How will we know if the Auckland Unitary Plan is working? Accounting for the redevelopment premium in house price measurement

One of the stated goals of the Auckland Unitary Plan (AUP) is to ensure that housing in Auckland is affordable. To achieve this, the plan encourages housing supply by relaxing a variety of land use regulations in targeted areas of the region, including constraints on residential density. However, relaxing restrictions on density increases the value of land, which inflates the value of properties that can be redeveloped to support additional dwellings. Disentangling the deflationary effect of increased housing supply from the inflationary effect of an increased redevelopment premium will therefore be key to evaluating the efficacy of the plan. In this paper we present a set of price indices that are designed to assist policymakers in assessing whether the AUP is restoring affordability to the housing market. Our approach is based on sorting property transactions according to their potential for redevelopment and constructing a different price index for each group. The indices show that residential properties with the greatest potential for redevelopment under the AUP have experienced substantially more inflation over the 2011 to 2015 period. This result is consistent with upzoning increasing the redevelopment premium. Going forward, the price indices for properties that have less potential for redevelopment will tell us whether intensification is bringing affordable housing options to the market.