Don’t Blame Foreigners for Auckland House Prices Increasing

Gareth MorganEconomics, PropertyLeave a Comment

Those ascribing the boom in Auckland house prices increasing to immigrants from Kolkata rather than Kaiapoi, have sunk into the gutter as they grasp for culprits to blame.

Winston and his fellow xenophobes will be pleased but the serious question is how an important a factor is the population growth of Auckland in driving of house prices there?

For sure the population growth in our biggest city is faster than the national average and has been for a long time.

And as population numbers grow then the demand for accommodation lifts. The normal response would then be a rise in the supply of housing. Of late there have been all manner of excuses as to why the supply response hasn’t been sufficient to stave off yet another boom in house prices.

The government and its advisers like to point the finger at land constraints but such calls are resonate more with the urban sprawl from a 1950’s ¼ acre section time warp  – thinking that the only way to expand a city is outwards.

We have the technology and Auckland has an infinite supply of air space so one might expect the bulk of housing demand to be met by an increase in the supply of apartments.

Certainly these are cheaper to build than forever expanding the city laterally and incurring the myriad of direct transport, power and water reticulation costs such sprawl entails, let alone the costs of commuting time and congestion that the new occupants will incur.

That the cost of expanding the city laterally is skyrocketing is a very strong economic signal that needs to be heeded.

And it can be in a number of ways: Higher density housing has already been mentioned but another is greater incentive it provides for people and firms to move out of Auckland in order to escape all the dead hours of travelling to and from work.

How can this be bad in terms of quality of life? Further, if people can’t afford to live in Auckland it means firms will look to establish elsewhere and offer their employees the chance of cheaper (in many cases markedly cheaper) living costs.

It might even mean employers can pay people less. Now that would be a flexible labour market.

In short it’s myopic to think that the agglomeration that Auckland has been experiencing for years is the only route for the people of that city to raise their well-being.

If higher salaries are soaked up in higher costs of living and hours of dead time on the daily commute, then the economies of agglomeration are false.

Yes firms like to locate as closely as possible to the largest market but there are limits – US manufacturers moved to China for example because the cost gains were just so large.

The “correct size” of Auckland is unknown but for sure there shouldn’t be special decrees being issued by government in order for Auckland to keep growing the way it used to, just because the cost of that growth formula has become prohibitive.

And as for the xenophobes who like to blame immigrant Indians and Chinese for Auckland house prices increasing – the evidence is that migration from outside New Zealand is less than a quarter of Auckland’s population growth.

Further, the latest data suggests interregional flows out of Auckland have reversed to a net inflow.

If putting up the shutters is your prescription for Auckland’s future why not advocate banning people from Christchurch coming north?

Better to listen to the economic signals and let the market respond.

Don’t Blame Foreigners for Auckland House Prices Increasing was last modified: December 15th, 2015 by Gareth Morgan
About the Author

Gareth Morgan

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Gareth Morgan is a New Zealand economist and commentator on public policy who in previous lives has been in business as an economic consultant, funds manager, and professional company director. He is also a motorcycle adventurer and philanthropist. Gareth and his wife Joanne have a charitable foundation, the Morgan Foundation, which has three main stands of philanthropic endeavour – public interest research, conservation and social investment.

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