Latest figures suggest that the Auckland house building market is going to need a whole lot more than words and political posturing

By David Hargreaves

In the run-up to the September 23 election, one good piece of news for the current Government is that the next monthly building consents figures are not due out till six days after the election.

I reckon that's good news for National, because the building consents figures themselves might not be so good at all.

As Westpac economists pointed out this week in a nice summary of where we are in respect of house building, "annual dwelling consent numbers have essentially flatlined at just over 10,000 since the start of this year".

To add a little bit more detail to that, some crunching of the Statistics New Zealand figures shows that in the seven months to July this year Auckland had consents issued for 5,545 dwelling units. This compares with 5,520 at the same time last year, 5,149 in 2015 and 4,214 in 2014.

These figures don't show a very encouraging trend, but arguably the picture has darkened even more in recent months.

In the three months ending July Auckland consented 2565 new dwellings, which was down 6.4% on the corresponding three-month period in 2016.

The 774 consents issued for Auckland in July was the lowest July total since 2013 - at which point activity was still recovering from the post-GFC hangover.

With the political uncertainty of an election currently in front of us it wouldn't be too hard to imagine that those figures released on September 29 are going to show August's consent figures were not great at all. It would be very surprising if there was a lift in the numbers directly before the outcome of what's become a close election is known.

Bill English just about got away last week with claiming some sort of victory with 10,000 consents a year for Auckland - but the actions of his Government in this week announcing proposed new urban planning laws, separate from the dreaded RMA, suggest he's only trying to fool himself.

Given current population growth of circa 55,000 a year in Auckland (roughly 40,000 migrants plus 15,000 net births) at a ratio of three people to a house, this suggests Auckland this year will need 18,000 new houses. That's actual built houses, not consents, not approved sections, not special housing areas or anything like that. No, 18,000 actual houses needed just to stand still. Just to remain as squeezed as it is for accommodation.

The idea of separate urban planning laws is indeed attractive, no doubt. But it's worth noting that Auckland's special planning fast-tracking agreement the Housing Accord between 2013 and May of this year created 154 Special Housing Areas in Auckland (25 of which incredibly saw no consenting activity in them at all before they were disestablished), with - as of June - 5,527 consents for dwellings issued with building consents and of these 3,105 dwellings had been completed.

The Government made a heck of a lot of noise about the Housing Accord initiative. But it has to be said the results were underwhelming and suggest that planning and red tape are not the only issues here.

Earlier in the piece, the likes of the Ministry of Business, Innovation and Employment, and the Treasury were talking very positively about burgeoning building numbers in Auckland. But more latterly there's been some drastic downgrades.

Two years ago MBIE was forecasting consents of 13,400 for Auckland last year. Remember just 10,000 consents were achieved, with depending on who you believe, only about 6,000 or 7,000 actually built.

Treasury has been paring back its forecasts too. 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.

In its latest Monthly Indicators publication for August Treasury, in commenting on the latest monthly consents figures from Stats NZ, notes that there is usually a 1-2 quarter lag from consents being issued to the bulk of the work appearing in residential investment.

"On this basis, the consents outturn together with falling house sales (the transactions component of residential investment) is consistent with our expectations in PREFU [pre-election fiscal update] that residential investment activity will remain fairly flat over the remainder of 2017 (Figure 5). Thereafter, we expect residential investment growth to pick-up in response to pent-up demand, ongoing high population growth and low interest rates."

Well, okay, good on Treasury for sticking to the line that activity will pick up again. But elsewhere you can sense that there's uncertainty as to whether a pick-up again really is a given.

As the Westpac economists point out developers are encountering increasing difficulties accessing finance, capacity in the construction sector has become stretched, building costs have risen at a rapid pace - and all this is happening at the same time as the housing market in Auckland has been softening.

"Many developers will be nervous about building into a slowing market," the Westpac economists say.

I would just add to all that the uncertainty about the election outcome and what potentially an unclear election result might do to the market in the short term as well.

To my mind this all points to Auckland very possibly dipping below 10,000 consents this year - and with no guarantees that the anticipated pick-up will happen.

The next Government, whoever that is, will need to act decisively. Regardless of current conditions, Auckland will somehow need to ramp up the building of houses.

Otherwise, as sure as night follows day, the spectre of rapidly rising house prices and of young people being even more decisively locked out of the market will re-emerge sooner rather than later.

What the noise and rattling of sabres this Government has done in the past three years has shown is that you can't just 'talk' people into building houses. Somehow or other the environment has got to be made more conducive.

It's the number 1 headache for the next Government to face, I believe.

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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23 Comments

Just pack in 9 people per house and Auckland is fine.

Remember there are a lot of garages that you can fill too

Um, here's a novel idea - maybe the govt could build a lot more housing?

Careful, people will start calling you Communist!

Communist!

The danger is that if people keep associating the word Communism with all the good things a government does, then people will start to think Communism is the right solution, in reality a balance of regulated capitalism and social spending is the right solution. Neither Communism or Anarcho-capitalism are the solution.

Nah.
It's a lot easier to just say you are going to.

This is one of those socialist self fulfilling prophecies.

First you construct a market framework that is so "responsible" it can't function very well.
[Example, the NZ rental market]

Then you endlessly tinker with regulations until the whole thing is so complex and convoluted almost nobody has the mental fortitude left to try and make money doing it.
[Example, insurance costs in that rental market are hugely increasing because (for moral reasons) those who rent are no longer responsible for the damage they cause to the rental property (think P-lab)]

Then you cry, "market failure" and move the enlarge the government to cover the "failure" and blame some minority for screwing it all up (foreigners or bankers are historically popular).
[Example, blame the evil 'fat-cats' for owning housing they are no longer willing to rent (or financially able to cover the damage), either way doesn't matter].

If you are fortunate enough that foreigners own a very profitable industry (say oil) you can nationalise the evil foreigners and that way "inherit" a fully working industry to destroy. Better than having to build anything - which the more observant might have noticed in not included in the socialist manifesto, which is really about blaming others and destroying wealth.

All works wonderfully until the country goes bankrupt.

It's a bit cynical and you can argue the detail but it's not without historic precedent.

What a load of garbage..

“Those who cannot remember the past are condemned to repeat it."

George Santayana

It's also practiced exactly the other way around, wherein you run down government services with the end goal of privatising them. E.g. in healthcare, where many suggest this is exactly why the UK Tory governments tend to underperform in this area. Ideological drive.

With especial regard to housing, NZ's history is in fact one of plenty of government involvement in fostering affordable housing. Never owning the market, but working often in tandem with the market to achieve more affordable housing.

Previous governments involvement in fostering affordable housing (including through such things as public-private partnerships) are a factor in why folk born at the right time were able to get a foot in, and why we once had such high home ownership rates.

So it's not without historic precedent.

Sure, I see that Rick. But I think there are some important differences.

I would suggest the best experiment run in history that highlights these important differences was run when Germany was split into two parts. It's our best example because it involves the same people group, same group history, same culture etc. So differences can't easily be brushed aside as 'so-and-so are a lazy people' or other such generalisations or prejudices.

As you rightly point out governments on both sides pursued market interference, and both (to some degree) ideologically driven, so there are many similarities like those you have pointed out in your post.

My argument is that although there are many similarities the differences are more stark and revealing. The capitalists had a higher material standard of living and the socialists became famous for the brutality of their secret police. The socialists government collapsed having run the economy into the ground, along with all the eastern block countries running similar policies. The capitalist side is still running.

Sure. But in NZ terms it's a bit of a false dichotomy. NZ has never been communist and we've never even looked like heading that way. We've had the market failing to provide before, and we've interfered to create more desirable outcomes for NZers. What we have now is similar - lots of large, expensive houses being built and few smaller, more affordable houses. That's happened in NZ's past too.

Yeah, history repeats itself - at least we have successful examples of NZ addressing housing issues in the past, without resort to either extreme left or right. We've never gone full commie, and we've never gone full fascist.

With Gemany you're not comparing pure capitalism with pure communism either. Germany is a great example of a social democracy like ours, and indeed has a strong track record of better managing housing outcomes - including where large numbers of the population rent. So it is in some ways, ideal.

the arabs used to love tenting it, camping i think its called... it could soon be all the rage but i think all the camp sites were sold in auckland were they not? I thought a lot of camping grounds closed down over the last ten years? Big mistake, big mistake, local body planning... hopeless

So its toddlers buying and building houses,15000 of the little darlings.

I do not think we should be building houses any faster. The industry is becoming too large as it is.. And for the most part, not great for NZ Inc... unless we were exporting them. (which we should be)
And what becomes of a mercenary army of builders when it all stops? They wont be able to hop across the ditch this time... We have to build large squat developments close to the centre of town or slow down the amount of people coming into NZ (Auckland).

Funding is tight...simple, no money, no houses built.

Oh, and somehow Stats nz have said that we have 60,000 more immigrants than they thought...

How many of those consents require a house to be knocked down to build the consented home ? Is that taken into account ?

The majority of them - this is why we have no hope of building enough

Beat me to it Sluggy, no I don't think that is taken into account. If you deduct the non built but consented and the houses bowled over it could well be a several thousand net lower gain than the primary figures would suggest.

really, I despair. Connect the dots.... Demand is not for the type and price of houses being built. Demand from WHOM - most migrant labour is too young and novel to NZ to be buying. Average age is about 32. Home ownership among under 40 is what in Auckland? Under 40%. And that is for natives, not immigrants
Treasury really live on anther planet - it is always going to be better next year isn't it? Never worse? Builders are in retreat because prospect of profits have gone. House sales in Auckland are half what they were in 2015. Borrowing is half what it was for investors ,, many of whom are selling, or trying to, hence tipping scale opposite way, so too much supply. Interest rates are irrelevant when debt is peaked out. Interest rate cannot go much lower and prices have to fall under $700k median for market to start recovering. This is down phase of cycle and no one wants to admit it. Build housing people can rent or that they can buy for under $400k. That is what pent up demand is for. Stop talking in theory that plainly does not apply. Boom was due to Chinese money printing and money supply going 10% in NZ. Now money supply is growing at 3% and falling. That means recession. Wake up. Recessions areaways led by mortgage market, as this is major credit outlet.

without enough migrant builders, houses will never been built fast enough.