Tony Alexander Answers: Is there a housing shortage in NZ? | Ep. 188

In this episode, Tony Alexander, an independent economist, joins the show to answer: do we have a housing shortage in New Zealand?

Being the good economist he is, Tony identifies that, as long as there isn't government interference in a market in the form of price controls, a free market can never have a technical shortage.

Why?

Because the market price will adjust to balance supply and demand. 

If there aren't enough houses for the number of buyers, some buyers will miss out and bid up the price of houses. That reduces the total number of buyers active in the market and brings new sellers into the market. Eventually, we'll find ourselves at an equilibrium where there is no longer a shortage.

However, Tony also identifies that there is likely a shortage compared to the number of properties we appear to want to have in society. 

In particular, Tony identifies that the proportion of homes built at the lower-priced end of the market has decreased to about 5% of all homes (down from approximately 25%). 

This means that there are fewer and fewer homes available for the most vulnerable in society.

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