A guest post by Michael Sloan:
Tags: housing affordability
Have we truly thought through policies proposed to resolve the Auckland property price issue? Property prices in Auckland are not just rising because there is a lack of housing or because of the RMA process. They are fundamentally rising because people are still moving to Auckland despite the higher, and increasing, costs of living. People moving fundamentally believe that the benefits of living in Auckland outweigh the higher costs associated with living there. That shouldn’t come as a surprise, because the agglomeration effects of living in increasingly large cities (the city effect) is extremely powerful and self-reinforcing.
As regional geographers, we know that difficulty arises because people are very willing to make short term sacrifices in exchange for anticipated long term benefits. My own research in New Zealand has shown that individuals also trade-off costs in some areas of their life for positive returns in areas of their life they deem more important.
In the case of Auckland these long term benefits are better employment and career outcomes than are possible outside of Auckland. This is also generally true of any town or city relative to a smaller settlement. Another ‘trade’ that individuals are making in exchange for accepting higher living costs is the positive social effect of moving to a larger city. There are benefits associated with being in closer proximity to more people, more social opportunities and services, and also benefits associated with other friends and family moving to Auckland. The more important employment, careers and social lives are to movers, the more they are willing to sacrifice their satisfaction in other areas of their lives, such as their cost of living.
One reason that wages haven’t increased as fast as housing costs have in Auckland is likely to be because the influx of workers is keeping local wage inflation low. This is likely exacerbated by the after-effects of the recession. Neoclassical economists and geographers talk about regional equilibrium, frequently in terms of wages and regional wage differentials. The increasing gap between wages and housing costs should discourage an increasing proportion of people considering moving to Auckland from doing so, thus acting as a brake on its population growth.
As a result, any policy, intervention or action (even private) that decreases housing costs in Auckland will have an impact on the city’s growth, beyond shaping where people chose to reside within the city. A decrease in the cost of living in Auckland will increase the relative attractiveness of the city and therefore increase the flow of people into its boundaries.
The increased migration may also suppress wage growth, further encouraging businesses into the area, at the expense of employment opportunities in other towns and cities. Low wage growth would increase the relative cost of housing. This may slow population growth, but less so if people continue to prioritise longer term career opportunities over higher short-term costs of living.
As a result, there is a strong probability that even a surge in home building will likely lead to little improvement in long-term house affordability. Quite clearly, and more importantly, manipulating one facet of policy can have a large effect on other urban systems and processes, often in unexpected ways.
Both doing something and not doing something has a human cost. It goes without saying that high house prices have a detrimental effect on people. It is most heavily borne on those who are our least economically equipped. Regional labour models usually fail to humanise the effect associated with ‘impediments to the free flow of labour between regions’. That is, that people have attachment to place, and generally experience poorer outcomes when they are forced into moving.
Further, there are those that suggest that the economic benefits associated with large cities is essential to our economic success, or even survival. That the increased productivity afforded by the city effect is essential to maintaining our standard of living. Others believe that the success of our cities are hollowing out our regions, and in the case of Auckland, hollowing out our smaller towns and cities.
The difficulty we have with talking about the effects of large complex systems is that all too often it is reduced to bite-sized discussions about specific aspects of the system in isolation, largely because it is difficult to talk about the system as a whole in the same detail. It is an issue this piece also faces in the interests of remaining relatively concise. A result is that solutions and criticisms are suggested in isolation of their impact on the system as a whole.
I now live outside of New Zealand, but I believe strongly that the regional processes leading to the rapid growth of Auckland and decline of rural areas should be an issue of national interest. New Zealand absolutely needs to place greater importance on the research of those studying the regional processes that lead to the very real issues associated with what we see as Auckland’s rapid population growth. By doing so we can have a better understanding of the real costs and benefits of implementing specific policies. It will require investing more into this critical area of research and building on the very high quality work already being undertaken by those in these fields. This investment, however, will be more than justified in both economic and social terms if it leads to better decision making.
Michael Sloan, PhD