Crowded house

By Eric Crampton 10/12/2013

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.