The only way the Auckland Council’s target of halving the median house price to median household income multiple to five by 2030 will be achieved is if the price of new houses falls, says University of Auckland senior lecturer in economics Ryan Greenaway-McGrevy.
Greenaway-McGrevy, who has argued our politicians must declare a war on house prices in Auckland and do what it takes to make Auckland housing affordable here and here, said this in a Double Shot interview.
In 2015 the Auckland Council said it wanted to roughly halve the Auckland median house price to median household income multiple to 5.0 by 2030.
“The only way it’s feasible is if you bring down the price of dwellings. So a lot of supply has to come on line, or worse you have a massive crash as a result of something else going on with the economy,” Greenaway-McGrevy said.
“There’s no way that incomes can double in that amount of time, not with our lacklustre productivity growth in New Zealand. We’re simply not that lucky. So a statement like that is basically saying ‘we have to reduce the price of dwellings coming onto the market’.”
Greenaway-McGrevy argues greater housing density is one way of improving housing affordability in Auckland.
“When you allow for greater density that inflates the value of land. But when that piece of land is developed to house, say three or four dwellings when it used to house only one, that’s additional supply coming onto the market. That’s restoring affordability,” said Greenaway-McGrevy.
“So one reason I am a fan of density is it means we can bring down the price of dwellings while maintaining the price of land, and therefore a lot of the property values around Auckland, avoiding a crash.”
“We’re in this situation in which the number of escape routes are rather limited. If house prices fell by 50% tomorrow, that would be a massive shock for the economy, put us into a big recession. But at the same time if we continue down this path where housing is unaffordable, that’s slowly going to strangle Auckland. It’s going to strangle the New Zealand economy. So we have to get out of this situation. Allowing for greater density is one way to do it.”
Greater density doesn’t necessary mean Auckland needs large high rise towers at this stage, Greenaway-McGrevy said.
“If you look at cities like London, cities outside of Manhattan in New York, cities like Washington DC, there’s a lot of row housing, what we call terraced housing. We don’t have a lot of that in Auckland yet but we could,” he said.
“If we want Auckland to continue to grow it’s critical that we bring house prices down. Why should we want Auckland to grow? Essentially because cities are incredibly productive places. If we want to allow our own domestic industries working in say STEM [science, technology, engineering and mathematics] or IT [information technology], these are going to be located in cities. So if we want to encourage these firms in Auckland, we have to do something about the cost of living here to allow the city to continue to grow and to build these sectors.”
“If you look at Auckland we’re not really blessed when it comes to space. We’ve got two harbours. We’re not like Atlanta where you can just grow out in every direction. It’s clear that if Auckland’s going to grow in terms of population, in terms of employment, in terms of its economy, we’re going to have to fit more people into a smaller amount of space,” said Greenaway-McGrevy.