Westpac economists say the severe housing shortages that have been dogging New Zealand are now "rapidly eroding" and this will lead to easing rent inflation and eventually cooling house price inflation.
The economists, in their Weekly Economic Commentary, still expect, however, that house prices will rise 15% in 2021.
In commenting on the latest building consents data released last week, the Westpac economists noted that consent issuance was "now up a massive 16% over the past three months".
"Over 2020 as a whole, 39,420 new dwellings were consented, the highest number since 1974. 2021 is highly likely to prove even stronger."
The economists say consent issuance numbers like this portend "a very big construction boom indeed".
"Two key drivers are rising house prices and low interest rates, which improve the financial reward from building. We are also seeing households divert expenditure from overseas travel to house building and renovations, adding to demand."
And yet the economists say this building boom is coming at a time when population growth has "plunged" to its lowest level in a decade.
"Net migration has been close to zero since Covid-19 struck, a far cry from the 70,000 net migrants the country received in 2019.
"This means that the severe housing shortages that have been dogging New Zealand are now rapidly eroding.
"By our estimates, housing shortages will continue to shrink even after migration resumes, because today’s level of construction activity is so much higher than what is needed to keep pace with population growth even in a normal year."
From a social point of view, it will be many years before anybody is saying that New Zealand has “enough houses” on the ground, the economists say.
"But the economic effect of building so far in excess of population growth could become apparent sooner.
"We expect to see rent inflation easing within a year.
"And this erosion of housing shortages is one reason that we expect house price inflation to start gradually cooling from later in 2021.
"However, the more important driver of house prices is interest rates. We expect rates will stay low for much of this year, and therefore we expect 15% house price inflation in 2021."