Westpac economists don't see any chance of an "excess" of houses in Auckland, even with what they describe as "a massive number" of new homes still being built in the city.
In Westpac's latest Weekly Economic Commentary senior economist Satish Ranchhod said that housing pressures in Auckland mean that it is typical to see an outflow of its residents to other parts of the country.
"An abundant supply of housing would help to stem the exodus of Aucklanders, bringing demand and supply back towards balance," he said.
He said that per head of population, "there are far fewer homes in Auckland" than there are in other regions.
"And even with rapid home building and low population growth, that’s set to remain the case."
Looking at the country as a whole, Ranchhod said New Zealand is building new homes at a rapid pace.
"However, conditions in the construction sector are changing and a slowdown in building activity (rather than a crash) is on the cards over the coming years.
"At the same time, slower population growth means that the shortages that developed over the past decade are now being rapidly eroded. Even so, we don’t think that the country is at risk of having an ‘oversupply’ of housing."
Ranchhod noted that construction activity, especially new home building, has been a key driver of economic growth and employment in recent years. In addition, there is a large pipeline of planned projects, with over 50,000 new dwelling consents issued over the past year.
"However, the ground has shifted under the construction sector with changes on several big fronts.
"First are the skyrocketing costs of building, with operating costs in the residential construction sector rising by more than 10% over the past year alone. Those increases are in part due to earlier shortages of materials which have now started to ease. However, the sector is also grappling with an ongoing shortage of skilled staff, which has seen labour costs rising rapidly and widespread poaching.
"Compounding the financial headwinds for the construction sector has been the rise in interest rates. Like other central banks around the globe, the RBNZ [Reserve Bank] has been hiking the cash rate [OCR] at a rapid pace, and further sharp increases are on the cards before the end of this year. We’re forecasting 50 bp [basis-point] increases at the next two policy meetings, which would take the OCR to 4.00%."
Ranchhod said that in addition to the increases in operating costs, house prices have been tumbling.
"Prices have already fallen 8% from their peak, and we think that there are further declines yet to come. We’re forecasting that house prices will fall by a total of 15% over 2022 and 2023 combined."
But while consent issuance was set to "trend down", the slowdown in actual building activity was set to be more moderate.
"In fact, we expect that building activity will remain elevated through the back part of this year and early part of 2023. While consent issuance has charged higher over the past few years, building activity has not kept pace. Earlier shortages of materials and staff have seen completion times stretching out. That means there is still a large backlog of projects in the works."
Over time, building levels are set to ease back, as existing orders are filled and fewer new projects come to market.
"But that will be an easing from very high levels. Furthermore, with a large number of planned projects, we expect any softening will be gradual (rather than a sharp fall) at least over the coming year."
13 Comments
He’s talking the same kind of nonsense that Kelvin Donaldson is talking.
Yes during the boom phase of an economic cycle a large proportion of consented dwellings get built. But in the bust phase, the proportion falls dramatically.
He’s right that building activity will remain buoyant through to early next year, as many of the building projects underway won’t be completed until then. Where I think he’s very wrong is in the extent of drop away next year. He thinks it will be small, I think it will be relatively large.
my pick is there is going to be a big fall in the next wave of building projects commencing, from around now.
Everything happened because of 4 entities working together
realestate agents
banks
House and land package builders
developers
these are the once who is making living unaffordable , most of the consultants in the middle including council gets paid for nothing and it just pays themselves
most builders don’t do the job but subcontract. And thus will make it more expensive
"First are the skyrocketing costs of building, with operating costs in the residential construction sector rising by more than 10% over the past year alone. Those increases are in part due to earlier shortages of materials which have now started to ease. However, the sector is also grappling with an ongoing shortage of skilled staff, which has seen labour costs rising rapidly and widespread poaching."
Is it possible that this phase is an aberration, not a new normal. Risen (or skyrocketed) costs abate, wage rises return to normal in 2023.
Westpac presents its views, in some ways, an about turn of Kiwibank. Bank economists have their say.
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