There needs to be an enduring solution found to the issue of ramping up - and indeed down - house building activity so that we are building the right numbers of houses for the market

By David Hargreaves

There probably isn't one single thing that's going to provide a magic answer.

Somehow or other though, New Zealand needs to piece together what's looking an increasingly complicated jigsaw of how to get a residential building market that is as quickly responsive to requirements as it needs to be. Because it isn't.

Now, perhaps talking about 'New Zealand' maybe is not right. Some parts of the country don't appear to be having too many problems ramping up the building activity.

Auckland, clearly there is a problem.

The National Government attacked the situation as if it was all about constipation caused by the planning processes and a perceived unwillingness of the Auckland Council to go 'out', to spread the city's reach wider - which sounded fair enough.

However, one Auckland Housing Accord later, we can look back at thousands of created and earmarked (undeveloped) housing sites, but a rate of growth in actual building activity that's been flagging recently.

People can and generally delight in pointing out where and when Treasury gets forecasts wrong. But it was pretty sobering to see in the Pre-election Fiscal Update (PREFU) such a huge revision in the Treasury forecast from just three months ago at the time of the Budget in respect to anticipated residential investment.

Three months ago Treasury was suggesting that residential investment - after strong recent gains was going to take a breather in the 2017-18 year - with a forecast 0.3% rise. Then, however, it was forecast that investment would surge 8.7% in the 2019 financial year and a further 8.8% in 2020.

Now just three months on and Treasury forecasts that the breather in the current year will turn to a slight - 0.1% reduction - in investment activity. That's not a big change perhaps. More worryingly, Treasury now has the bounce-back in activity in 2018-19 being a much weaker 4.5% rise and then another reduction in growth, to just 3% in 2020.

Picking up on the actual decline in residential investment that occurred in the March 2017 quarter, Treasury said this likely reflected "the impacts of higher mortgage rates, tighter bank lending standards and higher construction costs".

"Looking forward, strong population growth and still-low interest rates suggest that residential investment will pick up, although growth may be slower than previously forecast. Reflecting these developments, the outlook for economic growth is a little lower than in the Budget Update."

Additionally, Treasury says that nationally, activity in the building industry is at a high level and there is some evidence from surveys and discussions with businesses that the supply of labour and other resources are tight and are constraining growth in activity, particularly in Auckland. The pressure on resources is being reflected in rising construction costs.

Slower pace of growth

"Looking ahead, still-low interest rates and strong population growth will continue to support housing demand. However, tighter financial conditions and higher construction costs point to a slower pace of growth than previously forecast, although it is difficult to know how much of an impact these developments will have or how persistent they will be."

It was pretty remarkable in Auckland to see that of the 154 designated Special Housing Areas created under the Housing Accord that 25 of them saw NO activity at all - not so much as a consent - before they were disestablished.

Whatever the problems with house building - especially in Auckland - these do not begin and end with red tape, or so so the Housing Accord experience would suggest.

And it's bothering to see building companies getting into trouble, still, when the environment is so apparently conducive, indeed crying out for, new housing.

Readers suggestions on this are welcomed. There seems to be a whole structural issue here that is not being addressed.

Running against constraints

Now, it might be argued: Okay, don't just wait for the private sector to build houses. Don't just stick to the Government's previous mantra of "if you create the conditions for them to build it - they will come". Build them yourself. We've now got the current Government itself starting to get more directly involved in building and of course Labour's planning to get very much into that directly if it can form a government after the election on September 23.

However, given that finding building labour appears to be a problem, coupled with increasing cost of materials - well, surely any direct Government-sanctioned building activity is going to run up against many of the same constraints.

So, even though bank funding might not be the problem it appears to be with private sector at the moment, any Government wanting to get its hands dirty with a lot of house building may well find it struggles to meet targeted numbers in targeted timeframes - and cost blowouts would look to be inevitable. What does that then do to the ambition of 'affordable housing'? If the housing is indeed made affordable for the end user - then with Government sponsored building programmes it looks like the taxpayer might have to heavily subsidise it. And there's definitely downsides to that.

The concern remains that if the housing market does remain subdued after the election then the various complications, difficulties and costs associated with ramping up housing development, principally in Auckland, might not seem worth it. The whole thing could start getting parked in that basket marked 'too hard'. This would be a big mistake indeed.

The fact that house prices are not rising the way they were at the moment though should not disguise that fundamental supply problem in Auckland - one that is worsening by the day.

Push-back on macro-prudential tools

The other part to all this is the 'anti' mood that is sweeping our politicians regarding the Reserve Bank's macro-prudential tools, the most well known of these of course the loan to value (LVR) lending restrictions.

When the macro-prudential tools were signed off by then Finance Minister Bill English in 2013 it was agreed that they would be reviewed in five years time.

Now there's not much information available out there on what form the review - due to take place next year - will take. The RBNZ is not commenting on it.

What can be said is that a new Governor of the RBNZ will be coming in next year in time for that review. It's not beyond the bounds of possibility that the RBNZ will be pushed right back on those macro-prudential tools. At the very least it's clear that it would be a cold day in hell for both Labour and National before they ever allowed debt-to-income ratios.

It's not a problem removing demand-side restraints if you are confident that you've got the supply situation sorted out. The concern could be though that we are heading for a situation where the new Government, whoever forms it, moves to squash some of the existing and potential demand restraint measures - but isn't able to convincingly address the supply side.

If Auckland's supply shortage is not seriously addressed then at some stage the market will take off again and the whole cycle begins to repeat. Okay, it could be argued that there must become a point at which the whole affordability issue does act as a brake on prices. But we haven't really got there yet, and arguably we don't want to test just how stretched those affordability ratios can go before the rubber band breaks.

Sounds simple

Building a house sounds simple but in New Zealand and in Auckland, for whatever reason it does not appear to be. There's a fundamental issue here that needs working out before rash promises are made and maybe heaps of taxpayer money is committed.

Somehow or other there needs to be a firm commitment made to build the numbers of houses in Auckland, particularly, that will start to address the shortfall. At least a couple of years of 20,000 houses per year would seem in order. That's more than double the number physically built last year.

It's not clear the extent to which the Government has sat down with the building industry and genuinely discussed this. This Government has seemingly assumed that by creating an environment in which some of the worst excesses of our planning restraints are avoided this will produce houses in the number desired.

Seemingly we need to work backwards - have a definitive target and discuss with the industry itself how that might be done.

Unless we work out a convincing method of both gearing up and gearing down our building industry without undue pain then the sorts of issues we've seen around Auckland and affordability will keep re-occurring.

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?

We welcome your comments below. If you are not already registered, please register to comment or click on the "Register" link below a comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.

52 Comments

Building houses takes time. There are various forces at work that change demand:
1. having children, about 20 years later you need another house
2. Kiwis moving to Auckland - generally a fairly steady predictable demand that will change depending on rents and job opportunities
3. Aucklanders moving into retirement villages - also fairly predictable demand but a need for a cheaper state housing version would help - current retirement villages are beyond the finances of the majority of Aucklanders
4. Students - both Kiwi and international - for the universities fairly predictable but for the PTE very unpredictable - mainly depending on how the Dept of Immigration is interpreting its rules
5. Immigrants - the immigrants by marriage are fairly predictable and may not be needing housing, refugees are usually sent to the cold South, the majority of the rest are Chefs, Bakers and Retail Managers and it is really debatable if we need them and if we do why in Auckland? However it does allow the government to turn the faucet up or down (to quote Andrew Little) as necessary but the effect will be delayed by about a year.
6. Kiwis returning to NZ or leaving NZ - we cannot stop them. It is a problem almost unique to NZ since Kiwis are on average more mobile than other countries (the OE tradition, higher than average education & skills, English speaking, more likely the children of immigrants with ties to other countries, etc).

So a perfect solution is impossible but we could have large housing areas prepared in advance - roads and services and sub-divisions; then putting up the houses would take a few months when there is a demand. This idea should be expanded to cater for emergencies like the Christchurch earthquake - obviously not a solution to a major Auckland volcano but we should be ready to rehouse after say a major tidal wave or one of our Pacific neighbours has a catastrophic disaster.

A national population plan and getting the dept of Immigration to read it.

Try this one on for size .... what's a maintenance engineer ?

Singh is 23 years of age. He is an overstayer. Came to New Zealand age 20, from India on a student visa to study business in January 2014. Singh, now a maintenance engineer at McDonald's
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11909569

Like to know what his hourly rate of pay is and whether he is a permanent employee or temporary

Sounds legit.

Yep, read through these exit interviews - the job is a cleaner
https://www.glassdoor.com/Interview/McDonald-s-Maintenance-Interview-Que...

Lapun: Agreed

Auckland land costs too much and infrastructure costs too much, because Auckland Council builds most infrastructure miles away from Auckland City.

A combination of poor government regulation written into the Super City and poor council planning.

Costs are too high in Auckland.

DH, it's largely a result of the method by which houses are actually built. As I've said before, a 19th century carpenter would, after a coupla days to gasp at the utility of nail guns, adhesives, and power tools, would be out there in the always-tropical Awkland weather, clonking together frames and trusses along with the rest of the occasionally drug-free crew. The methods themselves would be perfectly familiar.

The whole notion of building on site, frame by frame, truss by truss, is the first issue. It can easily be circumvented in theory by modular builds, created in factories, under cover and to tight QC and tolerances, then craned in and site-assembled in less than a week. There's oodles of overseas experience in this practice, so it could be imported as entire factories, and construction methods, not to say experienced workers. But this will run straight into Issue #2.

A wider issue - #2 - is the regulatory structure which would constrain this: imagine trying to get BRANZ approval for (say) a panelised method, in under a couple of years and a coupla million bucks. Then imagine trying to get multi-proof approval from MBIE. Then imagine trying to convince the brown cardies at the local TLA that, yes, it's all legal and ya can call off the inspectors. It's no wonder that there are so few takers: the entry barriers are massive, financially very risky, and so businesses do the obvious: stick with the tried and true despite its clear failures.

A third issue is the fads promulgated by architects, planners (urban design rules), and by the buyers themselves, influenced by years of house-pr0n-shows and glossy mags. This tends to discount modular, standardised designs and thus strikes at the very root of Issue #1 above: it reduces demand for new methods.

So the status quo remains, despite its flaws.

It's a Gordian knot....but in mythology, such knots were destined for the Big Chop....https://www.britannica.com/topic/Gordian-knot

Agreed.
The process is a shambles.

But, as you say, streamlining it is artificially difficult. Not to mention the fact that when you do, you take away all the ticket clipping throughout the process.
There are a lot of stages and elements in the process that aren't value adding.

I doubt 20000 houses a year is even achievable, that is of the same order as London Central and they have lot more resources, money and skills.
Bad luck Auckland but the rest of us should be fine.
Oh , and by the way I notice that modern factory in Christchurch is only geared to 1000 houses per year, chickenfeed
Lastly , we build shoddy houses that date in 30 years and are substandard in 50, so factor in replacement work if we expect to be comfortable and healthy.

Prefabricated houses built in other countries such as UK, Germany, Scandinavian countries, Canada etc and meeting their much higher building regulations should be welcomed here. NZ building methods and materials are decades behind. We can't be held back by nonsensical red tape - we have to advance and stop just accepting damp, cold, mouldy shitbox houses.

I reckon most of those hardiplank clad houses of the 70s need pulling down now. Most of the sections would take 2 similar dwellings, and yes this sort of prefab building is where the solution to affordability lies.

Yes,
Its nearly Friday so I can suggest the owner gets a new prefab from the goverment and goverment makes front prefab available for low cost housing.
Zac! Will you be affected?

Actually skip the prefab.
Scrap that, I would declare north of the Bombay Hills a disaster and regulate for that area alone
Build aerated block homes for sale where possible ,leasehold ground, by the goverment, 50 year lease, about 110 sq metres house
In 50 years goverment buys back home, refurbishes and adds an upper floor, thereby doubling density.
That is a 100 year plan to quadruple density.

Ronald,
I dont want to ruin your breakfast but our problems arent ours, similar problems exist in the North West of America, possibly for different reasons.
We need to recognise that most timber constructions have gone about as far as they can go in this low energy future.

Somehow or other there needs to be a firm commitment made to build the numbers of houses in Auckland, particularly, that will start to address the shortfall. At least a couple of years of 20,000 houses per year would seem in order.

Aucklanders are free to leave. Why should the rest of NZ make commitments to prop up Auckland's ridiculous prices?

One solution could be that once Australia's economy recovers kiwis start leaving NZ because our unaffordable cities do not provide them with opportunities. A regular writer for Transportblog (now GreaterAuckland) has written today that is what he and his partner are doing. Cold hard economic facts of where opportunities lie dictate this is the best course of action. https://www.greaterauckland.org.nz/2017/08/24/need-talk-brisbane-strateg...

Yes, go to Australia. The two major cities Sydney and Melbourne you will be able to buy a dilapidated old house for about the same price as in Auckland, but the difference is they will be dry and liveable and pleasant. Fairly cheap in the very outer suburbs. Otherwise you can go to Brisbane where housing is a lot cheaper but the jobs are not so plentiful

I'm in Sydney today. A Sydney based co-worker called BS on your comments and pointed me to this https://www.domain.com.au/news/sydney-median-house-price-hits-115-millio...

The point I was "trying" to make was a house in Auckland that was old and cold and draughty and damp and mouldy and miserable if transplanted to Sydney or Melbourne would be dry and wouldn't be mouldy or damp - it would be liveable

I did say "dilapidated" and how much do you think that (modern brand-new) house you linked to in Kellyville Sydney would sell for in Mt Albert or Sandringham or Mt Roskill or Mt Eden or North Shore - I'm not talking about a terrace house in "The Rocks" or Paddington

I find Brisbane tends to have a lot of contract/fixed term jobs, and not a lot of permanent ones. It's still fine if you're into that sort of work, though. $60 AUD an hour for a three month contract? Yes please!

Not unaffordable cities plural, we only have one unaffordable city - Auckland.

Land costs much much more in Auckland and so Brisbane builds twice as fast as Auckland.

As soon as Aussie's economy picks up I think we'll have another Brain Drain of young Kiwis going over there. 20%+ higher wages and a far larger job pool. Even if you're renting and paying a bit more than in NZ you'll still be saving more. Not to mention a tidy $150 AUD weekly for your Kiwisaver.

Australia has enormously more to offer than its big cities. Places such as Armidale (it has an excellent university) Tamworth and Toowoomba (also now has a uni) up on the table lands offers dry sunny winters (sometimes crisp cold nights though) but much more pleasant summers than the humid lowlands. Great lifestyles for those able to find work there. I regret moving on.

New Zealanders in Australia are still treated like second-class citizens... when something goes wrong they discover they are vulnerable, that they live precariously, unprotected and without recourse to any kind of government support....Since legislative changes in 2001, New Zealanders' rights have been slowly whittled away...New Zealanders who have earned at least A$54,000 each year for five years and meet health criteria can apply for a different class of visa – one that would, in turn, allow them to apply for citizenship. No one who arrives after February 19, 2016, will be eligible.They included actor Russell Crowe, who arrived as a child and contributed millions to his adopted country. He was denied citizenship in 2006 because he had been away in 2001 working on the Oscar winning film Gladiator.

http://www.stuff.co.nz/world/australia/78998518/new-zealanders-in-austra...

I call bulldust on Auckland's construction labour force shortage and bulldust on Auckland's building boom. I think this is a story promoted by the industry -because it justifies higher prices and by the government because it provides a fig leaf excuse for their inability to fix Auckland's housing market. I really think the National party is the Emperor with no clothes and someone needs to tell the NZ public their housing policies are non-existent.

Canterbury had a building boom, the labour force expanded to meet demand. People retrained, businesses invested in more productive techniques -for example the Concision factory -demonstrating what Waymad says is correct.

This isn't happening in Auckland because there's too much land banking, both in peripheral areas and leafy suburbs who are frightened of 3-4 story apartment buildings. Land prices are too high -only the very rich can afford to build and it doesn't take many builds to supply that segment of the market.

Auckland is only building about 6 houses per 1000 residents, Canterbury got up to 11 houses. So where's the building boom? Auckland's build rate has only returned to what was pretty average for the last 30 years and is significantly less than what NZ was building in the 50's,60's and 70's.
http://www.stats.govt.nz/tools_and_services/media-centre/media-releases-...

What is worse is that population growth is the fastest it has been since 1974.
https://www.google.co.nz/publicdata/explore?ds=d5bncppjof8f9_&met_y=sp_p...

Given this fast population growth there should be a building supply response. A functioning housing market with elasticity of supply would provide it. But it is not happening. Why not and why is the public been fed a series of ridiculous claims?
-there is no housing crisis in Auckland,
-it is a sign of success,
-it is a global problem -$1million houses are common in cities around the world,
-the building boom is so big it has reached the labour supply limit and
-we don't need LVR's anymore because we have fixed the housing market -no need for any new policies from the Reserve Bank (or god-forbid from the government/councils) -forget that last year John Key begged the Reserve Bank to increase LVR's on property investors....

Trouble is this fast population growth is via new adults not a higher birth rate, if you have x number of children born in a particular year it gives you an idea of how much housing will be needed in a couple of decades. Thbe way we are going about it, unchecked it will continue to be a game of catch up cricket and we will never get catch up let alone get ahead of it.

There needs to be an enduring solution found to the issue of ramping up - and indeed down

I'm pretty sure Auckland has all the ability to ramp down supply that it will ever need.

up
12

The solution is unbelievably simple. Stop ALL IMMIGRATION until we have got on top of the massive backlog.

We bring in around 80,000 new immigrants , and only build 7,000 houses a year

W T F do we expect will happen to the price of a home in the face of such demand ?

Zero people arriving is still too large a population increase for Auckland's inept planning to cope with. We'd need to ensure 3000 people leave every year.

It is virtually impossible to stop immigration at the present time. Limiting it a little may be possible however it is quite a political hot potato. Parties that use it as a platform are generally vilified in the press and many people blindly follow mainstream narratives. I was listening to BFM the other day and they were discussing immigration and the young lady on air said something like, "I don't like to think of them as migrants, they are humans and the more humans the better". Somehow you would need to get the press focusing on it in a negative way which I don't think is possible. Politicians like Trump, Farage, Winston, Wilders, Hanson haven't gained much prestige from their positions There are too many interests at stake in this great experiment of global good intentions.
We really just need to keep standards high and hope that the market will sort things out in the long run.

I suspect a fair number of the young will start to favour immigration less (moving beyond the typical "the more the better, and with moonbeams" talk) as they start to feel impacted by it. That's not while you're a student, though.

Best if the economic argument is put by an immigrant (see Raymond Huo for Labour).

I see Fletcher Building has come up with a house they have erected in just 1 DAY .

Which is all well and good until you see the price ................ an eye watering $800,000 .00 for just 170m2 OF BUILDING

Thats very close to $5,000 per square meter

WTF ?

I assumed that figure included the cost of the land...

Definitely not affordable.
Same old paradigm, all we have done since the californian villas is add complexity but they are still are the basis of our expectations
Hilarious.

Here's the link to that Fletcher build article:

Fletcher Living builds duplex home in three days

Zachary Smith doing the hard work so that others don't need to.

Some more details would be good though. 800K just for the duplex unit? It could include the land. Built in that time to be weather tight but I think the inside needs considerable finishing. Cost is for the complete, livable, house?
Looks like it could be a good way of replacing old and tired houses on cross-lease sections. Still suspect it will look like a leaky house with the panel cladding though.

So, a local Duopolist moving to secure an opoly in a new market segment?

Quelle surprise.....

It's Fletchers.
Quelle surprise.

Quelle further surprise....
What's the bet that Fletchers are currently lobbying for the industry standard for this type of construction to be bench-marked against their materials and process design.

They are the perfect example of a company that are incapable of competing in a marketplace without rent seeking behaviour.

Well said Nymad.. I agree

They certainly have a vested nterest in the status quo, make a buck either way.

True boatman, but 'tis nothing special, even I at this vintage can get an erection in just one day! But sadly not worth $800 grand.

DH - part of the answer probably has to do with the mix on offer. As Stuff article here notes, tenant inability to 'live in a house properly' has turned a former family home of 19 years into a mouldy hovel: https://www.stuff.co.nz/business/money/96067676/landlords-v-tenants-how-...

So, and as in most overseas countries, what's needed in the mix is a spectrum:

  • Temporary/transient accommodation. Yes, trailer parks, where the biggest aspiration is to a longer double-wide. The accommodation is essentially expendable: it's possible to get a 40-foot one-bedder for $100K. E.g. http://www.iqcontainerhomes.co.nz/wp-content/uploads/2016/03/IQ-Containe...
  • Banlieue-style apartments which get around the tenant life-skills issue by being largely made of concrete:
    According to French law, the participants in a fatal accident must stay as near as possible to the scene, until officials have elucidated all the circumstances. The police therefore took my informant to a kind of hotel nearby, where there was no staff, and the door could be opened only by inserting a credit card into an automatic billing terminal. Reaching his room, he discovered that all the furniture was of concrete, including the bed and washbasin, and attached either to the floor or walls. The following morning, the police came to collect him, and he asked them what kind of place this was. Why was everything made of concrete? “But don’t you know where you are, monsieur?” they asked. “C’est la Zone, c’est la Zone.”
    La Zone is a foreign country: they do things differently there

    https://www.city-journal.org/html/barbarians-gates-paris-12378.html

Given the low base we are clearly starting from, to judge from the Stuff quotes, and despite the revulsion some common taters may feel about this, don't we have to start thinking in similar, if perhaps locally more acceptable, terms?

looking for Clues..............No...........................Looking for change of government :)

PredictIt has National paying 86 cents, Labour 17 cents. Maybe you need to widen the number of places you post this mantra ad nauseum.

:)

One of the best solutions is Labour's Kiwibuild policy. The market generally can't or won't deliver more affordable housing. The government needs to drive it, preferably with a prefab approach (put your preconceptions aside - some very high quality prefab housing is being delivered in Europe, Japan and North America these days)

Ok,
1000 a year seems to be factory level production for private enterprise, what production levels are you predicting for a goverment initiative built in New Zealand.
And maybe how many years to get started?
We could look at the heyday of the returning soldiers for guidance
Of couse if we returned to prefabs manufactured overseas we would only be limited by power and water and roads, we may be able to keep up

It appears we produced about 10,000 houses a year after the war 2 and imported some knock downs, plus skilled labour from europe

How much is the average new mortgage in Auckland (not counting topups & renos)?

Check this out, all you landlords quaking in your boots at decent tenancy arrangements www.newgroundliving.co.nz

..