Auckland slips down the economic ranks

By ELLEN READ

The Auckland regional economy was decidedly unhealthy last year, lagging behind the national growth level, and those in other regions.

Far from being the engine house of the economy, the region was firing on three cylinders.

Regional growth was 2.7 per cent, well below the country's 3.5 per cent growth, according a report released yesterday by the Auckland Regional and Auckland City councils.

The economic performance ranking figures meant the Auckland region fell six places to 12th out of the country's 14 regions.

"You would have expected Auckland, in an environment of low interest rates and strong net migration inflows, to have done better than that," said John McDermott, chief economist of the National Bank which crunched the numbers for the Business and Economy 2004 report.

Auckland - which accounts for a third of the national economy - performed better than the national average in areas of unemployment, inflation, retail sales, house prices and average weekly earnings but lagged when it came to employment, non-residential consents, new dwelling consents, house sales (by number) and visitor guest nights.

A key sector over the past 12 months was the housing market, with prices rising 19 per cent to an average house price of $370,000 - well above the national average of $260,000. Other fast-growing sectors were finance, real estate and business services, construction and utilities, and wholesale and retail trade.

The housing market surge had a sting in its tail. Regional growth depended on attracting skilled workers but finding affordable housing - to buy or rent - was difficult.

The ratio of house prices to income had gone through the stratosphere, and there was genuine concern regarding the cost of living, the report said.

McDermott said the narrow base of Auckland's economic growth - focused on the housing market and related financial services - meant the region was vulnerable to economic cycles.

"If you've got two or three big drivers then you're not as exposed.

"A lot of Auckland's previous year's outstanding performance came from the housing market - so naturally you've come off a little bit," McDermott said.

Smaller factors, such as the loss of the America's Cup and the interruption caused to the Auckland economy by the spike in wholesale electricity prices last year, added to the low performance.

Apart from those short-term issues, McDermott said Auckland's transport issues were a long-term and serious problem that had to be addressed.

Some estimates said roading congestion was costing the regional economy up to $1 billion a year in lost productivity.

"That's a staggering number, the economist said. Put in perspective, it meant roading problems had been holding back national GDP growth by 0.7 percentage points for the past 10 years.

"If we'd have had that extra growth, New Zealand would have outperformed Australia [during the past decade]," McDermott said.

The region's economic outlook for this year is more rosy because some of the negative short-term influences are disappearing and the international economy is improving.

"Auckland is our first point of contact with the global economy so the region will benefit from that," McDermott said.