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.”