Auckland housing undersupply to get worse before better, economists say; Wellington residential construction jump welcomed

The undersupply of Auckland housing will likely get worse before it gets better, despite a jump in the value of residential building work in the city at the end of 2016 versus a year ago, several economists said on Friday.

Auckland had $1.3 billion of residential building work put in place at current prices during the December 2016 quarter, up 30% from the same period a year ago, figures released by Statistics New Zealand showed.

However, the growth was “not fast enough,” Infometrics economists said. It was a slowdown from previous quarters and suggests even softer growth in building [price-adjusted] volumes, they said. It was possible that higher building costs in the city – up 8.2% over 2016 – deterred or delayed some building projects “as the strain to obtain the labour leads developers to push out their timelines.”

There was still a long way to go before the significant under-build of homes in Auckland was addressed, Westpac economists said. Auckland currently needs to be building upwards of around 11,000 homes a year but only 10,000 new homes were consented in 2016, with even fewer completed, they said.

“We do expect that building levels will rise over the coming years, especially as many of the teething issues around the Unitary Plan have been resolved. However, undersupply of housing in Auckland will likely get worse before it gets better,” Westpac economists said.

The value of work on new dwellings in Auckland reached $1 billion for the first time during the quarter, Stats NZ said. Labour Party housing spokesperson Phil Twyford said this implied about 2,500 houses being built given each new dwelling consent being valued at an average of $400,000 ex-land.

“That’s well short of the 4,000 a quarter needed to keep up with the burgeoning population,” Twyford said. “At this rate, Auckland’s massive housing shortage is growing, not shrinking. The city is already around 35,000 houses short and that’s growing by 500 a month.”

Nationally, the actual value of residential building work in place during the December quarter was up 22% to $3.4 billion. The 30% rise in Auckland was mitigated by a 6.2% fall in Canterbury, the Stats NZ figures show.

Price-adjusted figures (volume) showed residential building activity nationwide rose 1.1% in the December quarter, down from a 2.2% rise in the September quarter. Stats NZ does not provide regional volume, or price-adjusted, figures.

“The volume trend for residential building work has been generally rising for five years, and the level is now double the most-recent low point in the September 2011 quarter,” Stats NZ said. “The new series 4 peak in the latest quarter is 12 percent higher than the earlier peak, which was just over 12 years ago in the June 2004 quarter.”

Wellington strength

The Westpac economists also noted particularly strong gains in residential construction in Wellington, up 10% in December, coming on top of a 13% increase in September. “That leaves residential construction levels up nearly 32% over the past year,” they said.

“Wellington hasn’t seen the same significant under building of homes that Auckland has. Nevertheless, the Capital has seen pressures emerging in its housing market, which is spilling over into increased pressure on prices and rents. Consequently, these increases in building levels are a welcome development,” Westpac economists said.

Construction boom

Meanwhile, the volume of non-residential building work nationwide rose 3% in the December quarter, on top of a 0.2% rise in September. “The volume trend for non-residential building work is now 16 percent higher than the earlier high in the March 2006 quarter,” Stats NZ said.

The actual value of non-residential work in current prices was $1.9 billion, figures showed. This was up 20% from December 2015.

The volume trend for all building work has grown 73% since the most recent low point in the September 2011 quarter. It is also 19% higher than the series high in the June 2005 quarter, Stats NZ said.

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27 Comments

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On the other hand, we could tweak immigration down and put a 20% stamp duty on foreign buyers while limiting them to new builds. Give supply a chance to catch up.

Or we could put our heads in the sand, blame everyone else, and claim to have no control over our own destinies.

Whats best for Auckland is that it doesn't grow by 900 people per week. Its already full, congested..........so if the houses aren't built, then no where to live and people can't come here to live - problem solved!

You had made a wrong assumption in the following way
1 immigrants are rich , they can afford to buy new built
2 they donot have to go to work in town, they are not desiring central suburbs to live
3 immigrant need to be kerbed

There are comments about immigrants
One site claiming they pushed the price up (fair enough)
The other site criticize the government allowing low skilled immigrants in, we are full of 2dollrs shop, chef, waiters and waitress , convenience store owners

You people make this site degraded

You made a wrong assumption too. I noted foreign purchases (a known problem here and in a few other cities) as quite different from immigration. I suggested tweaking immigration settings, not stopping immigration, with a stamp duty only appiled to foreign purchases, I.e. those who want to own here but haven't shown their commitment to NZ by becoming PRs or citizens.

New Zealand needs a strong leader who can make the overdue tough changes to provide affordable housing for its people.
Further quelling rampant housing speculation and reducing immigration are some of the key, blunt, quick, effective tools.
Meanwhile the Government continue to support the profiteers who probably own several houses or worse still don't even live in NZ! turn a vulnerable basic human need into a vehicle to further increase their wealth, security, egos and inequality at the cost to our communities.
Rules made years ago need to be changed to current needs so everyone who works gets a fair go at a good quality of life.
Hopefully this election will find that true leader a game changer for the working people, rather than since 2008 the one we have now, tinkering, delaying, exacerbating the crises.

May have more of a slow down in pace of building due to noise complaints of concrete guys at 5.30am just so not stuck in the traffic for 2hrs with concrete going off.

If the market dies much further then you may find a large number of the 30,000 empty properties becoming available again! most of these seem to be speculators who have not bothered to tenant properties as they have enjoyed 1000-2000 a week capital gains - be very interesting when the market declines or even stabilises to see how many can afford to not have some rental income again - especially as many of these are leveraged way above the potential rental incomes and will need to be topped up

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Housing undersupply or immigration oversupply?

If it is not housing undersupply, the correct immigration setting for Auckland is about negative 5,000 per year.

When we achieve this our house prices will be exactly as affordable as Adelaide.

No the settings are about right. Nothing eithier is good nor bad ,but thinking makes it so!

http://www.couriermail.com.au
This is not long time ago

And it will happen again at some stage

No the settings are about right. Nothing eithier is good nor bad ,but thinking makes it so!

Sound familar..
A project called “London is Changing” has filled central London billboards with messages from disgruntled renters. The billboards include messages such as: “London is miserable unless you’re rich,” and, “I can’t afford to stay in the city I was born in.”

I think the true is, a lot of english people feel like they're losing their own identity. Well, I guess like all the new immigrants they can always fly home to their motherland....oops England is their motherland....oh dear! they're buggered.

Again this article resonates with "Little Britain" aka Aotearoa.
https://www.theguardian.com/world/2016/feb/09/is-britain-full-home-truth...

"But now we have noticed this one. Population growth has become a background anxiety, or a source of deafening acrimony, in a vast range of political and social controversies: from shortages of school places to the pressure on the NHS; from airport expansion to the housing crisis; from road congestion to the north-south divide (London and the south-east are growing faster than most other regions); from our ability to accept refugees to our approach to multiculturalism; from our low-wage economy to the state of the environment; and the most fraught domestic issue of all, immigration."

The similarities are concerning..

Jinx! You owe Gin a coke.

It is interesting to see the current contrast between Auckland and Christchurch as evidenced the by article today in Stuff about the current state of Christchurch housing. Auckland needs to build more and Christchurch has built too many. Christchurch has a lot of empty houses and many of them are brand new and prices and rents are dropping. Auckland needs to build more houses and rents seem to be going up still. Interesting times for landlords in both cities.

Before I accept your hypothesis that Christchurch has built too many I would like to know how many households have departed Christchurch - in other words it is necessary to establish if the current "reading" or proposition of excess supply is the result of a terminal reduction in demand

Presumably the population will slosh back and forth for a while until it reaches some kind of equilibrium.

Yes there are an oversupply of houses currently in Christchurch.
Personally had to rerent 5 this year, and all full.
Still plenty of enquirey for good property.
Rental prices have come back for many part time landlords as they don't seem to care that they aren't achieving a fair rental return.
most tenants don't seem to be able to save a deposit to be able to buy their first home so there will always be people needing to rent.
Christchurch is going to be the most desired city to live in shortly as major companies move their head offices into Christchurch.
Prices are still reasonable for what Christchurch has to offer and rental returns remain in positive providing you buy Ok!
No need to come on Gordon as you are wasting your time if you think it gets to me!
Offer still there Grandad!

It gets to you as you always come back. Don't kid yourself. You should have diversified but no you went for the easy option and bought where you live. Or so you say.

A read of the Stuff Article and you will note there is no reference to the number of houses red-stickered after the quakes and how many houses have been consented since the quakes and how many have actually been completed since the quakes

There were less than 10K houses demolished, and population trends are essentially unknown: no recent Census, and a great diffusion of people outwards which makes comparisons practically impossible. At least seven TLA's involved: Christchurch City (which includes the entire Peninsula), Hurunui, Waimakariri and Kaikoura to the north, Selwyn (west), Ashburton and Timaru to the south. Add inwards migration of construction workers, consultants, engineers and other transients, outwards migration from these seven of folks who just need to be somewhere else entirely, inwards migration from furriners and Awkland refugees, and statistics which lag reality by months to years, and you begin to see why it's so hard to get a handle on things.

Physical surrogates stats might be more useful, if someone cares to dig:

  • Concrete cubic metres delivered
  • commercial vehicle sales
  • construction firm defaults/bankruptcies/births/deaths
  • Guiness sales

Anecdote: my neighbour - a concrete guy - switched 15 months ago from driveways, founds and fences, to pure commercial work. A leading indicator, methinks.

The take-away for Auckland is that a lot of construction workers, firms, plant and equipment may head north.

As long as there is Free Parking for double-cab utes....

Sprawl is very expensive and slow to build. This is why Auckland is so bad at building houses. If Auckland could stop pushing exurbs into the back blocks of nowhere and open up the land closer to the city then we could easily build a lot faster.