Even Oversupply Cannot Dampen Housing Price Increase—

A Case of Auckland

Many people take it for granted that housing price increase must be due to insufficient housing supply, so the only solution to control price increase is to increase supply. However, it is a falsified hypothesis.

There have been many articles on this issue, including mine (Yiu, 2019) and others (Dobbs, 2018). However, most of the previous studies simply found that supply increases do not cause price falls, so some people still argued that it might be because the supply is still insufficient. There has been very few empirical evidence directly showing that housing prices do not fall even if housing is oversupplied. This article tries to use Auckland City’s 2018 census data to illustrate it.

How to define sufficiency? The best metric is the vacancy rate of houses. Figures 1, 2 and 3 show the population growths, occupied houses growths, and unoccupied houses growths in the past 3 census (2006, 2013, 2018) of Auckland City (Waitemata Area).

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Figure 1 Population Count and Its Changes in 2006, 2013, 2018 Census of Waitemata Area. Source: NZ Census
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Figure 2 Occupied Private Dwelling Count and Its Changes in 2006, 2013, 2018 Census of Waitemata Area. Source: NZ Census
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Figure 3 Unoccupied Private Dwelling Count and Its Changes in 2006, 2013, 2018 Census of Waitemata Area. Source: NZ Census

Figure 1 shows that there are 82,866 people live in the Waitemata Area in 2018, and is just increased by 5,730 from 2013–2018 period. The average number of people per house in Auckland is about 2.7, in other words, it only requires 2,122 new houses would accommodate the population increase.

Figures 2 and 3 show that 3,189 new houses are built in the period, which is an over-supply. Thus, it results in a very high vacancy rate of about 10.6%, i.e. 459 vacant houses.

In contrast, the number of vacant houses dropped by 867 in the 2006–2013 period.

Expanding to the whole Auckland Region, the situation is similar. The overall vacancy rate is 10.3%, or 39,393 houses out of 548,182 houses are found to be vacant.

Interestingly, the housing price index of Auckland has been increasing very fast in these 5 years (2013–2018), but was leveled off during 2006–2013 period, as shown in Figure 4. The housing price index of Auckland increases from about 1500 in 2013 to 2700 in 2018.

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FIgure 4 Housing Price Index of Auckland and other Regions, Source: Corelogic @ https://www.corelogic.co.nz/news/property-values-across-new-zealands-major-centres-recorded-diverse-performance-august#.Xg1_c0czY2w

Even an over-supply of housing cannot make prices fall. It is a vivid case disproving the take-it-for-granted housing supply myth. In fact, there can be many reasons for the results. It can be a measuring error as detecting whether a house is vacant or not is subject to many technical complications. Besides, the houses may be for pure storage of wealth purpose, and not for earning income. More importantly, the recent Airbnb trend has made many houses vacant occasionally waiting for short-term tourists. It is reported that there are 10,616 houses in Auckland Region are for Airbnb purpose. It accounts for almost 25% of the vacant houses. It requires more data to test the real reasons of the high vacancy rate.

References

Dobbs, A. (2018) Debunking the Housing Supply Myth, Medium, Feb 28. https://medium.com/@andrewdobbs/debunking-the-housing-supply-myth-857c2ecc30a

Yiu, C.Y. (2019) Can increasing land supply suppress property prices? Medium, Jan 1. https://medium.com/@edwardyiu/can-increasing-land-supply-suppress-property-prices-49effc6de8e2

Written by

ecyY is the Founder of Real Estate Development and Building Research & Information Centre REDBRIC

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