David Hargreaves says the country should never again be allowed to fall as far behind with its housing supply as it did in the wake of the global financial crisis

David Hargreaves says the country should never again be allowed to fall as far behind with its housing supply as it did in the wake of the global financial crisis

Amid the ruins of Labour's spectacular KiwiBuild house building flop, there is one thing easy to overlook.

By historical standards, New Zealand has been building high numbers of houses during this term of Government.

Have we been building enough though?

Well, that's the sort of question more easily answered a few years, or even 10-20 years, down the track.

We got ourselves a long way behind the game in terms of supply and so a catch up was urgently needed. The current numbers of houses being built suggest we ARE catching up, whether we've caught up, well, hard to say.

And then the other point is, having put ourselves in a position to at least be catching up with supply, what is a realistic number of houses for the country to be building on an ongoing basis?

For the record, Statistics New Zealand says in the year to July there were 37,585 consents for new dwelling units issued nationwide.

Building up

To put that in some context the highest number Stats NZ has recorded in a July year was in the year to July 1974, when the number of consents issued was 38,904. 

It's worth bearing in mind of course that the population was only a little over 3 million in 1974 and it's now over 5 million. 

So, seen in that light the current figures are not quite so good.

Auckland is usually regarded as the place with the most pressing supply issues.

For the year to July building consents for 14,895 dwelling units in Auckland were issued. The Stats NZ records for Auckland go back only as far as 1991 - and the figures for the latest year are the highest, with the previous high water mark of close to 13,000 being recorded in 2004.

Auckland has now been achieving over 10,000 consents a year for the past four years, while for the country as a whole the total has exceeded 30,000 in each of the past four years.

It's all a far cry from the days following the traumatic Global Financial Crisis of 2008. Three years after that event the country's consent figures had slumped to all-time lows. In the year to July 2011 just 13,236 dwelling units were consented for the whole country. Yes, that's right, fewer new houses on the books for the whole country then Auckland alone has had this year.

We were down

As you might imagine, the figures for Auckland following the GFC were similarly grim. In July year terms the low point for Auckland was 2009, with just 3,215, although 2011 was little better, with 3,422.

What really compounded the problem post-GFC was that after reaching reasonably high levels of activity in the early 2000s the NZ residential construction industry had been taking something of a pause from the mid-2000s onward.

So, we were arguably getting to the point where some uptick in activity was required - right at the point the GFC hit and skittled everything.

And it has taken us a very long time to get the activity cranked up again. 

Auckland didn't get the annual rate of consents back up above 5000 till 2013, while New Zealand as a whole wasn't seeing 20,000 plus new houses a year till 2014.

It has therefore taken us about eight years to go from trough to now a high level of activity.

From previous high levels of activity to now it’s been a period of 16 years.

Still catching up

So, Auckland as a region and New Zealand as a country, got a long way behind in terms of supply. How much behind remains open to debate. But behind nevertheless.

Now we are catching up, but I suspect we haven't actually caught up.

As we look beyond this Covid-ravaged year, the big question is whether the sharp economic downturn will see building activity severely curtailed. It's a risk. And if that happens we could see recent history repeat with a shortage of housing again pushing prices up sharply in maybe three to five years time.

One reason for slight optimism is that, as the figures quoted higher up this article demonstrate, we have gone into this economic shock with high levels of building activity, while the pre-GFC period saw falling activity, followed by a complete freeze once the impact of the GFC was felt.

So, in terms of the next 12 months and beyond, much depends on the attitude and appetite for arguably more risk from our builders.

It is still, I think a distinct disadvantage that this country still has a very fragmented residential building sector, with a lot of small players that are particularly vulnerable to 'down' cycles.

Managing ups and downs

What can and should whoever forms the next Government do?

As mentioned at the top, Kiwibuild flopped incredibly. Had it not been such a disaster we would arguably be in a more comfortable position for the future now.

Clearly if Labour forms part of the next Government it would not be pushing such an (overly) ambitious strategy again.

More realistically, I suppose what we need from Government is close monitoring and responsiveness to the situation.

We simply can’t afford a situation where economic paralysis now leads to a vacuum in housing construction for the next three years.

At the end of the day we need a responsive house building market that can scale up. We can’t have a situation where the building industry disappears in a downturn and we end up again with a huge shortfall.

I've been saying for a little while that there needs in this country to be a proper population target/strategy. We need to decide what is the 'right' population size.

As things stand, if we do get a marked change in government policy, if the borders are opened wide (once its safe to do so) to incoming migrants and if there is a return to National Party-style policies of encouraging the wealthy to buy up large, then the pressure will go on again and the whole cycle we just witnessed before may be gone through again.

Make the changes

In conjunction with a proper population strategy, we do then need, once and for all to actually get in there and tackle that beast known as the RMA. 

We need our planning processes freed up so that building activity can be scaled up much more quickly.

On top of this, and this is where the government could come in, we do need a clear idea of just how many houses this country should be building in any given year.

Much of that of course is population dependent. Which means having strong data on population movement and on future projected levels.

Right now, with the high levels of residential building activity we've seen in recent times, the housing supply situation is moving in the right direction.

It would be very easy in the face of the big economic downturn we now have and the immediate uncertain future for this situation to quickly reverse.

We will be doing ourselves a grave disservice as a country if we allow the situation to begin to deteriorate again towards the kind of post-GFC hole we fell into.

Maintaining a strong pipeline of new building activity should be a priority for whoever takes the reins of the country after October 17.

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68 Comments

everyone in AKL seems engaging the divide, build and sell activity at the moment.

Bring back John Key. I want my house to increase by 25% per year again. His policies of massive immigration should do that again!

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But if we build enough houses, how can we make sure house prices keep going up?

That's true. Investors and landlords have every right to spread doom-and-gloom against a high supply market because of the unpalatable changes it will force them to: charging lower rents, upgrading their properties to a liveable condition by first-world standards and treating tenants as human beings.

Not gonna happen on JC's watch - Bring National back!

Hasn't happened on JA's current watch either and not likely to happen in JA's next watch.

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Yep, not much at all happens under her watch at all.

Page outta the Key playbook. They're all as bad as each other in the status quo world we live in.

Yes they are as bad as each other. It is staggering that we actually accept that they are screw ups.

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As you say, how much of a shortage is open to debate.
The price surge was most extreme 2014-15 when China encouraged overseas investment. This also pushed up sales. 12m running sales fallen ever since until October 2019. That beginning of rise coincided with HK ramping up repression. So again I feel the recent increase in the market sales and price is related to Chinese purchasing probably via intermediary relatives.

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Surely the elephant in the room in the article is net migration? From about 2013, for much of the period net migration was over 50,000 per year.
That is somewhere in the vicinity of need to 12 to 15,000 additional homes annually - conservatively about 100,000 homes over the past decade?

Auckland does not have a supply crisis. There is more than enough office space that can be converted to residential with relative ease.

Labour did give half of a directive o Govt employees on this. 'If you can work from your office go and work out of it'. Just another finger in the dyke.

Then it's got a jobs problem

That will be the next big money project for speculators. Conversion of iner-city office space into Iner-City Apartments

All very well building new houses but I wonder how this will be sustained in the future. My retired Father volunteered to fix 3 sail boats at the school where my sister teaches. The headmaster gave him the wood/metal work classroom packed with every tool imaginable to work on the boats. When my Father asked how much time he had before the next class would arrive he was told "Oh we don't use this anymore, we have a 3D printer and we focus on technology now. How will the next generation even know if it is something they are interested in without access to it. With this sort of instruction coming from the Education Department/Govt I guess we can't hope for too many future builders unless we're going to use 3D printers to build houses. Flip side for the Govt is more immigration and property bubble propped.

The other side of the coin here is that disruptive technologies are here to stay. A graphic designer can output a .dxf file that a CNC router/ laser cutter/ 3D printer can use. And just for the record, 3D printers can print houses etc: https://www.youtube.com/watch?v=wCzS2FZoB-I

Agreed but not to forget that there is a whole section of society that are good with their hands (not just their fingers). So 3D printers can construct the houses too? Engineers, carpenters, builders, fabricators, mechanics.....would sort of be nice, if not necessary that these professions were options when students left school. Fully aware of what the graphic designer in our team can do but at the end of the day we don't need a world full of tech experts, skilled tradespeople are still an essential part of society so other things should still be taught at school if the tools are there. Technology is an asset but not the be all and end all.

Pity would solve the housing problem

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All I have heard from Labour is that they want to create a new public holiday. For me the silence of major announcements (except for a new public holiday) for the next three years creates a lack of trust that they are focused and can deliver on the major issues.
As a builder that can fund and complete a couple of houses in the next year, I should be their target market to get in the game and build but I won't even be looking for a section until I have a good general outline of what the next three years plan is. Until then my toolbelt remains hanging on the wall and the whitebait net in the water.

This is stupidity.

Should never be allowed as journalism, because of the patently obvious flaw. (I was going to say: in the reasoning - but that means there was some).

The simple question that stops this nonsense in it's tracks is: What then? And What then? And What then? And what then? And what then? Need I continue the sequence?

And what you have to ask, given that sprawl obviously has to cease, is: At which point are you better stopping? Standing shoulder-to-shoulder shore-to-shore? (because that's where this line leads, with exponential suddenness) or stopping early, with more for all?

If they had applied that theory many years ago you or I may never have been born. Where is the line?

The line was crossed years ago..time to stop asking that question.

I'd have thought the answer is obvious: The point we are extracting resources faster than they can be replenished. Anything else is not sustainable in the long term.

We passed that point some time ago.

But the housing question remains. Do we opt for container living like Amsterdam or concrete pipe conversions like Hong Kong? Would this mean increased reliance on cities? Do we build up or down? And how do we address the social consequences of having lots of people crammed into small spaces. I agree with you, the sprawl has to stop, but we need strategies.

The Asteroid belt potentially provides 10^1000 times the real estate of earth.

https://www.science20.com/robert_walker/asteroid_resources_could_create_...

So lets start speculating.

Over 80 million extra people on this planet every year. Mind blowing isn't it.

Oh that's right it's all about supply narrative. If you produce tons more apples it brings down the price. As if an oversupply of houses will bring down prices including your equity.

Credit and Leverage is the only cause of mass asset inflation. Please why do we persist with the supply narrative.

If it is the Govt building the houses, it costs more rather than less. A lot more.

On the other hand, they don't have to sell them at a profit.

Govts are seldom competitive in pricing. Even without a profit I doubt that they could build them cheaper. For a start as a builder the quote I would put in to do a Govt job would be plus 30% just because they are disorganized and slow at paying.

Point still being: cost doesn't matter that much. Given they've been subsidising investment property yields and pricing for years they may as well subsidise home ownership below cost.

Yep (artificial) demand is as big a culprit as lack of supply. If everyone just aimed to own one house (rather than 5), I don't think we'd be in the current situation. Tax rules need to change to remove the bias towards property and encourage productive investment - however, sadly humans are naturally self interested and more focused on how they can benefit from the system rather than influence it - the party won't stop until we have a Donald Trump moment...

Please explain to me what tax advantage is enjoyed by property.

Um.. isnt the first priority to break up the duopoly on building supplies and make the standards process for new products less onerous where equivalent oseas standards have been tested ?

Biggest hurdle building in NZ is the cost.

Correct on the materials and land/council/compliance side. Labour in NZ is low.

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I voted for Labour partially in support of the Kiwibuild policy. There has been no acceptable explanation for why it has failed, no one has taken responsibility. There was merely a fob off about "recalibration" and the vague comment that it may have been "too ambitious".

If a government can't launch a house building programme to meet demand, we're screwed. And also, the RMA is the devil.

Ginger, they won't fess up, but I can tell you why...

It was doomed to fail from the start.

David Shearer originated the KB concept, it was to be predicated on the government - yes the government- building the housing.

By the time that genius Twyford had taken it on, it was about the private sector building, and the government underwriting.

But the massive failing is that most of the time the private sector cannot build housing and sell it for a good profit, under the KB price caps. Even if they can the prices are still too high.

To be successful in Auckland the caps need to be 400k for 2 bedroom dwellings and 500k for 3 bedroom dwellings.

The only way that can be done is if the government builds the dwellings and sells them at cost.

As per David Shearer's original plan...

Btw I am no RMA apologist, but many of the consent problems that exist are down to council incompetence, architect / developer incompetence, or both. Whatever legislation you have you will have those problems. I think there needs to be greater commitment to mediators or some sort of ombudsman type of set up....

Yes please, I would make a killing if the Govt decided to build and flick at cost. The cost would come in at less tahn than the big companies can build for and higher than I can build for. There would only be a limited amount of builders who could build in that market.

I would suggest its the land cost and not the building cost is the issue. A 100m2 house, without a garage, in Akl with middle of the road fittings and appliances should not cost more than $3300/m2 max, so $330,000 for the house. 100m2 will get you a small 3 bedroomed house.
I was under the impression that National had identified acres of crown owned land that could be used for housing but National preferred its developer mates whose minimum sized house was probably 175m2 or so.

Labour has ear marked a lot of areas to build on but after three years they are still all talk.

Yep that's about right. Then add in land cost of say 150K for a 120 sq m site and you are already nearly at 500K. Then add another 50K to include infrastructure costs, development contributions, consent fees, design fees etc. So 550K. Then add in a 25 % profit margin - and you are up to 690K. Then add GST and you are up to north of 760K...and I haven't even mentioned agents fees and holding costs

"consent problems that exist are down to council incompetence, architect / developer incompetence, or both. Whatever legislation you have you will have those problems."
I'm a long time reader, not so much a poster, and I appreciate your contributions Fritz because you clearly have knowledge of the construction industry. Don't you think though over the last even 10 years architectural plans and documentation is much more thorough and online building consents have made things easier but there are more hoops to jump through to get a building consent? For example I'm in the waikato area and since Christchurch earthquakes there is now requirements to have liquefaction testing and specifically designed foundations in areas no where near the coast or a body of water. This can add 20k to a build easily with zero value added to the build. Not to mention extra delays caused by this sort of nonsense.

Kiwibuild would have to be one of the biggest failures of any govt in the last 50 years.

What’s worse is the minister in charge is ranked number 4 on their list which says a lot.

Can't build houses in country of pine trees is up there with the, couldn't organising a piss up in a brewery joke.
The Greens are as useless tits on a bull, we all know that and expect it BUT you don't expect Labour to screw up that bad.

GN - you can't circumvent exponential numbers. So no 'build' will ever be 'enough' - and the silliness is that if we stopped immigration and limited ourselves to replacement offspring, we wouldn't need any more. And, on a square metre per head basis, we're building more now; it's a self-fulfilling nonsense.

And the problem with the RMA is that we've screwed the place WITH the current one - it's not effective enough! Welcome to the Limits to Growth - they manifest in multiple and simultaneous ways - but most folk just blame the teller when the problem is the bank. For exactly the same reason, the PM was naive taking on Child Poverty; nobody, but nobody, can fix child poverty in a population-increasing, resource-depleting world. Repeat nobody. So why would you take it on?

I generally feel you overstate your case idk, especially as your global growth limit applies to our micro situation here in NZ. But you hit the spot here. Our current housing problem,...in all its aspects can be sheeted home to our dumb immigration/population policy...or lack of! (Nothing to do with race issues here)
Unfortunately we face the perfect storm with both state and industry believing it's all about more 'bums on seats' combined with a national ethic which sees little difference between consumption and production.
Since colonial times we Kiwis have seen an easy solution to our chronic lack of hard capital...just borrow from better placed nations without thought to the long term costs. Perhaps our migrant beginnings from some of the most prosperous nations has reinforced the silly notion that we are a "developed" nation and that anything the UK, USA, Canada, Australia has....hospitals, universities, bridges, etc.,...we surely "deserve" too.
Harsh realities will tell in the longer term, despite "Mummy" assuring us that it will all be nice if we are kind to one another!

I generally feel you overstate your case pdk, especially as your global growth limit applies to our micro situation here in NZ. But you hit the spot here. Our current housing problem,...in all its aspects can be sheeted home to our dumb immigration/population policy...or lack of! (Nothing to do with race issues here)
Unfortunately we face the perfect storm with both state and industry believing it's all about more 'bums on seats' combined with a national ethic which sees little difference between consumption and production.
Since colonial times we Kiwis have seen an easy solution to our chronic lack of hard capital...just borrow from better placed nations without thought to the long term costs. Perhaps our migrant beginnings from some of the most prosperous nations has reinforced the silly notion that we are a "developed" nation and that anything the UK, USA, Canada, Australia has....hospitals, universities, bridges, etc.,...we surely "deserve" too.
Harsh realities will tell in the longer term, despite "Mummy" assuring us that it will all be nice if we are kind to one another!

Nice to see someone talking about the issue of supply, which is where the real solutions lie.

Far too many people have been won over by the nonsense idea that moving widgets around so as to cripple demand will solve a housing crisis and deliver prosperity. Mental gymnastics folly. Focus has moved away from the supply side of the equation, which is a shame. With the exception of the immigration component of demand, we should be focusing on supply.

If we build one house for every man women and child in this country I guarantee prices will come down and almost everyone that wants to own a home will be able to afford one.

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Lowest hanging fruit is curtail immigration.
You really believe government can build enough houses to keep pace? Only real prospect is for high density tower block ghettos

Yes, as I mentioned above, I do think the immigration component of demand is worth addressing. My criticism is of people that think land value tax is a good idea. Far from a good idea, it is a mind virus.

We need to build more high, medium and low density housing, reduce immigration, remove LVR limits for first home buyers, increase the amount of KiwiSaver that first home buyers can draw on, reform the RMA, move to private insurance/inspection model for building consents, massively increase local government infrastructure funding, up-zone exisiting residential land and re-zone rural land on the outskirts.

VANCOUVER had a over supply of houses and did their prices drop? Economics 101 does not apply to housing..

I think the demand side is more important than the supply side in housing. It's hard for housing supply to be responsive enough, if demand is red hot.
Ready access to cheap credit has probably been the key reason for the surge in house prices in the last 20 years.

Due Diligence - no, the problem is with demand. It's a population crisis, not a housing crisis. The latter is indicative of species arrogance, no more, no less

Given your tenuous electricity situation I can forgive you for missing my statement about immigration with your mobile on power-saving mode and reading by candle-light.

;)

Not true. Demand underpins house prices, namely credit growth. There is no way you are going to outbuild the vast amount of currency that is entering the housing market. Supply is part of the equation but if you do not restrict the amount of currency entering the market (DTIs, LVRs, tax policy to deter speculation, a CPI that is an accurate representation of the percentage of income spent on housing costs etc) then you are literally pissing in the wind.

”...then you are literally pissing in the wind”

First research what the word “literally” means. Then we can have a discussion about how trying to artificially reduce demand (other than reducing immigration) does not get more houses or more people into their own houses.

"First research what the word “literally” means."

First you should research 'literally as hyperbole'. Its been used as an 'intensifier' for hundreds of years.

Typical DGM logic. Also see the 2 + 2 = 5 movement. Fascinating.

The previous poster is actually right about this, DD. See https://www.merriam-webster.com/words-at-play/misuse-of-literally

The 2 + 2 = 5 movement is also a thing. Wouldn’t be surprised if the idiot DGM readership of this site buys that idea too.

2 + 2 = 5, for the last ten years house prices are going to collapse next week, we can tax our way out of a housing crisis, literally means figuratively, there is no housing shortage in Auckland, land has a tax advantage over other assets etc.

Great to see discussion on the demand side.

Thanks David for advocating we have a population target.

The demand problem is that Kiwis are borrowing money from overseas banks to compete with each other to buy houses (first or multiple) - the price paid does not match the value of the houses.

I know there are people living in overcrowded houses, garages, caravan, cars etc but overseas homelessness is a much bigger issue than it is in NZ. The issue in NZ is over-inflated prices.

Rather than competing with each other to buy ever more expensive houses, lets focus on Kiwis getting into secure accommodation, be it rental, rent to own, or buying the home they live in.

I suggest we try and take the land-value out of the equation - govt/councils/Maori own a lot of land on which houses could be built. WE should encourage long-term section leases on which houses could be built. If the lease is to end at the end of the long-term lease, then the market-value of the building should be paid. There should also be a mechanism for rent adjustments, and the ability to buy and sell the buildings on the land.

The politicians have not only been unable to solve the housing crisis, they have actually caused the housing crisis. NZ has the highest immigration per existing population in the OECD. Allowing 80,000 net migration into NZ in a year shows that Labour are just as culpable now as National were in causing the problem. I voted for Winston for this reason alone but he has been a toothless tiger.

What housing shortage?....there's approaching 2 million dwellings for a population of 5 million.

There is however a dearth of imagination when it comes to deploying resources and creating employment

I love the comments. Most people have over done it on thinking about the number of dwellings being consented, I am putting my money on the land. You can not make any more of it. Sure there is noise by the politicians about encouraging intensification. Today I attempted to figure out if I could put a second 75m dwelling on my seaside holiday property which is 990 sq m. The 80m existing home is set right at the back but the local rules do not give me much encouragement. No wonder every house in my street is worth over $1 Million. The only thing that gives me hope is the residential rent increases kick in on the 28 September.