Land price differentials in Auckland – effect on house prices? A discussion paper

Author:

Susan Fairgray

Publication date:

2017

Topics:

Economy, business and industry, Housing, Land use

Source:

Auckland Council Research and Evaluation Unit RIMU

Summary:

There is currently debate and pressure to release more land on Auckland’s urban edge to alleviate land shortages and reduce average house prices. Studies have identified large differentials in land prices on either side of Auckland’s metropolitan urban limit (MUL).

These studies have limitations as they compare raw rural land values with fully serviced urbanised land values and therefore do not take into account the substantial land transformation costs such as infrastructure, earthworks, holding costs, area required for roads and other space, sales margins, etc.

A more appropriate scale for policy discussion should occur between the value of raw rural land and land ready for urban uses – i.e. once the land transformation costs have been accounted for.

This remaining differential (if any) would reflect the difference in private and social costs of urban expansion (including environmental effects and effects within the urban environment), and a residual (if any), which may imply a land constraint.

Separate modelling (in a different study) shows average dwelling prices have only a minor response to increased land supply.

Dwelling prices may be less responsive to land supply as the supply of raw land equates to a much smaller share of dwelling prices once land transformation costs have been accounted for.

Lower land prices may have adverse consequences for affordable housing where the construction of apartments and other higher density dwellings become less feasible.

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Auckland council discussion paper