Regional Variation in Rental Costs For Larger Households
Housing costs comprise a major part of most household budgets. Larger households require greater space than do smaller households but do not necessarily have larger incomes. The cost of extra housing space (e.g. the cost of an extra bedroom) may vary across different locations, both absolutely (dollars per week) and proportionately (percentage of overall costs). If this is the case, differential regional costs of additional space may provide an incentive for different sized households to locate in particular areas where housing costs most appropriately fit their needs. Our analysis uses tenancy bond rental data to analyse the cost of renting an extra bedroom in different locations throughout New Zealand. It discusses the theory of what determines rents. We then examine the nature of regional rental costs, testing whether the documented patterns fit with theoretical predictions. Finally, we reflect on what the results may imply for social outcomes and housing policy in New Zealand. To give a flavour of the issues, consider the following. In 2003, the average weekly rental cost of a two bedroom dwelling in Auckland was $37 more than for a one bedroom dwelling. The cost of a third bedroom was an extra $50 and the cost of a fourth bedroom was an additional $90. Thus weekly rental cost for a four bedroom dwelling exceeded that of a one bedroom dwelling by $177. In Manawatu - Wanganui, the cost of a two bedroom dwelling was $38 more than for a one bedroom dwelling - almost identical to the margin in Auckland. But the cost of additional bedrooms was much lower than in Auckland: $29 for a third bedroom and $33 for a fourth bedroom. This raw data might suggest that it would be beneficial for larger households to locate in Manawatu - Wanganui and for smaller households to locate in Auckland. However, the interaction with other factors has to be taken into account before such a conclusion can be reached. At the minimum, the data suggests there is a material issue to be addressed relating to disparities in regional housing costs for different sized households.
Grimes, Arthur; Robert Sourell and Andrew Aitken. 2005. "Regional Variation in Rental Costs For Larger Households," Motu Working Paper 05-02.
Motu code: MWP0502
JEL codes: R21; R31; R51