Auckland city business and economy report 2007

Executive summary | Relative economic performance | Economic structure | Affordable housing | Population | Labour market | Retail trade and tourism | Building and property | Inflation, interest rates and the exchange rate | Potential economic impacts of climate change | Economic outlook

Affordable housing

Auckland city faces an increasingly critical issue as affordable housing becomes unattainable for a cross section of the community. The third Annual Demographia Affordable Housing Survey ranked Auckland city 21 out of 159 cities for least affordable housing.

This issue is not limited to Auckland city or New Zealand. Many successful global cities have also experienced pressure on the housing market as people and investors are drawn to live, work and invest in progressive places. Internationally, other OECD countries are also grappling with the economic and social consequences of this issue.

What is affordable housing?

Affordable housing is not restricted to home ownership. Housing costs become a problem when a substantial proportion of household income is spent on rent or servicing mortgages.

There are many definitions of affordable housing. Although caution should be exercised when relating definitions of affordability to income brackets, the Centre for Housing Research, Aotearoa New Zealand uses the following benchmark:

• "that housing becomes a concern when the housing costs of a household in the lower 40 per cent of the household income distribution exceed more than 30 per cent of their gross income".

Thinking about housing affordability in this way means that as the price of houses and cost of renting has increased faster than household incomes over the past 20 years, housing has become less affordable. This has led to a corresponding decline in home ownership.

By 2016, Auckland is expected to have one of the lowest home ownership rates in the country. The decline in ownership is primarily in younger, lower income households, but a recent study shows that the affordability issue is beginning to creep into households with more modest incomes.³

Economic implications

The lack of affordable housing is often viewed predominantly as a social issue, but has serious implications for the city's economy. The greatest implication is the restriction it will place on access to an adaptable workforce, and the potential to lose skilled employees to other cities, regions and countries.

Workers in essential service industries, such as nurses, teachers and emergency services, those that are in the medium to low income brackets, and first time home buyers may shift to more affordable areas.

Innovation may suffer, as enthusiastic and creative entrants to the workforce seek employment in other regions and countries due to the unsustainable nature of the housing market. In a globally competitive environment, where skilled workers are highly sought after and can move about with comparative ease, the relative cost of housing may determine whether talented migrants choose to base themselves in Auckland or to another global city.

Both local and central government have a role to play in managing the issue of affordable housing. From an economic perspective, policy levers can affect both the supply and demand for housing.

Over the long-term, central government has a strong role to play in encouraging a cultural shift away from over-reliance on housing investments as a proxy for long-term savings, to a more diversified suite of savings and investments.

This would go some way to dampening long-term demand for affordable housing, while also providing long-term financial security for individuals. To this end, the government is taking steps to address the problem through initiatives such as the KiwiSaver scheme.

At a local level, councils are in a better position to influence supply side solutions through district planning and land use policies and other investments in community projects. Auckland City Council has already implemented a variety of initiatives that support this approach.

Initiatives include:

• exploring planning and regulatory options, such as inclusionary zoning for affordable housing⁴
• contributing to the implementation of the Regional Growth Strategy (intensification of housing around key transport corridors and growth nodes in accordance with this strategy will increase the supply of housing within the city boundaries)
• improving the accessibility of Auckland city to individuals who choose to work in the city, but live in other parts of the region.

Published June 2007