“New Zealand Economists Need To Better Understand Housing Demand And Supply”
“Recent comments by two Bank economists ( NZ Herald – “Low incomes blamed for affordability crisis” – by Anne Gibson –
25 January 2005 ) in response to the 2006 Demographia International Housing Affordability Survey, are seriously wide of
the mark, in suggesting that other factors besides land and housing supply, explain why our housing is so unaffordable”,
said Hugh Pavletich, co author of the Survey.
Anthony Byett of ASB Bank said that people’s poor earnings are the reason why housing is unaffordable. He is confident
that the market will come back in to balance, when house prices stabilize and incomes rise. Darren Gibbs, Chief
Economist of Deutsche Bank, questioned the reports value and asked whether it was meaningful or had any predictive
value.
“Mr Byett would need to explain why housing in New Zealand and Australia was affordable or near affordable ten and
twenty years ago, when peoples incomes were of course much lower” said Mr Pavletich adding “ and why urban markets have
remained affordable in many North American cities”.
“To suggest that rising incomes will solve this serious problem is an extraordinary comment from a professional
economist” he said.
The Demographia Survey uses median house price and divides it by the median household income to establish the “median
multiple” of the 100 major urban markets of the six countries surveyed. It illustrates that most markets were
historically affordable, in that house prices achieved median multiples of 3 or below.
“Within this years Survey, we explain in the clearest and simplest terms possible, why supply is the key determinant of
urban property market performance and how any constraint on this, drives prices higher” said Mr Pavletich.
Pavletich is of the view that Darren Gibbs of Deutsche Bank may not adequately understand the important relationship
between house prices and incomes. Over the past twelve months, New Zealand’s housing prices have increased by 14% and
higher in many smaller cities and towns.
“For too long, property commentators have acted as cheerleaders for artificially created excessive house price
increases, whilst completely ignoring the incomes that underpin them” said Mr Pavletich, adding “ The 2006 Demographia
International Housing Affordability Survey will hopefully encourage more relevant and informed property market research
and commentary in the future.”
ENDS