The Covid pandemic is giving New Zealand the opportunity to "finally deal" with its housing shortage, according to ASB senior economist Jane Turner. But there is some risk attached.
In ASB's Economic Weekly Turner says population growth over this year is set to be "very soft" by historical standards due to limited Managed Isolation capacity capping net migration.
With construction "holding up" at record levels, the country can can finally make good progress in reducing the extent of the housing shortage, Turner says.
"NZ can probably overbuild for a good couple of years before housing stock is at risk of being ‘over supplied’."
But this approach, if not carefully managed, "comes with some risk", Turner says.
"Price signals are the catalyst for private investors to build – higher prices for existing housing stock increase the incentive to build new houses.
"This risk is, come 2022 and 2023, if population growth does not recover fast enough, will NZ be set for a rather uncomfortable correction in house prices and housing construction?"
Turner says building activity figures released by StatsNZ last week confirmed that construction activity continued its post-lockdown recovery "without skipping a beat".
"Building work completed over the September quarter lifted a whopping 35% - with residential building activity leading the charge and activity surging to above pre-Covid levels.
"Strong demand from an on-going need for additional housing continues to support residential construction activity.
Turner says earlier this year, when expectations for the economy were grim, the ASB economists had expected that pending construction plans would be ditched "amid heightened economic uncertainty and rising unemployment".
"However, NZ’s stoic ability to keep calm and carry on proved economists wrong – the NZ economy quickly pulled itself together after lockdown and NZ housing demand is possibly the strongest since the 2006/07 housing boom."
On migration, Turner says prior to the Covid outbreak, net migration into NZ had surged over the second half of 2019 – likely in response to the increasingly tight NZ labour market and demand for skilled labour.
"Given the change in methodology for calculating NZ population growth by StatsNZ, the sheer strength of this population surge wasn’t immediately clear.
"Now it is.
"NZ’s housing stock was already stretched due to chronic housing shortages which have emerged right across NZ. Despite NZ housing construction rising to record levels, it has not been able to keep pace with population growth."
26 Comments
It has to be official now. To paraphrase H L Mencken in 1920:
“As democracy is perfected, the office of Govt and its advisors represents, more and more closely, the inner soul of the people. On some great and glorious day, the plain folks of the land will reach their heart's desire at last and we will be Governed and advised by downright morons unless in their own self-interest they are smart enough to act this dumb, and we are stupid enough to believe them.”
"This risk is, come 2022 and 2023, if population growth does not recover fast enough"
Recover is not a word I would use here...it is the word of a brain dead economist who thinks we can grow ourselves out of a hole. Recover is when you get well. We are recovering now as immigration is on hold. Let the 'recovery' from low or no immigration continue.
Sadly I fear you are correct. They would rather continue to listen to vested interests than listen to expert evidence - see recent NZIER report for productivity commission. https://nzier.org.nz/publication/could-do-better-migration-and-new-zeal…
It is interesting to observe the strident and sometimes vicious opprobrium heaped on boomer investors for their part in inflating house prices. In stark contrast to the muted commentary about reckless government policy that has created one of the highest migration rates in the developed world, dramatically distorting the housing supply/demand balance and delivering real pain to our young people. 'Investors' as a group includes buyers of various ethnicities and ages but you'd not think so to read the angry anti boomer tirades from would be FHBrs in which old white guys are apparently solely to blame for their predicament. The millennial team have instead jumped on a convenient and easy boomer scapegoat bandwagon, allowing them to sidestep the core issue that got us here in the first place. It's a failure of honesty and old fashioned moral courage.
Let's really focus on drastically reducing the demand. Much faster and easier than increasing supply. We need to put the interests of our low income earning renters and aspiring FHBs above the interests of landlords, migrants, banks and business owners relying on slave labour.
IO. What do you think of the lament that our homeownership rates are dropping as though this is a bad thing which needs correcting, given we have intentionally accepted an inflow of migrants that we knew would overwhelm our infrastructure and superheat our housing market ? I suggest it is nonsense to compare data from previous low migration periods and conclude that we are miserably failing. The notion that a new NZ resident from a developing economy should rightly expect to own a year or two after arrival is just silly.
I hope the most discriminated ethnicity in NZ (the third largest/variety of Asians), can snap all these housing stocks, it's no longer a shortage. And while the iron is hot, the opportunity are still opening right now to make it more unaffordable, flip it among themselves - so the rest of current govt favorable ethnicities/mentioned every time the second & fourth largest ethnicities can be a good long term tenant, subsidised rental assurances by the govt.
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