Crowded house

Christchurch districts that experienced bigger increases in house prices from 2008 through 2013, the dates of easily available QV data, also experienced larger increases in the proportion of census households reporting two or more families living in the same household. This isn't particularly surprising. Where housing supply is inflexible due to Council regulatory constraints, increases in the number of families, whether due to kids reaching adulthood, immigration, or divorce have to be accommodated somehow. That somehow is multiple families living in the same household.

On Friday last week, the Christchurch Press called the University looking for a few folks to provide them commentary on the Census, released this Tuesday. Stephen and I put together the following as op-ed. The Press decided to turn it into a news story instead; the story appeared here. But our original piece is below.

Census 2013 focus: The hidden cost of housing regulation

Eric Crampton & Stephen Hickson

More Kiwi families are having to double-up as housing supply has failed to respond to demand pressures. The Census tells us how many families live in each household. In 2006, fewer than 40,000 households, or about 2.8 percent of all households, included two or more families living together. In 2013, that figure rose to just over 51,000 households, or about 3.4 percent of the total. Had the proportion of multifamily households stayed at the 2006 level, 9,100 fewer households would have had two or more families bunking together.

Economists call this an increase in the intensity of housing use. It’s one of the ways that people can respond to increases in housing costs. When housing gets more expensive, people buy less of it. One way of buying less housing is to share a house with one or two other families. The pattern of increased housing intensity suggests that cost pressures are behind it.

We paired district-level housing intensity increases between the two Censuses with Quotable Value data on residential house values from November 2008, the earliest month in their freely available data series March 2009 and March 2013, the month of the census.* The increase in two-or-more families living in the same household is strongly related to house price increases within each district (for the statistically minded, the correlation coefficient is 0.66). This is just a first cut as the Census has only just been released. But it is informative.

Selected Territorial Authority Areas	Number of households with 2 or more families, 2006	Number of households with 2 or more families, 2013	Percentage increase in multifamily households	Percentage increase in QV property value, November 2008 – March 2013
Far North	546	639	17%	-14.5%
Whangarei	648	672	3.7%	-9.9%
Auckland Area	19977	27042	35.4%	22%
Waikato	612	684	11.8%	2.5%
Rotorua	744	735	-1.2%	-2.8%
Napier	426	459	7.7%	0%
Wellington City	1215	1659	36.5%	5.4%
Nelson	216	303	40.3%	9.1%
Grey	51	39	-23.5%	-10.1%
Waimakariri	225	420	86.7%	26.4%
Christchurch	2295	3132	36.5%	19.7%
Selwyn	204	369	80.9%	30.5%
Dunedin	519	621	19.7%	10.2%
Southland	75	81	8%	-5.4%

We see this as one of the hidden costs of New Zealand’s very rigid approach to town planning. City Councils make it hard not only to expand housing supply out into the suburbs but also to increase density within town limits. When it’s hard for housing supply to respond as population increases, prices of existing houses increase. This brings supply and demand back into line, but by forcing families to make some pretty costly decisions by bunking together. Until Councils start taking housing supply seriously, expect the situation to worsen.

I emphasized to the reporter that demand side measures to try to hit housing prices really don't help. If we have fewer houses than families that want to be in houses, then we're going to have multiple families in a household regardless of any measures we might put in affecting house prices. Those measures can affect the price at which the market clears but don't really change which families wind up in which houses. Worse, where some measures targeted at demand can reduce building, they can make things worse.

* Looking back at it, Stephen had pulled QV data running March 09 through March 13. The latter is the month of the census; the former is the first March in the QV data. While November 2008 would be earlier, we then risk getting seasonal / month effects mixed in with things.