4 Discussion and future research
In our review, we assessed the impact of a wide range of factors on HPG. We summarise our findings from the literature in Table 8. In our review, we highlighted the shortcomings of the literature and the importance for policy driven robust economic analysis of the factors of HPG. To achieve this, it is required to have a clear definition of policy objectives, for example to maximise the wellbeing of New Zealanders, and a clear recognition of the associated economywide trade-offs. It is also critical to have a comprehensive economic assessment framework accounting for inter-relationships between the factors of demand and supply, and the urban development, environmental and economywide outcomes.
Table 8 Summary of literature review
| Factors | Summary of review |
|---|---|
| Regulations | The cost imposed from regulation on house prices is significant and has increased over time. This suggests that the restrictive planning regulations have led to HPG. Lack of evidence on the impact of other factors on the relationship between regulation and HPG. |
| RMA and environmental regulation | The evidence on the extent to which RMA has contributed to HPG is weak. The interaction between the environmental regulation and other legislations (and infrastructure planning) needs further investigation |
| Availability of infrastructure | The lack of infrastructure is a significant barrier to housing supply. Potential drivers of lack of infrastructure are funding and financing issues and the potential inefficiency of the local government. There is agreement on the need for further alignment between legislations, particularly between the RM system and infrastructure planning. The evidence is limited – particularly there is limited evidence available on the efficient use of the available infrastructure. |
| Supply chains and construction costs | The increases in building code requirements have led to higher construction costs, which has led to HPG. There is a lack of robust conversation about the interactions between construction costs and all other related factors, such as changes in technology, the impact of planning regulations and the scale of the construction sector. |
| Affordability | Overall increase affordability has led to HPG. These indicators of housing affordability provide useful high-level description of the housing affordability issue that can be used for a general policy discussion. The indicators are not useful for providing information about the drivers of housing affordability. House prices outpaced household income growth significantly after the 1991-1992 recession. |
| Monetary policy and mortgage rates | A lower OCR has led to higher housing affordability and HPG. The OCR, however, has a wide impact on different sectors of the economy, and is not considered as an appropriate tool for controlling house prices. The impact of monetary policy highly depends on the other (supply) factors. The macroeconomic models and the models of housing market have not been linked. |
| Population and migration | Population growth, driven by internal and external migration in addition to the birth and death rates, increases demand for housing and leads to HPG. The cycle in factors of migration and house price growth leads to complexities in causal inference about the impact of population growth on house prices. |
| Household size | The decrease in the size of households and the move towards smaller dwellings has led to an increase in housing demand, and therefore HPG. It is not clear if the zoning regulations have accounted for the changes in preferences and composition of households over time and allow for the right size of the new dwellings in the plans. A mismatch between demand and supply may lead to higher house prices. |
| Availability of finance | Our review of the available literature does not provide us with robust understanding of the impact of availability of finance in New Zealand. |
| Tax policy, housing subsidies and other interventions | There is high agreement that a tax policy leads to lower speculation incentives and therefore lower HPG. The available literature does not provide enough evidence-based analysis of the likely impact of the tax and subsidy policies. The size of the impact of a tax policy on HPG is unclear. |
Source: Principal Economics.
For our review of the available housing models in New Zealand, we contacted the Reserve Bank, the Treasury and the Ministry of Housing and Urban Development (HUD) and asked about their available models. Our review of the information available to us suggests that the available models do not provide any extensive tool for forecasting house prices in New Zealand. Particularly, house prices are mostly an input to the rest of macroeconomic models used by the RBNZ and the Treasury. Both entities used expert judgement (outside the modelling framework) to provide forecasts of house prices. We did not find any information about the performance of the combined models and expert judgement over time. The available tools are not suitable for the assessment of housing policies. We are not sure if the available tools provide a robust framework for the assessment of macroprudential policies. For a policy targeting the wellbeing of New Zealand population, it is critical to assess the distributional impacts of policies. Our review suggests that the available tools do not provide information about distributional impacts of policies.
Policies often aim at improving a housing affordability measure (as their policy target). Housing affordability measures, however, do not provide information on the concept of housing affordability for different types of people. All current measures of housing affordability are flawed both conceptually and empirically (see for example Leishman & Rowley, 2012; Stone, 2006). This leads to incorrect policy analyses especially for people who are not the archetypal pakeha couple with kids. For a robust discussion of housing affordability, we suggest a future study to investigate performance of housing affordability measures versus different population groups’ perception of housing affordability and provides a better housing affordability measure for research and policy.