Economic and Labour Market Update - April 2010
1. Introduction
As Auckland emerges from the recession and is set to enter another period of growth, it is a good time to pause and reflect on the impacts the global financial crisis had on the Auckland economy last year. The lessons learned could potentially mitigate effects of future downturns, but perhaps more importantly inform the debate on whether the current regional economic trajectory is satisfactory for the future needs of the region and the people therein. Table 1 summarises some key economic indicators for the 2009 year, from which the fall out from the global credit crisis is readily apparent.
Table 1. Auckland Regional Indicators snapshot for 2009
| Jan - Mar 09 | Apr - June 09 | Jul - Sept 09 | Oct - Dec 09 | |
| GDP 1996$million (Auckland Region) (Infometrics) | 11,643.9 -5.5% | 12,014.1 3.2% | 12,029.6 0.1% | 12,412.1 3.2% |
| Unemployment rate (StatsNZ) | 6.5% | 6.6% | 6.5% | 8.0% |
| Labour force participation rate (StatsNZ HLFS) | 68.2% | 67.9% | 67% | 68.55% |
| Car registrations (StatsNZ) | 13,716 -40% | 12,470 -9% | 15,052 21% | 16,669 11% |
| Median dwelling sale price (REINZ) | 426,467 -1% | 440,000 3% | 448,300 2% | 465,000 4% |
| New Residential Dwellings consented to (StatsNZ) | 721 -6% | 953 32% | 929 -3% | 985 6% |
2. Gross Domestic Product
Regional figures for gross domestic product for the final quarter of 2009 were published by Infometrics Ltd, and show the extent of the recession aggregated on an annualised bases (see figure 1). Overall there was a contraction in the economic value of all final goods and services produced in the region by 1.9% from the 2008 year (ending December). Therefore production in the Auckland economy was contracting for two successive years, and the extent of contraction was deeper in Auckland than for the country as a whole. June 2009 marked the official end of the recession (when GDP falls for two consecutive quarters) both in Auckland and New Zealand.
Infometrics have recently updated their methodology for generating regional GDP figures from Statistics New Zealand’s national figure. Their methodology now incorporates historical drivers of growth of certain industries and draws on established relationships between growth at the national level and growth at the territorial authority level. For example, the localised economy within a territorial authority boundary may have strong links to the agricultural sector, and when this industry is booming the localised economy within that respective territorial authority boundary performs well as farmers spend their higher incomes in town and demand high levels of support services. The implications of the change in methodology had a significant impact for the Auckland region (especially given the territorial authorities areas with large manufacturing industries within them such as Manukau), and reinforced the anecdotal evidence that the recession was deeper in Auckland than the rest of the country.
Figure 1. Gross Domestic Product
Source: Infometrics Ltd.3. House prices and sales
Confidence is returning to the Auckland housing market. Barfoot and Thompson house sales data showed that house sales peaked in March the highest for nearly two years. The reasons cited for this growth were increased migration into Auckland, growing confidence in the economy and an Indian summer.1 Barfoot and Thompson, who have 40% share of the Auckland property market estimated that house prices increased by an average of 3.2 per cent, or by $16,000 in the last year.
Figure 2. Median Sale Price of Residential Property
Figures from the Real Estate Institute of New Zealand show a slight dip in the median house price in the last month ($453,000), after a peak in December 2009, with a median price of $470,000 in Auckland. This is $100,000 above the median house price for New Zealand as a whole. There are regional differences within Auckland in terms of median house prices, with the North Shore having highest median sale price, followed by Auckland city.
Figure 3. Median house price by Territorial Authority
The issue of affordable housing was discussed by Professor Christine Whitehead of the London School of Economics in her presentation at the Auckland Regional Council in early April. She argued that analysis of the issues regarding housing needs to go back to basic economic principles - that is, the linking industry with location, and recognising that commercial activity moves to areas where there is best value for money. This cost minimisation principle includes housing costs. This is the economic argument of mobile capital, and she acknowledged that people are not necessarily so mobile. Housing oftentimes is what concentrates people in areas, and furthermore it is the mediation for social exclusion, if not the cause of it. She also discussed, within the context of a metropolitan urban limit using her experience from London, the concept of a green belt policy which ‘operates’ in such a way that distributional benefits are realised by wider society. The discussion was interesting as it opened up debate about what is affordable for the region as a whole, rather than for individual households and private individuals.
4. Monitor Auckland
Public sector economics is moving beyond a ‘theory first’ approach, given the need for a more ‘applied’ method in policy making.2 The major criticism of neoclassical economic theory is centred on flawed models dominating economic theory and thus adversely influencing economic policy. Within the Auckland region these shortfalls are implicitly recognised. The work within local government economic development has switched to the methodical study of evidence, as the central component of economic inquiry. This can lead to a significant shift in advancing economic thought, if the evidence is taken to its logical conclusion, and used to inform and improve the prevailing economic models. Building an evidence base in economic policy making relies on three fundamental elements: data, models and institutional frameworks. Investment in an (economic) evidence base has been termed the creation of ‘policy capital’.3
Within the Auckland region, there has been a significant increase in the emphasis placed on evidence based economic analysis in the last number of years, and more recently in the conceptualisation of the new Spatial Plan. Last month saw the launch of the Monitor Auckland website,4 which tracks land use, community, economic and environmental indicators, enabling an analysis of change through time. The site was established as part of the development of an integrated monitoring framework, following statutory requirements to report progress against regional community outcomes and the State of the Auckland Region.
Prepared by Dr. Catherine Murray, Social and Economic Research and Monitoring Team, Auckland Regional Council.
1. New Zealand Herald, “Auckland House Sales Booming” Wednesday 7th April 2010.2. Reiss, (2008) Error in Economics, toward a more evidence-based Methodology. Routledge.
3. Scobie, G. (2009) Evidence-based policy: reflections from New Zealand. Paper presented at the Strengthening Evidence-based Policy in the Australian Federation conference.
4. http://monitorauckland.arc.govt.nz/
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