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2 Economic growth (continued)

Benefiting from Auckland's economy

Auckland's economic performance matters for lifting overall national economic growth. Auckland is New Zealand's largest city and represents over a third of the economy. Its GDP per capita was eight percent greater than the rest of New Zealand and, from March 2010 to March 2015, it contributed around 42 percent of total national GDP growth. Auckland firms are generally more productive than those in the rest of the country. Labour productivity is 13.5 percent higher than firms in other New Zealand urban areas[28], and productivity in its central business district is 72 percent higher than the rest of New Zealand.[29] This indicates that job growth in Auckland would have a bigger impact on national outcomes than other regions. Although Auckland firms are more productive, its GDP per capita gap has reduced since the early 2000s (when it was 14 percent greater than the rest of the country). This suggests that we are not seeing the agglomeration effects we would expect from Auckland's size and scale.

Auckland has a role as a connector to the international and domestic markets. Auckland is New Zealand's main international gateway with over 8.8 million international passenger movements through Auckland International Airport in the last reporting year. It also exports 24 percent of New Zealand's goods and 42 percent of its services. The city provides services to the rest of the country through its specialisation in professional services and logistics. A greater understanding of how to maximise its value – including ensuring strong connections to surrounding regions – will benefit Auckland and national growth outcomes. However, pressures on New Zealand's infrastructure may be a factor that impacts Auckland's ability to maximise its connector potential (e.g. from Auckland's congestion challenges).

Auckland's transport system is critical for access to employment.In Auckland, access to transport varies significantly by location and declines comparatively rapidly outside the central area. There is evidence that travel time variability has increased, especially during the evening peak; and inter-peak congestion has continued to increase over the past decade.[30] Pressure on Auckland's transport network also represents a significant challenge for freight, as Auckland's freight is projected to increase by 78 percent over the next 30 years, with a significant majority of freight travel being internal distribution within Auckland.[31] Growth in visitor arrivals will add to the infrastructural and transport challenges of Auckland and the rest of the country in the future.

Diversity brings advantages. Auckland has the fastest growing population in New Zealand – it is growing more rapidly than other similar-sized international cities because of comparatively high birth rates and strong immigration inflows. It also has a younger population and is ageing at a slower rate than elsewhere in New Zealand. Current projections suggest that in 30 years, over 80 percent of the total working age population growth will be in Auckland.[32] It is culturally diverse, with over half of all immigrants to New Zealand settling there (containing around 200 different ethnicities) and 44 percent of its workforce being born overseas (a level comparable to London). Evidence suggests a positive relationship between employment of highly-skilled immigrants and innovation.[33] International research suggests that skilled migrants are more likely to create spillover benefits[34] and migration can also result in a boost in imports and exports (see discussion on migration and its contribution to the growth of Auckland in Section Three).

Challenge and opportunity – Housing

New Zealand's residential real estate market is approximately valued at one trillion dollars – nearly four times GDP. Since the 1990s, New Zealand national house prices have risen from around three times median household income to around six times[35] and to around ten times in Auckland[36]. Price growth in New Zealand has predominantly been seen in high growth cities and towns (especially Auckland) and is creating an affordability challenge for New Zealanders as well as inhibiting opportunities for economic growth (e.g. through preventing land and private investment being put to their most productive use).

Rapid price growth can be attributed to an unresponsive supply of housing, land and infrastructure, given significant and fast population growth as well as tax settings that can give housing a relatively attractive tax treatment. Uncompetitive land markets are at the core of the problem. Densification and the expansion of housing in the high-demand locations is being inhibited by a combination of planning constraints, incentives on local decision makers, infrastructure limitations and prescriptions on firm locations. House price volatility can also present resilience challenges for many property holders and the economy.

More affordable, quality housing would likely result in a range of positive well-being and social outcomes for communities.The affordability of quality housing has implications for: people's ability to purchase a home; household debt; educational attainment; health outcomes; and consumption of other essential goods (e.g. medical care and food). The fiscal expenditure on other parts of the housing system would also benefit from improvements in housing affordability (e.g. social housing, rental subsidies, and emergency housing places). Given the size of long-term population growth in high-demand areas (e.g. Auckland's population is projected to be 2 million by 2033),[37] how these challenges are addressed will have a significant impact on future affordability and living standards.

Notes

  • [28] David Maré (2016) Urban productivity estimation with heterogeneous prices and labour. Motu Working Paper.
  • [29] Productivity is lower in Waitakere and Rodney – which reinforces the importance of understanding Auckland's performance at a sub-regional level.
  • [30] Auckland Transport Alignment Project Foundation Report 2016.
  • [31] Auckland Transport Alignment Project Foundation Report 2016.
  • [32] Medium growth population projections, Statistics New Zealand.
  • [33] Keith McLeod, Richard Fabling and David Maré (2014) Hiring new ideas: International migration and firm innovation in New Zealand. MOTU Working Paper 14-14.
  • [34] Julie Fry (2014) Migration and macroeconomic performance: Theory and evidence. New Zealand Treasury Working Paper 14/10.
  • [35] See house price-to-income multiple produced by www.interest.co.nz, available at http://www.interest.co.nz/property/house-price-income-multiples
  • [36] 12th Annual Demographia International Housing Affordability Survey: 2016, available at http://www.demographia.com/dhi.pdf
  • [37] Statistics New Zealand, subnational population projections.
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