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Affordability of Housing: Concepts, Measurement and Evidence - WP 06/03

Relationship with policy regimes

New Zealand had a National Government between 1990 and 1999. A Labour Government was in office before this period and a Labour-led Government afterwards. The National Government introduced a more market-based housing policy.

National implemented its policies in 1992 and 1993. These included the introduction of the Accommodation Supplement. When Labour regained power, many policies were altered. Also some new policies were introduced, such as the Income Related Rent Subsidy.[22] These policies were implemented in around 2000.

The following three graphs show affordability over time, and have already been analysed. But in this case the two vertical lines on each graph represent the transition from one policy regime to the next. Note the lines are shown when policies were implemented, not election dates.

Figure 16 – Households spending more than some proportion of disposable income on housing costs, under different policy regimes
Figure 17 – Low-income households spending more than some proportion of disposable income on housing costs, under different policy regimes

In Figures 16 and 17, the period of decreasing affordability in the late 1980s and 1990s began while Labour was in office and continued on under National’s regime. In Figure 16, the affordability deterioration exists for all tenures of housing, yet the policies only significantly impacted those on the lowest-incomes and in the lowest-cost housing (especially state housing). In Figure 17, the improvement for low-income households began between regime changes.

Figure 18 – Ratio of prospective mortgage payments to average net household income, under different policy regimes

In Figure 18, there seems to be much cyclical variation without any long-term trend. There also does not appear to be a pattern between the affordability lines and the policy regimes.

One could argue that some of the changes shown in the above figures are the result of policy change and had a significant lag. However such lags are not consistently shown across the time-series or across the different measures. For example, the improvement in affordability in Figure 17 in 1995 began two years after the policy change (1995). But in Figure 18, 1995 was the start of a deterioration in affordability.

Overall, there does not appears to be a significant relationship between policy regime changes and affordability, under any measure. However, a more comprehensive approach would involve comparing housing costs with and without government intervention. The difficulty here is that of forming a counterfactual. We can observe the outcomes in the presence of the various housing policies. In contrast we would meed to be able to determine the way in which people might have reacted had those policies not bee in place.

This does not imply that some specific policies have not influenced affordability. We have not attempted to analyse the effect of individual policies, only policy regimes.

4.4.2  Drivers of regional variations

We earlier analysed regional variations in affordability for home-buyers. As mentioned before, interest rates are the same for all regions, so the difference lies in house prices and incomes.

House prices are driven by demand and supply. Demand for housing is a function of many factors, but mainly the desirability of each location. Supply is driven by the availability of land and construction, and local planning regulations.

House prices are highest in areas which are predominately urban or sunny coastal spots (Table 1 – Appendix). It is likely that these areas would have high demand, given that urban areas have the best employment opportunities and coastal spots are desirable for lifestyle reasons. These areas may also have low supply of housing. Urban areas have precious few undeveloped places, and many city councils impose restrictions on subdivision, urban sprawl and intensity of residential development. Also, the geography of coastal locations often restricts the amount of development that can take place, especially in the most desirable areas closest to the coast. Similarly it is unsurprising that the TLA with the lowest house prices (also the most affordable area), South Waikato, is a rural inland area (i.e. a relatively undesirable location with few supply constraints).

Areas with the highest average incomes include the main urban areas but also some smaller urban areas and even rural areas. One determinant of incomes in an area is the type of work which takes place there, and the earnings the workers receive. Large urban areas tend to have a greater proportion of their population working in high-paying white-collar occupations than semi-urban or rural areas. Rural areas can also have high average incomes (e.g. when farmers earn high returns, which may explain the high incomes in Franklin and Matamata-Piako). Queenstown Lakes has very high incomes, possibly because businesses are forced to pay their workers more to ensure they are able to reside in such a high-priced area.


  • [22]Tenants in Housing New Zealand Corporation-owned or –managed state houses pay a maximum of 25% of their income in Income Related Rent.
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