This paper analyses local labour and housing market adjustment in New Zealand from 1989 to 2006.
We use a panel vector autoregression approach to examine the adjustment of employment, employment rate, participation rate, wages, and house prices in response to employment shocks. Migration is a major adjustment response at both a national and regional level, accounting for half of national adjustment and all adjustment regionally. House price responses differ at different spatial scales.
Nationally, a one percent employment shock raises long run house prices by six percent, as may be expected with an upward sloping housing supply curve. Surprisingly, this relationship does not hold at the regional level.