Kiwibank economists believe that New Zealand's housing supply should be able to meet demand by 2024 - and we may even see some over-supply, leading to affordability.
And they predict that after peaking at around 25% in the current quarter, house price growth could drop to around 1% by the end of next year.
In a Kiwibank Inner Kiwi publication, senior economist Jeremy Couchman says that the Covid pandemic has provided a rare opportunity for NZ to balance its housing market.
He says in a "rare silver lining to the Covid crisis", NZ has for the first time in eight years produced a surplus of homes, according to Kiwibank calculations.
"With a drop in population growth, builders are catching up.
"But the 13,000-home surplus generated last year only nibbles around the edges of NZ’s huge shortage - which we estimate to be in the order of 67,000 houses.
"We estimate that it will take at least three years to balance the market, dependent on when, and how, our border fully reopens."
Couchman says balancing the housing market with more affordable dwellings is the best way to tackle affordability and widening inequality. And allowing the supply of dwellings to better respond to future demand is key to success.
"Our ability to generate a surplus of houses in the last year was largely due to Covid," he says.
'Net migration has almost evaporated'
"Our closed border has meant net migration has almost evaporated, leading to a fall in the demand for new housing. After peaking at 90,000 people in the year to March 2020, net migration added only a tenth of that figure to NZ’s population this year. At the same time, the supply of new housing continues to rise. We’ve experienced the fastest rate of growth in supply since the 1970s, and supply growth continues to accelerate."
So, Couchman says, a time when the country will no longer have a housing shortage "now looks to be within reach".
The Kiwibank economists are "hopeful" the border fully opens by the middle of 2022.
"On the supply side, recent building consents suggest the pace of building will rise further over the year ahead.
"We have pushed the envelope of our housing supply and demand model to provide an estimate of when the housing shortage will be addressed.
"At some stage in 2024, supply should meet demand. And depending on appetite on both sides, we may see the accumulation of an oversupply. That’s increased affordability."
For the moment, Couchman says he believes there is enough momentum in the market – with its chronic shortage of listed property – to see house price growth peak at around 25% year-on-year in the current quarter.
"However, affordability constraints, new housing supply, and recent policy changes are expected to start taking the heat out of the market. The return of LVR restrictions on investor mortgages on their own may not have been enough to tip the balance. The recent surge in house prices has helped to push up investors’ equity on existing portfolios. Equity that can be used as a deposit for additional borrowing.
"However, combined with recently announced tax changes, policy should pack somewhat of a punch on the investor side of the market. Overall, we see a deceleration in house price growth this year and next, hitting a low of 1% year-on-year by the end of 2022. Recent developments mean that even if the RBNZ is given the OK to have DTI [debt-to-income] restrictions and restrictions on interest only lending in their macroprudential toolkit, the Bank may no longer need to use them. Certainly not immediately anyway."
'Supercharged inequality'
Unfortunately, Couchman says, the current housing crisis has "supercharged" rising inequality.
"And while a reduction in the housing shortage is encouraging to see, we still have not addressed a fundamental issue. Housing supply is simply far too slow to respond to changes in demand.
"The current shortage goes hand-in-hand with a lack of new housing-related infrastructure. The Government’s announcement of the Housing Acceleration Fund is welcome but long overdue. Unfortunately, at just under $4 billion it feels a little underdone.
"The Government’s Budget on May 20th might have more to add – we certainly hope so. And the fund ignores the years of underfunding of existing infrastructure in many of our older cities. Densification of housing will be hampered if infrastructure is not up-to-scratch.
"Finally, more needs to be done to speed up and lower the cost of construction. A revamp of the Resource Management Act is certainly part of the solution.
"If housing supply remains too rigid in the future, then we are likely to see a case of history repeating itself."
41 Comments
Independent economist Tony Alexander made a more deeply analysed however similar comment a few weeks ago. He predicted a gross housing surplus within 5-7 years at current building and population estimates. This wouldn't be uniformly felt though, eg Auckland still under pressure.
However what will likely happen as the supply builds & demand declines is that prices are under more competitive pressure. At which point builders will start to build less & some will leave eg. for Oz: the typical NZ boom/bust building process repeats as it has for decades
Ever since I've lived in Auckland all population estimates have been under-estimates. What chance it will be different in the next 5-7 years? Pigs will fly before either of our political parties produces a population plan.
Kiwikidsnz predicts more NZ boom/bust building cycles - who disagrees?
It is almost solely contingent on how many people the government import over the next few years, to artificially increase the population. I can see them importing a lot as soon as the border opens to catch up, but where are they going to live? Also the low interest rates are not helping, because people ware just moving their money out of the bank and pumping it into houses for both potential capita gain, and also to reduce their risk of taking a haircut if banks crash. Last year so many people were worried about banks collapsing, and then people moved their money out of terms deposits after they matured, and parked it into cash accounts until a asset buying opportunity arose. I can see some people losing out as there are winners and losers when this sort of thing happens.
Where are they going to live? That one is easy - Leveraged landlords will be raising the rents steadily in the next few years, pushing current tenants down the rental hierarchy to somewhere crappier for the same money, which opens up a nice slot near the top for highly skilled/paid new arrivals (or more realistically, new arrivals desperate and willing to put all their income towards rent)
Except they don't exist because there are no official figures on how many there are. So even though NZ may have over 100,000 vacant houses, and are shorty 80,000 houses, this is ignored. Just like there are no figures on how many houses the top house investors in NZ own.
I wouldn't think anyone would care how many houses landlords own on an individual basis unless you are a fanboy. The Air BNB and empty house numbers are important, but there is no political will to shine light on the overall housing picture for fear of having to deal with it.
You can picture it now. If the "paper figures" don't look good, the opposition will hammer the point, added by media, until the average NZer believes armageddon is approaching. So Labour are tossed out, Nats move in and it's back to the immigration free for all anyway. It's a no win situation, with a public that's basically reality illiterate! Although that's largely down to the nonsense media feeds them!
“After peaking at 90,000 people in the year to March 2020” – and yes, complete madness.
But talk today of immigration policy reforms from Faafoi:
"We will be looking at further adjustments in the weeks and months ahead, including work on immigration policy reforms.”
Reform is so very obviously overdue – as always, there will be a huge amount of push back and scary sounding noises from the usual vested interest groups – however, the mass migration nonsense with all its negative associated impacts has simply got to stop.
Watching and waiting with interest (pun not intended).
"At some stage in 2024, supply should meet demand.'
Yes and since our supply and demand cycles are countercyclical to each other rather than in sync, there MIGHT be one point on a certain day when supply should equal demand, and like the stop clock at least being right twice a day, the economist will have their 'day in the sun.'
But what about the other 364 days and years post and prior?
Our system is designed for boom or bust, not a balanced supply unless you want to count that one day in time when the supply and demand curves cross.
There were 90,000 net immigrants in the year to March 2020. And this was from the party that promised to reduce immigration from the levels National were running. I would not believe a word from National or Labour on promises to scale down immigration. The truth is we were saved by Covid from an even bigger housing crisis.
Until the RMA refresh I don't think it's worth speculating. Potentially if councils are forced to open up new brown and green field sites, mirroring past and future population growth, we might reasonably expect this crisis to finish very abruptly. The capability exists to build thousands of cookie cutter affordable houses very rapidly, there are companies out there that can take a block of land and churn out high density housing estates within a year or two.
Don't underestimate the RMA refresh, this is a high-impact event in politics and an opportunity to pivot housing to the supply side.
There is no housing shortage. What are there like 20k families living in tents because there are literally no homes?
This is a debt crisis. It's debt which allows leverage, meaning existing asset holders goble up the stock available. Nothing to do with supply.
Ban io loans or introduce penalties for using leverage to buy property and see how long that shortage lasts.
Demand for what?
Rented accommodation or private mortgage?
Are we referring to people with financial wherewithal cannot find anything to buy?
What is scale of that problem relative to problem if those who cannot afford to buy and who are renting overpriced and overcrowded shoe boxes?
More generic unfocused projections
Bit like the 67000 shortage fig bandied about
Based on what calculation?
The article is full of PC nice words like affordable housing and densification. If you build up the higher floors cost 2 to 4 times as much as one level dwellings. If there is a surplus of houses that means the new houses will not get sold and the only logical solution for that is the builders will stop building. Sure there are a lot of house and land deals but not many spec homes are being built. If the supply chain is broken there may be some construction stopped half way through but we are more likely to see empty sections. Several subdivision developers have told me the banks are wary about lending on subdivisions unless there are presales in place. That is why there are so few empty sections available to buy. The builders are snapping them up before the sections hit the market. I would love to hear how many subdivisions Kiwi bank has funded.
I've been thinking about why we have a housing shortage in NZ when we have more houses per head of population than we've ever had. The rate has actually decreased from 2.7 to 2.6 people per house over the last 40 years, and this is from the early 90s when home ownership was at it's highest.
It can't be caused by investors buying and renting houses, for while they compete with first home buyers, they generally keep their houses in the rental pool.
It has to be caused by the unoccupied homes rate increasing from 8-11% over the last 30 years.
Effectively people owning more than one home they don't permanently occupy.
I have heard a number of stories of people owning 2-3 properties, such as a main residence, a bach (which nowadays is effectively a house) and a another property that are not rented.
Even shoreman (on here) admitted to owning 3 houses houses that are not permanently occupied. I know of at least 3 other cases of people in this situation.
Here in lies NZs housing problem.
We have enough houses, they are just being owned by fewer and fewer people. There were almost 200k unoccupied dwellings in 2018.
If a 3rd of these moved back into the housing pool, we could instantly home another 150k people.
And by our own argument so is a little old lady living in a 5 bedroom house a waste of housing resources.
So it's alright for a city person to own a beach bach but not a farmer to own a city apartment as their bach?
And your using Gross figures on unoccupied homes so the real amount is a lot lower, and is immaterial to what we need to do to solve unaffordable housing.
Next time you hear "highest ever sales" bear following in mind:
As pop rising all time, you would expect rising sales?
2014 Auckland pop was 1.4 million
2021 it is 1.7 million, or 13% up.
Meanwhile 12 month sales to March 2014, according to REINZ data were 30,221.
In 12m to March 2021 they were 31,733, or up 5%
Auckland pop in 2000 was 1.2m and 12 month sales to March 2000 were 24,155
So, last 12m sales are up 31% and pop is up 41.6%, compared to year 2000.
Crucial metric would be (if it were presented, which it is NOT) sales as a % of housing stock in private ownership, in a given month or year. This requires proper consideration of denominator and scale in stats, rather than meaningless trumpeting of word "record"
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