published HERE
It seems obvious enough to economists – much like water flowing downhill. But demonstrating it in the data isn’t always simple.
Auckland’s Unitary Plan provided an excellent natural experiment for economists wanting to check that water really does flow downhill, along with its speed of travel.
In the latest issue of Regional Science and Urban Economics, Auckland University’s Associate Professor Ryan Greenaway-McGrevy demonstrated the longer-run effects of Auckland’s Unitary Plan, which introduced new medium- and high-density residential zones.
He estimates that, because of the upzoning, Auckland will enjoy about 24% more residential floorspace than otherwise. Without that increase in supply, Auckland housing would have been between 15% and 27% more expensive.
It is only the latest in a series of studies demonstrating that when New Zealand’s cities allow people to build more houses, housing supply goes up and housing costs go down – at least compared to what otherwise would have happened.
And so, in December 2024, The Atlantic’s headline on New Zealand housing was just a bit different from the Guardian’s 2016 headline. The Atlantic’s interview with Kiwi housing expert Eleanor West was titled, “An American-Style Housing Crisis in New Zealand: What the United States can learn from the Pacific Nation.”
The lesson for America? Letting cities build up, and build out, matters. Local politics can make that hard, so mandates like the National Policy Statement on Urban Development can help.
But there is much work yet to be done here at home – despite recent declines in valuations.
When the Reserve Bank’s monetary policy was very loose in 2020 and 2021, house prices skyrocketed. Declines in house prices since then need to be seen in that context.
Investment website interest.co.nz tracks median house prices in our major cities against a measure of median household income: a measure of the ‘median multiple’.
At the end of 2024, the median New Zealand house cost 6.7 years of the median household’s earnings. At the Covid-peak in 2021, the median multiple was 9.4. Nationwide, we are only back to where we were in late 2019.
Wellington’s median multiple of 6 is the same as it was in 2018. Before 2016, the median Wellington home cost less than five years’ earnings for the median household.
Wellington’s new urban plan is far more enabling than its predecessor – helped in part by the evidence demonstrating the link between enabling more supply and delivering greater affordability. So the city should be on track to become more affordable.
Auckland’s multiple of 8 has brought the city back to where it was in 2016 – when Auckland was making international headlines for its unaffordable housing. In 2008, the median house in Auckland cost less than six years’ earnings for the median household – and housing had been far more affordable before 2008.
In Christchurch, the median home costs just over six years of the median household’s earnings – about where things were in December 2020. When I left Christchurch in 2014, the median multiple was 5. When I moved to Christchurch in 2003, the median multiple was 3.
New Zealand’s housing policies make international headlines because we have shown that allowing more housing can help turn the tide. Housing is more affordable than it otherwise would have been in the cities that have allowed more housing. Getting to actual affordability will require enabling more housing.
Wellington’s district plan is set. Other cities will be redoing theirs, potentially opting out of medium density rules that provide broad-based upzoning. Central government will require those opt-out cities to put up credible plans demonstrating that they’re enabling enough housing – but cities may well try to game those rules.
An additional tweak could help.
The National Policy Statement on Urban Development requires councils to set height limits no lower than six storeys near mass transit.
If land inside that zone’s boundary, or just inside a rural-urban boundary, is a lot more valuable than land just outside of it, that price difference demonstrates a lot of pent-up demand to live in the neighbourhood.
Councils could be required to approve private plan changes extending boundaries when price differences are large, so long as the development could cover its own infrastructure cost over time. It would provide additional flexibility.
It’s great that New Zealand now draws international headlines about its improved housing policies. It will be even better when housing affordability is restored.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was first published HERE
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