David Hargreaves says the Auckland housing market has gone cold at exactly the wrong time. And does the sudden focus by politicians on our largest city's infrastructure imply a sense of defeat on housing?

By David Hargreaves

It wasn't meant to be this way.

Go back a few years and the National Government was talking up a pretty good game about how it was going to get the building of new houses rocketing ahead in Auckland.

And yes, the numbers of houses being built have increased (because, goodness, they needed to) but not in anything like the volumes this Government was predicting.

In the meantime immigration numbers have gone up and up, meaning that the shortfall of Auckland houses that existed a few years ago is simply getting worse.

Now, I fear, that with the house market going very quiet, we may see further disincentives for people to develop. Certainly it's not going to encourage the banks, who have already considerably reined in their lending criteria, on top of the 40% deposit rule imposed by the Reserve Bank on housing investors.

As I suspected, with the spectre of ever-rising house prices currently removed, our politicians are moving their eyes in other directions. Suddenly infrastructure is big.

Now of course, if some constructive initiatives are put in place for Auckland's infrastructure, that should help housing longer term. But I can't help think that the politicos are just simply moving on to the currently sexy topic. And house prices suddenly are not sexy. But they will be again, if Auckland doesn't sort its act out and build enough houses to start pegging back the shortfall.

There needs to be a proper plan and central and local government need to get the buy-in of the building industry and the banks. Either that or bite the bullet and build the houses themselves.

I've been prompted to write this by the appearance of the latest, annual, (this is the fifth one done) National Construction Pipeline Report from the Ministry of Business, Innovation and Employment; this one oddly, released on a Sunday - when previous ones had been issued during the week.

The report contains updated predictions of new house building activity in Auckland measured by forecast consent numbers in coming years.

Taken in isolation, the figures look pretty good.

However, if you compare the latest forecasts with those going back two years, contained in the 2015 report, then the amount of slippage against targets becomes all too clear.

And just finally, here's a graph from the latest report again, this one showing the annual projected figures as per the latest forecasts.

Yes, the Auckland housing new build consents have gone up a lot in recent years. But, if we look back at the forecasts from two years ago, the report then was forecasting that Auckland would have a new high of around 13,400 consents LAST YEAR. In reality, just over 10,000 were consented in 2016. That's a 25% shortfall on what was forecast.

In releasing the 2015 report Nick Smith, who was then both Building and Housing Minister (the Housing title was retired by Prime Minister Bill English late last year), talked enthusiastically about Auckland's prospects.

"I am particularly encouraged by this report’s projections that 80,000 new homes will be built in Auckland for the forecast period of six years to the end of 2020," he said then. "This compares to only 30,000 built over the past six years and signals a massive building boom. It indicates that the measures by the Government and Auckland Council to increase supply are working."

Whopping shortfall

The reports generally don't provide the raw data on which the graphs are based, but taking the graphs from two years ago and putting them up against the latest ones would suggest that even if the forecasts for the next four years are now correct, the best that's going to be achieved in that 2015-2020 period will be about 68,500 consents, a whopping 14.3% short of Smith's trumpeted 80,000 figure. The shortfall of houses, at around 11,500 would house about 34,500 people - which is somewhat less than the numbers of immigrants arriving in Auckland every year at the moment.

When he released the 2016 pipeline report, Smith again trumpeted progress in Auckland, saying: "The growth in residential activity in Auckland is particularly encouraging as it forecasts that next year more homes will be built in Auckland than ever before.

"Residential construction has been growing at more than 20% a year in Auckland for the past five years and is projected to reach an all-time high of 13,332 homes in 2017, and to stay at those record levels until 2022."

Record delayed by two years

In the 2017 report the target for Auckland has been trimmed back to just over 11,000 - and now the record peak is not tipped to happen till 2019. For the record, the actual number of consents in the first six months of this year was 4771 - so even making 11,000 now could be a stretch.

Little wonder then perhaps that Smith, having talked up Auckland in his past two pipeline report press releases, this time took a more nationwide focus.

In the release that came out on Sunday, he said: "I am particularly encouraged that this report shows even stronger growth than last year’s report. The peak has increased from 30,000 per year to 34,500 per year and 12,000 more homes being consented over the next three years.

"It shows a far wider spread of new home construction to the regions rather than Auckland and Christchurch."

Yes, that's right, "rather than Auckland and Christchurch". Well, I'm sure the Auckland folk would 'rather' see a few more homes being built in their area. I thought that was actually the whole point. Remember this was a Government that steadfastly refused for a long time to take part in anything that might dampen demand in the market. The mantra was it was all about supply. They would ramp up the supply of Auckland houses.

Not fast enough

And yes, the number of houses being built in Auckland has risen from critically low levels - but nowhere near fast enough.

The problem is not going to go away - just because house prices aren't shooting up at the moment. The problem of a constrained Auckland market and out of control prices will resurface at some point unless there is some practical solution arrived at by which the supply of houses can be easily ramped up.

If the experiences of this Government prove anything, it is that you can't just talk something into happening. You can have your housing accords and the like and pass all sorts of rules, but if you can't make builders put a spade in the ground, and the bankers give them the money, it ain't going to work.

Remember, as many as 25 of the Special Housing Areas that were established in Auckland from 2013 up till last year saw NO consenting activity at all before being disestablished earlier this year.

Solutions are needed. Our politicians of all stripes now appear to be ducking for cover.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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42 Comments

Isn't more people leaving Auckland for Tauranga than arriving, so where's the problem

Tauranga?

Yeah, it is small little city that builds about 50% faster than Auckland.

And 100% cheaper

Is there a big fence around Auckland and Tauranga containing this?

I'd say Auckland housing market has gone cold at exactly the right time for National to prove that the so called 'housing crisis' is gone and we can now go back to BAU...so 3 more years.

Yes, as far as I can tell there is no problem. There are houses aplenty to buy and rent. Problems are caused by massive house construction when it is not necessary

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The problem's not that there aren't houses to buy, there aren't enough people who can afford them.

So now youre agreeing the market has gone cold...

Indeed, if something tangible isn't done soon to address the shortfall in new houses being built in Auckland, then house prices will quickly be on the march again.

But just how likely is it that Auckland residential house construction will pick up to meet with demand........??

In my view, the current softening in the house prices (though welcomed by many) is unlikely to last........

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.....just who is left who can afford to pay? One can still have a shortage with prices dropping. Its about affordability...which is about to be reset at much lower levels.

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An alternative view is that current Auckland house prices are due to a speculative bubble - which could implode at any time - and have nothing to do with supply.

Doris , you are questioning a religion. When followers lose confidence in their prophet .

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Got some election materials from National the other day. They're still talking about how they're rocketing up supply.

Seems awfully like just plain old lying, to me.

What's most interesting to me is housing consents in Auckland were already trending downwards well before the GFC.

Anyone able to enlighten me as to the cause?

NZ did go into recession a year or so before the GFC.
Maybe 9% interest rates by then restraining new build demand?

Thanks. My other thought was leaky home syndrome scaring away customers. Either way a drop of 4,000 homes per year is significant in "good" economic times.

Actually, thinking about it - The Finance Companies were going pop then.

They were the source of finance for developers of the apartment blocks.

Just before the GFC Auckland Council made modifications to the CBD (PC2) and Newmarket (PM 196) Plans that stopped apartments. The PAUP has fixed some of this. Pretty much no apartments were built in Newmarket during the PM 196 years as it required 20% of apartments to be 90sqm + decks (which meant around $1M sale price at the time).

If you can't make builders put a spade in the ground, and the bankers give them the money, it ain't going to work

Darn tootin' right.

It looks to me like some sorta Compulsion is gonna be needed to get anything moving, because the current modus operandi won't, and for perfectly clear reasons:

  1. The Planning is local, and incompetent at that, but the economic drivers - immigration, banking, building standards, materials costs are all central, not to say Cartelised
  2. The building industry would be quite familiar to someone from the 19th century, plonked onto a building site. A couple of days to come up to speed with nailguns, glues, portable power tools and materials, and they'd be clonking frames together in the rain along with the best of 'em
  3. The price of land screws up everything on top, so that';s why it's only worth building large footprints, and for the upper quartile of the market
  4. TLA's, desperate for non-Rates revenue streams, charge for everything they possibly can and, like the financiers, are adept at inventing ever longer chains of tickets to clip. And as a local monopoly, fat chance of getting any competitive behaviours to sort That out.

So the way forward will have to involve some combination of the following:

  • Remove TLA's incompetent hands from the Planning Tiller by simply nullifying all local Plans, and letting the effects-based RMA handle the lot
  • Remove BRANZ etc control and simply adopt whatever international standards seem appropriate for materials. We don't use BRANZ to certify materials for boats, caravans or planes, Why do they need to be in the loop for Houses?
  • Housing factories - lotsa them. Everything CNC, fitted out in QC conditions, under cover. Litmus test: that 19th-century builder should be totally, utterly lost on the factory floor.
  • Land, of course. So compulsorily acquire every scrap of greenish land wherever thought appropriate, use Kiwisaver investors to finance it as there will be a return as it's developed and sold, and develop/sell it using the usual PPP approach. But, and importantly, the CG thus invented has to stay largely in the public side (KS returns, Gubmint's General Account) and applied largely to the replacement aspects noted above - getting factories, standards, etc up and humming, and a bit of trust-busting amongst the Cartels.

A thought experiment, of course - the safest kind....but at least it is Relentlessly Positive (unless yer a Planner).

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it's worth remembering at times like this that, indeed, government was an active participant in encouraging the supply of affordable housing through most of the 20th century, including through state housing, direct builds, public-private partnerships (e.g. with Fletchers), finance etc.

It's exactly why we ended up with plentiful, smaller and affordable houses up till neoliberalism caused the abandonment of all such efforts in the late 20th century.

It's plain that the government's current approach of leaving it to the market isn't working, and indeed NZ's own history has never seen it left to that successfully. And it makes no sense, given the health costs of our substandard rentals, and the predication of our pension on folk owning their own home in retirement.

Both the market,and government, are imperfect.
I believe that if the planning system was set up properly in the early to mid 2000s, we wouldn't be in this crisis now.
But it wasn't. And we are.

Poor local (planning, infrastructure) and central government (migration settings, insufficient govt house building, tax policy) policy is largely to blame for our crisis. And it will need the government to get us out of this pickle, as the market is screwed now.

Labour's policies are the best to help sort this mess out:
- Kiwibuild
- Reduce low quality student visas

And btw, I say this not being a Labour apologist. In fact I think the Clarke Labour government has a lot to answer for in terms of this crisis. I voted National in the last two elections, but they have patently failed in sorting this mess out.

Agree...Seems like neither private nor public necessarily achieves the right balance, but together things can work out a bit better.

Coincidentally I've mostly voted National over the years (and never Labour). Still undecided this time around, albeit I've gone off National due to the housing crisis mishandling and a few other things.

"We don't use BRANZ to certify materials for boats...."
A guy at work told me that he had replaced some rotten ply on his power boat with..... non marine plywood suitable for a house!
Imagine buying that boat!

Remember, as many as 25 of the Special Housing Areas that were established in Auckland from 2013 up till last year saw NO consenting activity at all before being disestablished earlier this year.

Some people living Auckland may have forgotten what a functional market is supposed to look like. When a plan is made to allow for building activity it is supposed to provide enough choice that some of the area is not used.

Which brings us back to the cause of all our problems - the Auckland Council.

The land costs too much, because our idiot council does not allow for choice of land to develop in Auckland. And infrastructure costs too much, because our idiot council supplies an overabundance of choice to every sprawling exurb.

If only our central government had the power to bring about major change at the council level, imagine what they could achieve. They could really effectively address the housing crisis, even.

Or perhaps they could bring about a consolidation to achieve economies of scale and deliver more efficient and cost-effective services to ratepayers. Perhaps they could call it a "Super City". That would be marvelous.

Point is, it's easy to blame it on the council to excuse central government, but the central government has plenty of power to act when it wishes to.

There's a significant chance than Winston Peters could be Prime Minister after 23 September. (That possibility can't be dismissed.)

I'm wondering what it would throw into the equation......

Any thoughts?

Well, for a start he'll be asking for lower immigration from prospective political partners. That will help.
Secondly, he advocates some quite interventionist approaches to housing.
On both counts, he is a closer fit to Labour than National.

Here's their policy on housing:

http://www.nzfirst.org.nz/housing

Bring in some competition products make building cheaper.
Currently we can only get one brand of dry wall.. and it's not even that good!

As an outsider to the building trade, I find it really strange that there is a lack of competition in the building products sector.

We have Placemakers (Fletchers), Carters, Mitre 10, Bunnings, ITM - as Building Supplies retail/trade suppliers.

Imagine if we had 5 supermarkets, or insurance companies, or cellphone networks to chose from. Bliss.

How on earth can those guys not be competitive?

Penfold it's in part because we have a performance based environment for building products. A product with an extensive and detailed technical manual is more useful that most of the commodity products that are offered.

An example is that NZ plywood has fire test information available, whereas plywood sourced from South America has no fire test information available. For non-residential applications it makes the South American plywood worthless as there's no evidence supporting how it performs.

Just one example of many and most product suppliers are basically commodity traders. They are confused at having to provide evidence and don't want to invest the money. The potential competition would need to get serious about our tiny market, but that's only happening in some focused cases.

A friend has been doing new builds in south Auckland for >10 years, registered Master Builder, won awards. For the last 2-3 years, he had a couple houses on the go and several others where owners would wait for him to build their houses.

Spoke to him recently, just finished a property and nothing in the pipeline.

In the established area I am in, there isn't really any further infill being built. There are a few leakers being fixed but not so many these days. What I am seeing though are a number of old houses being demolished and replaced with big new ones. Or houses being extended.
Overall, not many additional houses at all.

Same here. The Unitary Plan is a damp squib so far. It appears new builds are taking advantage of the higher site coverage allowances but otherwise it's doing little to change the existing density.

Just remember that most of the time the market is right ............ and its gone cold because it senses that with all available information......... its time to slow down

Well said Boatman

When we look at consents why is the composition of the consents avoided in these articles. Auckland regionally has the largest percentage of 2 story dwellings in New Zealand , and the largest percentage increase in dwelling type between 2001-2013 was 5/6 bedroom homes. Individuals live in homes, not parts of, yet individuals are sectioned into fractions to attest to a housing shortage, whilst the type of building is overlooked.

Looking to build in Rodney, got quoted over $2800 per sqm, and not many builders are very keen. Seems they are still busy.

Still no-one questioning the belief that Auckland needs to expand forever?
Still no-one questioning the belief that your life is over if you don't live in Auckland?
Still no-one with the guts to set a target/limit on the Auckland population increase/ecoterrorism??
All concerned with house prices though!!

Am at the moment asking Auckland council to approve some work on my property, Close to $30k later on fees and plans am no closer to getting approval. A family member is in the same predicament for a lesser project close to $20k before a spade enters the ground. This is for additions to existing structures needing consent. And we wonder why there are not more new houses???

I've just been to see the massive sales and display centre for public own your own housing in Singapore http://www.hdb.gov.sg/cs/infoweb/about-us/our-role/public-housing--a-sin...

There is no doubt that some nations have it completely sorted and on a huge scale. It may not be the type of housing we want or need, but the concept is clearly working. Planned communities funded and developed by GOVERNMENT not the private sector. There's no private sector player big enough to do this in Auckland and piecemeal development is not working.

We have Hobsonville Point and that about it. Only one lone project, with Northcote maybe to follow.

We need a bigger vision at the highest level and maybe the right wing economists to admit that the free market will not build at cost or less.