Adjustment in Local Labour and Housing Markets

This paper analyses local labour and hosuing market adjustment in New Zealand from 1989 to 2006. We use a VAR 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. Nationally, a 1% positive employment shock leads to a long-run level of employment 1.3% higher, with half of the extra jobs filled by migrants. A 1% region-specific employment shock raises the long-run regional share of employment by 0.5 percentage points, due entirely to in-migration. House price responses differ at different spatial scales. Nationally, house prices are very responsive to employment shocks: a 1% employment shock raising long run house prices by 6% , as may be expected with an upward sloping housing supply curve. Paradoxically, this relationship does not hold at the regional level.