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A New Zealand Regional Housing Model

Author

Listed:
  • Arthur Grimes

    (Motu Economic and Public Policy Research)

  • Sean Hyland

    (Motu Economic and Public Policy Research)

  • Andrew Coleman

    (New Zealand Treasury)

  • James Kerr

    (Ministry of Business, Innovation and Employment)

  • Alex Collier

    (Ministry of Business, Innovation and Employment)

Abstract

The New Zealand Regional Housing Model (NZRHM) includes estimated equations for four key housing market variables: house prices, housing supply (new dwelling consents), residential vacant land (lot) prices, and average rents. Long run (cointegration) relationships and short run (error correction) relationships are estimated for each of these variables across 72 TLAs within New Zealand. The model is designed so that it can be used for short to medium term forecasting. It is also useful for simulating the effects of shocks to the housing market. The paper presents simulations of the impacts of shocks to exogenous variables (population, credit restrictions, construction costs and farm prices) as well as shocks to policy variables (developer contributions, accommodation supplement, and land availability). We also simulate the consequences of the Christchurch earthquakes for Canterbury housing outcomes. The over-arching conclusion across all simulations is that housing markets are very slow to adjust to disequilibria, such that exogenous shocks have very long lasting effects on prices and the housing stock.

Suggested Citation

  • Arthur Grimes & Sean Hyland & Andrew Coleman & James Kerr & Alex Collier, 2013. "A New Zealand Regional Housing Model," Working Papers 13_02, Motu Economic and Public Policy Research.
    • Handle: RePEc:mtu:wpaper:13_02
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    File URL: https://motu-www.motu.org.nz/wpapers/13_02.pdf
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    References listed on IDEAS

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    1. Albert Saiz, 2010. "The Geographic Determinants of Housing Supply," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(3), pages 1253-1296.
    2. Sweeney, James L., 1974. "A commodity hierarchy model of the rental housing market," Journal of Urban Economics, Elsevier, vol. 1(3), pages 288-323, July.
    3. Arthur Grimes & Andrew Aitken, 2007. "House Prices and Rents: Socio-Economic Impacts and Prospects," Working Papers 07_01, Motu Economic and Public Policy Research.
    4. Iris Claus & Arthur Grimes, 2003. "Asymmetric Information, Financial Intermediation and the Monetary Transmission Mechanism: A Critical Review," Treasury Working Paper Series 03/19, New Zealand Treasury.
    5. Pain, Nigel & Westaway, Peter, 1997. "Modelling structural change in the UK housing market: A comparison of alternative house price models," Economic Modelling, Elsevier, vol. 14(4), pages 587-610, October.
    6. Grimes, Arthur & Hyland, Sean, 2012. "Passing the Buck: Impacts of Commodity Price Shocks on Rural Outcomes," 2012 Conference, August 31, 2012, Nelson, New Zealand 136046, New Zealand Agricultural and Resource Economics Society.
    7. Andrew Coleman & Grant M. Scobie, 2009. "A Simple Model of Housing Rental and Ownership with Policy Simulations," Treasury Working Paper Series 09/05, New Zealand Treasury.
    8. Susin, Scott, 2002. "Rent vouchers and the price of low-income housing," Journal of Public Economics, Elsevier, vol. 83(1), pages 109-152, January.
    9. Arthur Grimes & Yun Liang, 2007. "Spatial Determinants of Land Prices in Auckland:Does the Metropolitan Urban Limit Have an Effect?," Working Papers 07_09, Motu Economic and Public Policy Research.
    10. Arthur Grimes & Andrew Aitken, 2010. "Housing Supply, Land Costs and Price Adjustment," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 38(2), pages 325-353, June.
    11. Merton, Robert C, 1973. "An Intertemporal Capital Asset Pricing Model," Econometrica, Econometric Society, vol. 41(5), pages 867-887, September.
    12. Oded Palmon & Baron A. Smith, 1998. "New Evidence on Property Tax Capitalization," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 1099-1128, October.
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    Citations

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    Cited by:

    1. Arthur Grimes & Sean Hyland, 2013. "Housing Market Dynamics and the GFC: The Complex Dynamics of a Credit Shock," Working Papers 13_12, Motu Economic and Public Policy Research.
    2. Funke, Michael & Kirkby, Robert & Mihaylovski, Petar, 2018. "House prices and macroprudential policy in an estimated DSGE model of New Zealand," Journal of Macroeconomics, Elsevier, vol. 56(C), pages 152-171.
    3. Dean Hyslop & David Maré, 2022. "The impact of the 2018 Families Package Accommodation Supplement area changes on housing outcomes," Working Papers 22_01, Motu Economic and Public Policy Research.
    4. Arthur Grimes & Sean Hyland, 2013. "Passing the Buck: Impacts of Commodity Price Shocks on Local Outcomes," Working Papers 13_10, Motu Economic and Public Policy Research.
    5. Skidmore, Mark, 2014. "Housing Affordability: Lessons from the United States," Working Paper Series 18834, Victoria University of Wellington, Chair in Public Finance.
    6. Hyslop, Dean R. & Rea, David, 2019. "Do housing allowances increase rents? Evidence from a discrete policy change," Journal of Housing Economics, Elsevier, vol. 46(C).
    7. David C. Maré & Jacques Poot, 2019. "Valuing cultural diversity of cities," Working Papers 19_05, Motu Economic and Public Policy Research.

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    More about this item

    Keywords

    house prices; housing supply; lot prices; rents; housing model;
    All these keywords.

    JEL classification:

    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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