New home completions in Auckland up 25% on a year ago

New home completions in Auckland up 25% on a year ago

The number of new homes being built in Auckland continues to increase at a substantial clip.

Auckland Council issued 3534 Code Compliance Certificates for new dwellings in the third quarter of this year, up 12.2% compared to the second quarter, up 25.1% compared to the third quarter of last year and up a whopping 82.4% compared to the third quarter of  2017.

Code Compliance Certificates are the most accurate measure of new housing supply because they are issued when a building is completed, unlike building consents, which are issued prior to building work commencing.

However, building consents remain a very good indicator of future building supply and they suggest that the number of homes being built in Auckland will continue to increase and could hit 4000 per quarter within two years.

Most new dwellings are completed within two years of receiving a building consent and comparing the number of Code Compliance Certificates issued with the number of new dwelling consents issued for the same period two years previously shows a close correlation between the two, suggesting that almost all new homes that are consented actually get built with very few projects being abandoned.

The graph below shows the number of Code Compliance Certificates issued for new dwellings in Auckland between the first quarter of 2014 and the third quarter of this year (the blue line), matched with the number of new dwelling consents issued for the corresponding quarters two years previously (the orange line).

This demonstrates quite clearly how new dwelling consent numbers are closely followed by the number of Code Compliance Certificates issued two years later.

And the graph also shows what will happen if the trend continues, with the number of new dwelling consents continuing to rise between the fourth quarter of 2017 and the third quarter of this year.

That suggests the number of new homes being completed over the next two years will continue to rise, unless there is a significant drop off in projects being completed.

Although the residential construction industry faces considerable headwinds, including capacity constraints, funding challenges, cost pressures and ongoing problems with buyer affordability, it's not showing any sign of slowing down yet.

According to Statistics NZ, the total value of new dwelling consents (excluding land) issued in Auckland in the 12 months to September was $5.63 billion, up 17% on the previous 12 months and up 37.3% on the same period two years ago.

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                            * Code Compliance Certificates for new dwellings issued from Q1 2014 to Q3 2019. Building consents are for the corresponding quarters two years previously.

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Fantastic news for the economy, as well as helping to limit house price gains through its supply effects.
But doesn't it feel it bit like Ireland 2006-2007?

Depends on who is building them and at what cost.

For one, it will end the notion that there is a housing shortage. The rise in supply should balance the price aspect of existing houses being sold at ridiculous prices. The current policies are helping new builds to be more affordable rather than the gigantic houses that were built prior to 2017

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It's crazy how so many developers have underestimated the current levels of new supply and the associated effects.
Lots on the fringe are in a shit purgatory where they overpaid for land and have built for a demand that just isn't there. The impression I get from them is that they just cannot reconcile the fact that prices aren't where they expected them to be.

Supply is out there now in Chch - it's also happened in China.. couple big ghost cities pop up.. supply is there, peoples there.. but why?

Yeah but outskirts of ChCh is quite different to outskirt of Auckland, in terms of commuting times and chaos.
Greenfield development in Auckland is a crash waiting to happen.

"they just cannot reconcile the fact that prices aren't where they expected them to be."
Good for fhb then :)))

Auckland Council doubled land supply in the exurban fringe in late 2017.

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We're considering a move back to Auckland from Napier (friends tell me I need my head read and I should kill this silly idea before it percolates in my mind and I do something stupid like actually following through with it). We would only consider a new build and searching online, Kuemu looked like a possibility. 25 km from the CBD with motorway most of the way makes it closer to town than other areas with new-builds like Karaka in the south or Millwater in the north. Recent sales of new-builds in Kumeu have been mid 800K up to high 900K Kumeu so it is easily in budget. We took a trip up last week to check things out...

The development is a mish-mash of townhouses, small new-builds (some Kiwibuilds, perhaps?) to some bigger new-builds of over 200 sqm. The streets are very narrow and most of the sections are small. It all feels very cramped, like they have tried to create the feeling of apartment living in houses. Many houses don't have any lawn at the rear of the property, but rather a huge deck which makes you wonder whether it's a house or more a townhouse. Even those properties with some lawn often have a funky design and layout (and that is being kind) whereby you wonder what use the lawn would be with barely enough room for a (small) dog to run around. Every property we checked out had a crap finish, like the tradies had little pride in their work. Most of the workmen in the area looked like they would be on a work visa.

It's great that lots of new properties are going up in Auckland, but boy oh boy, if Kumeu is even remotely representative of other new-builds in Auckland, forget it. What a letdown.

Napier is awesome! If I didn't live in Auckland, I'd be there!

I know folk who bought out in that area. Large house, albeit they were downsizing on land deliberately. They had to look through a fair few to get one where the layout made good sense and the fit and finish was very well executed. Some of the developments seem to have been poorly done, others well done.

Hope Joe Wilkes reads you comments PaulO as this had been one of his concerns for a while now with new builds in Auckland and around the rest of the country.

Time your next visit so you get to drive out to Kumeu on the North Western between 4.30 and 7.00pm on a weekday. That will put you off moving back to Auckland for life.

The 'Irishness' might come in with 'where are they?"
Frankly, who'd want to live out past Pokeno to have to drive 2 hours, both ways, into peak hour work?
But as you suggest, it's down to price, and if an Irish situation arises, there's a lot of price-fat to be hacked off before we bulldoze any ghost estates....

Not 2 hours, more like 20 minutes in a few years. Drury South is being developed as an industrial area of about the same size as Wairau Park. If you are working there, then Pokeno is a very good location to live.

The strong growth in supply in Auckland is underpinned by demand. Here's a link to our last report on the supply/demand balance in Auckland. The latest figures suggest supply and population growth are roughly balanced, but there is still a substantial accumulated shortfall in housing supply which will take years to address. Developers know there is plenty of demand for new housing, their challenge is building homes that enough people can afford.

That under supply narrative is just overblown.. using initial immigration numbers rather than the adjusted numbers..

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That narrative also ignores the difference between underlying and effective demand.

Yes, that distinction is a key misunderstanding by many and may lead to different conclusions.

If there is a recession and rising unemployment, what happens to effective supply? Especially in the secondary market for existing houses? The secondary market is where the potential for imbalance arises between effective demand and effective supply, with price being the adjusting variable which brings them into equilibrium. That's when the desperate sellers start accepting those low ball offers. Those vendors who are able to hold on, take their property off the market for sale. As a result the number of property transactions fall, so that only those time constrained sellers transact.

If a large number of people lose their jobs, they may be unable to meet their mortgage payments. People forget that financially stressed property owners who are unable to meet mortgage payments may look to list their property for sale on the secondary market.

Then there are all those property owners who own investment properties which are negatively geared. What happens if these people also lose their jobs? What will the owners choose to do with their negatively geared investment property which is putting even more cashflow pressure on reduced household incomes?

There are a large number of potentially vulnerable households and properties involved here. Already seeing early signs of an increasing number of property vendors selling their properties at a loss in some markets - a property that a family member sold in 2017 in Auckland was resold by the new owner 12 months later at a lower price.

Correct Greg, that is the dreaded word difficult to admit: 'Affordable' - now, slowly seems being addressed by these pop up here & there... Prefab, kit home, container house etc.

yeah.
But the cost of land and building is such that delivering affordable private sector housing is nigh on impossible.
They try by shrinking section sizes and house sizes, but the prices are still unaffordable.
Something must give, land prices need to fall, as well as build costs.

Land prices have been declining quickly on the Auckland fringe.

Hi Greg,

Thanks for the reality check.

While Auckland's dire housing shortage has been well documented (and well publicised), there's always the odd person in denial.

TTP

" there's always the odd person in denial." How true...

Good on Greg for the reality check. Sadly he would have more luck talking sense into a feral cat than most of the DGMs here.

appreciate you acknowledging you having the IQ of a cat

Your words cut me deep

Greg, lets revisit this comment in a a few years, to see how the current building boom played out...

"But doesn't it feel it bit like Ireland 2006-2007?" Really hope not but it's looking more and more that way. Building boom, likely overshoot in supply, probably a lot of shoddy construction, overhyped (by vested interests and media) housing shortage. Where there was a grain of truth (as there is at the beginning of all bubbles) in a housing shortage to begin with, it turned into a speculative bubble. Land prices and construction costs are sky high, and severely unaffordable in a global comparison. Temporary labour imported to fill construction demand will leave as the bubble deflates, accelerating the decline. See Ireland and Spain.

In the past 3 months we're hearing more and more about prefabs/ modular housing. This is part of the higher completion rate

Are they being built with joinery that only last for 10 years?

For those expecting price rises: only an illogical person can combine supply increase with the former

Go talk to the developers on the fringe.
They're pretty confident that prices are rising. As crazy as that sounds.

yeah. Irrational exuberance.
A crash waiting to happen.

Some people have to loose for others to win.
There is going to be a lot of loosing and a lot of winning in the next year or two.

It is, how affordable are they? - when couples with 6 digits salary each started to complaint about it (anecdotal evidence in healthcare workplace).

It's like, why would you buy in those places? Expensive, and quality ranges from mediocre to good-ish.
Out of the way, nightmare commutes for many.
It might be OK if you worked form home, or worked in a centre within 20-30 minutes commute. But that's a finite option.

I'm sure they will have no problem selling everything they can build that qualifies for the first home loan and grant.. but once they step above that I think they might find demand dries up quickly. Still far too many people that believe property can only ever go up in value, and rent is dead money (but somehow interest (money rent) isn't..)

The ones I am talking about are nowhere near in FH loans / subsidy territory.
And things don't look too rosey. Although I would stop short of saying a crash is on the cards.

Agree with your last point - despite trumpeting the rent is dead money mantra, they seem to be happy to ignore their own WACCs/opportunity costs that are likely running at > $10k per month on a completed build around the $900k mark.

I don't think the first home loan/grant will have much impact. Price cap of 650K in Auckland, and household income cap of 130K.
Maybe a few FHBs will buy 2 bedroom apartments under that scheme.

MikeKirk, we shall find out in April 2020 (for the March figures)

so over the year to sep 2019, there are 11,000 houses BUILT, Aucklands population grew by 24,400 over the same period

Taking an occupancy rate of 3.2 * 11,000 = 35,200 - 24,400 = 10,800 /3.2 = 3375

so we have built 3375 more houses that the population growth over the last year...

Maybe a factor in the price falls we've been seeing in Auckland. The REINZ HPI for Auckland negative two years in a row in October.

All those new-builds on the edge of nowhere? They aren't for homeowners to live in! They are for 'investors' to snap up before the next tsunami of price rises arrives. Now. Who was talking about Ireland just before? Maybe they are more 'on to it' that I think!

Great news there's more houses getting built. It would be very interesting to know how these house prices compare to prices of similarly sized and located existing houses but I guess that's very difficult data to obtain?

Nothing to celebrate.
Considering net immigration is up around the 55,000 per annum (with Auckland as the major destination) plus natural growth then 14,200 (4 quarters X 3554) new homes per year is barely at a rate necessary to meet population growth let alone reduce the existing extreme housing shortage.
As a rough calculation; if Auckland's population growth is 45,000 per year and average of 3 people per house; that is an annual demand for 15,000 new houses. And that is probably reasonably conservative.
No wonder we are housing people in motels.

Lucky we don't have a net immigration outflow then, as we did not that many years back when Kiwis flocked to Aussie for work. Will that happen again? Of course! But, when and how long will it last, is the only question.
(My point? Our property market; in fact out the whole economy, is highly reliant on a very volatile component, immigration, to keep it going)

Rents are considered by most economists as the best measure of the demand / supply balance.
Rents have gone nowhere in Auckland in 2019.
That suggests there is not a supply / demand imbalance.

This is correct. The amount you can rent a property out for per week is the best measure of the maximum willingness to pay for the particular quality of dwelling and the particular location.

This is why looking at yields across centres can also help provide an indication of market expectations. If a market has lower yields than other markets then it must be the case that the market is pricing in expected price growth which implies expected increases in the maximum willingness to pay for the property.

If this doesn't occur then over time investors expectations about the local market will adjust, prices fall and yields rise back to equilibrium.

Essentially what this means is that Auckland is not considered by the market willing to live there (i.e pay rent/imputed rent) to be as good a location as the pricing of the properties indicates. If supply meets demand consistently and can be credibly expected to do so then prices fall absent increases in wages or amenities.

Last year the total population increase for Auckland was approximately 38,600 people. But it has been claimed that this has now plummeted to only 24,000 this year, which I don't believe for a second. Also been claimed that occupancy rate is a whopping 3.2, which I also don't believe. No more than 3 I'd say.

There's belief and there's facts.
Now we know Stats have their issues. But at this stage their stats say 24k.

Yes, Stats NZ has its issues, which is why I have a healthy skepticism of its "facts". Internal migration out of Auckland has an impact and must be taken into account of course, but I don't trust Stats NZ on this either.

Do we really need more people though, that's the question?

Nearly 40 staff at Auckland Council have lost their jobs in the first phase of a rolling programme that will resume in the New Year....to cut up to 160 staff and scrap 190 vacancies....The programme will resume in the new year involving up to 600-700 staff whose jobs may change.

Coming to an employer near us all!

Source?

Holy crap! Auckland Council laying people off? Now I've seen everything.

Fair enough.
I think it's fair to say our factual base is poor.
Not good.

DD, you find 3.2 hard to believe? My last Auckland flat had 5 adults living together, all highly educated working professionals, in our late 20s - mid 30s. This is very very common. We can't afford to buy houses or rent on our own in Auckland.

Multigenerational east and south Asian households too. Larger Polynesian households, plus lots doing homestays these days. Also many more 20 somethings living at home.

Although, there are lots of 2 person and to a lesser extent 1 person, households out there too.

I reckon it's between 2.9 and 3.2. Certainly a lot higher than 2.4. That has a big impact on overall supply/demand balance.

That graph suggests that in late 2021 we will be building 4x times as many homes as we were building in 2014 (albeit from a low starting point). Assuming population growth (via immigration) remains at current levels it won't create a large oversupply.

But here is the problem. Our immigration is justified and supported due to low levels of unemployment. As of late, immigration has been increasingly skewed towards temporary working visa's.

So what happens if the global economy takes a downturn just as we have an unprecedented pipeline of houses under construction? If unemployment rises, immigration will NOT remain at current levels. So we will having falling demand, just as supply is booming.

Obviously no one can say for sure where the global economy is heading, but there are an increasing number of signs that a recession in the next year is a growing possibility.

Good to hear your views, one of the most informed commenters here. I agree. And signs are popping up of job cuts starting, and employment intentions dropping.

Perhaps your job was the first to disappear or is just about to. Popf

Quality, as usual.

due to low levels of unemployment

Don't believe the unemployment figures, they're nonsense: https://duganotherhole.home.blog/2019/07/15/unemployment-stats-are-a-myth/

New houses will rise in future as many individual are entering to buy house with land/Subdivide and build as seems to be better than putting money in business.

Fail to understand the sudden surge in buyers specially million dollar plus brackets who are not FHB in Auckland (how many kiwis FHB on NZ wages afford million dollar house). Good amount of money is flowing in the housing sector again - most open homes are jam packed with potential buyers.

Anyone any clue ...not the usual demand and supply as that situation was earlier also and also low interest rate - it is like Chinese finding ways to transfer money and also to buy house - may be through company/corporate.

Apparently there's money coming out of Hong Kong now due to the riots etc.