Case stacks up
The cost of having a home built now compares favourably to buying an existing house.
House prices are so high, building a house is now a cost-effective route to home ownership, ANZ economists say.
But, ANZ economist Liz Kendall said, people wanting to build still had the challenge of finding land to do it on.
That could only come from both freeing up land on city fringes, and allowing people to build with greater density within current city limits, Kendall said.
There was some indication that was already happening, with a third of all new consents for dwellings being for multi-unit complexes, ANZ found.
‘‘Despite rising construction and land costs, high existing house prices have made building attractive relative to buying,’’ Kendall said.
But capacity in the construction industry was constrained and labour shortages were acute, although ANZ did not expect KiwiBuild, the Government plan to build tens of thousands of ‘‘affordable’’ homes, was going to have much of an impact on the level of house building.
‘‘The Government’s target of supplying 100,000 affordable homes is ambitious. Increasing supply is good for affordability, but doing so will be difficult in practice,’’ Kendall said.
The bank also had doubts that KiwiBuild would deliver truly affordable homes.
‘‘Even if the Government’s targets are met, the houses will still be unaffordable for many, with $600,000 just under six times the average income in Auckland. Compared with a median price of
$900,000, this is certainly an improvement.
‘‘With a 20 per cent deposit, this equates to 33 per cent of disposable income going to mortgage payments, rather than 50 per cent. But
$600,000 is ambitious, given high costs and strong demand.’’
Because of the limited impact expected of KiwiBuild, ANZ did not expect big house price falls.
‘‘Strong population growth coupled with a challenged supply backdrop argues that a fundamental supply-demand imbalance will continue to support prices.’’
Comparing the cost of building with the cost of an existing house was done using a measure known as ‘‘Tobin’s Q for housing’’.
It was tracked by economists as a leading indicator of the future scale of building as homes tended to be constructed in greater numbers when the cost of erecting one became cheaper relative to the cost of buying an existing house.
‘‘Prices for existing houses have increased 50 per cent since the start of 2012,’’ Kendall said, ‘‘whereas we estimate that the cost of a new dwelling, including land and construction, has increased 30 per cent over the same period.’’
The finances of the property development sector were under strain despite the price boom, limiting building activity.
After the collapse of the finance companies in 2006-09, ‘‘non-bank financing is not available to the extent it was last cycle’’, ANZ said.
Housing demand was finally driving innovation in the building sector, including the adoption of new technologies to make modular, or prefabricated, buildings.
‘‘Use of prefabricated housing and modular units at scale could provide the productivity kicker that the residential construction sector so desperately needs, if it is consistent with buyers’ preferences,’’ Kendall said.
Some people building their own homes choose prefabrication because of the speed of construction, such as Kapiti Coaster Pip Payne, who found the build times quoted by traditional building companies to be just too long.
‘‘They said, ‘We can do it – probably – in nine months.’ They had all the power,’’ Payne said.
Traditional builders would also not guarantee the price, which could escalate during the build.
‘‘So the only way to go was prefab,’’ Payne said.