Getting to grips with supply
Moves to tackle New Zealand’s housing supply problem won’t show results right away, but experts say the supply and demand equation will improve, eventually. Miriam Bell reports.
Years of under-building, particularly after the global financial crisis in 2008, has meant housing supply has not kept pace with a rapidly growing population.
The result is not enough homes are available to meet the high demand and that has contributed to the recent soaring house prices, as was seen in the previous boom in 2015 and 2016.
Increasing the overall supply of new build housing in the right places will have the greatest impact on affordability, the Ministry of Housing and Urban Development told Housing Minister, Megan Woods when the Government was preparing its latest housing policy.
The Government subsequently announced a housing policy package which aims to increase supply and dampen investor demand in a bid to create a more sustainable housing market.
Since then, prime minister Jacinda Ardern, finance minister Grant Robertson and Woods have said the housing crisis is a problem decades in the making which will take time to turn around, but the new measures will make a difference.
But building large numbers of new houses, along with the infrastructure needed to support them, takes time and new data from Realestate.co.nz reveals just how tight housing supply is for those looking to buy.
The data shows inventory remained consistently low over the past year, and by April the amount of stock on the market nationwide was sitting at 15,838, a decrease of 19.6 per cent on April last year.
This was despite regular increases in the number of new listings coming on to the market in the past year.
There were 9145 new listings in April this year, which compares well with April 2019, when 8944 hit the market.
Realestate.co.nz spokeswoman Vanessa Taylor says the number of new listings is healthy and it is promising to see that new listings in April were ahead of those at the same time in 2019.
But the true measure of supply is the total stock, or number of houses, on the market and that is where the challenge is, she says.
‘‘Total stock numbers are already low and they are not being replenished by the new listings. People are snapping properties up as soon as they go up for sale and so they are not making much of a dent in the market. [Instead] total stock just keeps falling back.’’
April’s total stock of 15,835 is low, but it was an improvement on December when total stock was just shy of 13,000 which was the lowest in the 14 years
Realestate.co.nz has kept records.
Taylor says for supply to start meeting demand a flood of properties will need to come onto the market but that is not currently happening.
The Government’s new tax policies for investors, which include the removal of interest deductibility, have exemptions for new builds and are likely to prompt investors to put their money into new properties.
That might help with supply challenges and the new $3.8 billion fund for infrastructure to accelerate housing development was also a good start, although more investment is needed, Taylor says.
‘‘The big unknown is how population growth will play out post-Covid, over the next five to 10 years.
‘‘But if we do start to build as fast as the population is growing that would help supply catch up with demand and ease house price increases.’’
There are some hopeful signs though. Kiwibank economists calculate the Covidprompted drop in population growth has led to a surplus of new homes for the first time in eight years.
Kiwibank senior economist Jeremy Couchman says the surplus of 13,000 homes only nibbles around the edges of the huge shortage which the bank estimates to be about 67,000 houses.
But Covid-19 has provided a rare opportunity to make a meaningful dent in the housing shortage because Kiwibank expects the border to remain closed, other than to a few quarantine free travel bubbles, well into next year, Couchman says.
‘‘Based on our projections, the accumulated housing shortage will fall further this year and next.
‘‘More importantly, we estimate that housing supply and demand could finally balance some time in 2024.’’
However, Couchman says the outlook is highly uncertain as future housing demand is dependent on what happens when the border fully reopens. On the supply side, capacity constraints are ever present.
Independent economist Tony Alexander agrees housing supply is growing more rapidly, with a strong surge in the number of dwelling consents issued in the past decade.
The annual number of consents issued stands at 39,700 from around 13,500 in mid-2011, but the underlying level of activity is about 44,000 a year if it is annualised over the last three or six months, he says.
‘‘Supply growth is the strongest since 1976 and it’s still rising with all stops being pulled out to boost house supply around the country, particularly in Auckland. Rising house supply means greater ability to meet rising demand.’’
But he does not see supply catching up with demand soon, unless buyers suddenly take a major step back from the market. That seems unlikely, so it will require a huge supply of new properties to hit the market and that is around five-to-seven years away, he says.
‘‘Even then you will only get a price reduction in the market, as happened following the 1970s building boom, if interest rates are also going through the roof at the same time and I can’t see that happening.’’
People are snapping properties up as soon as they go up for sale. Vanessa Taylor Realestate.co.nz spokeswoman