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Supply issues facing builders have made the challenge to address the country's housing shortage that much harder, say Kiwibank economists; new supply now 'at risk'

Supply issues facing builders have made the challenge to address the country's housing shortage that much harder, say Kiwibank economists; new supply now 'at risk'

Major supply issues facing builders have made the task of addressing the country's housing shortage that much harder, Kiwibank economists say.

And they say new housing supply is now "at risk" from these supply issues.

The pressures in the residential building sector were evident in last week's scorching 3.3% annual inflation figure release.

In the June quarter alone, home construction costs leapt by 4.6%, which was the biggest quarterly rise since 1987, while for the 12-month period, the rise was 7.4%.

The Covid disruptions to the global supply chain are playing havoc in the construction sector here, right in the middle of a building boom.

Earlier this year the Kiwibank economists compiled an economic note that suggested the Covid pandemic had provided a rare opportunity for New Zealand to balance its housing market.

They had calculated that the country was short of about 67,000 and reckoned that at the current rate of building this shortage could have been removed in about three years' time.

However, in their First View publication this week, the economists say "unfortunately, current constraints may push this estimate out even further".

The construction sector, they say is "a major pinch point in the economy" at present.

"And it couldn't come at a worse time."

A closed border had given us "a sliver of a silver lining", they say.

Population growth had "dived overnight", curtailing new demand for housing at a time we were faced with a massive housing shortage and rising housing costs.

It seem that "finally" NZ had enough "clear air" to start making up for the shortfall in housing accumulated over the past decade.

"But sadly new challenges have emerged.

"Stimulus to fight covid has boosted internal demand for housing, and shortages of labour and materials are starting to limit the pace of new home building."

They said that house price growth was expected to start easing "in part because of significant new housing supply coming on stream".

"However, new supply is now at risk from major supply issues faced by builders.

"The challenge to address Aotearoa's housing shortage looks to have become much harder."

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13 Comments

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Apparently it's cheaper to ship a log to China, have it sawn and treated there, and shipped back again, than it is to operate a sawmill in New Zealand, where we are surrounded by pine forests.
It's a whole lot of stupid, stupid chickens coming home to roost. We have been extraordinarily lax about allowing *obviously stupid* outcomes to occur, under the rubric of not interfering with the operation of the free market.
So here we are, in a country of very low population density, surrounded by plantation forests, and we can't afford to house ourselves because land and wood are too expensive. How long will it take the national self-image of ourselves as resourceful and egalitarian to implode, to match the reality that we are in fact short-sighted, greedy and wholly useless at providing for ourselves?

how long?....around September apparently

The same issues are killing off NZ's productive operations in oil refining, gas production, steel making, timber processing and aluminium smelting:
Low skill availability and high running costs (power, unskilled labour, H&S and environmental compliances) in comparison with global competitors are squeezing margins.

Moreover, local processors are highly exposed to global commodity prices and have neither the skills nor scale to trade in those markets effectively.

More than 20-years on from the first LOTR project and our creative arts sector still can't grow without millions in NZ taxpayer-funded bribes going to international filmmakers, yet we offer very little to these manufacturers that ensure more value from the critical resources we consume are captured by our economy.

Despite supposed shortage of building materials, log exports seem to be going gangbusters. In Gisborne a couple of days ago; 12 (yes never seen it before, 12) log ships were anchored waiting in Poverty Bay - although I understand recent weather may have caused some disruption. Here in Napier, the Port has recently reported log exports are up 75% in last quarter.

The port may have experienced that increase but NZ inc data has a decline in sawn timber and log exports in Q1 2021. Total volumes have been approximately flat lining for the last 4 years. Source Stats NZ. A domestic demand surge and a ComCom approved duopoly that is able to control supply volumes and thus pricing is the explanation.

Ocean swells that prevent the ships from docking have slowed the rate of log loading to the ships. The Gisborne port authority have also been doing pre-scheduled wharf repairs using divers. Exporters have ordered more ships than usual to cope with the backlog and are now having to pay demurrage for those ships. The problem is that the logs aren't able to go out so they have been piling up at the port, at the off port storage and on the skid sites.

Its cheaper because the Chinese government subsidise the import of logs. So the Chinese manufacturers have a cheaper feedstock, than kiwi counterparts.

NZs problem is that it is acting transitionally rather than strategically. Government needs to step in, otherwise more mills will close and the industry will suffer.

Go to any house building franchise it will blow your mind the quotes they are handing out for fairly lousy homes.

There is absolutely no appetite from anyone to do anything about housing and construction costs in New Zealand. It is what it is, we can’t do anything about it, just take out more debt and pay what you have to….. typical roll over and die attitude.

There's quite a good article in North and South magazine about the expansiveness of NZ and all the monopolies, duopolies and rorts that are contributing to that.

See what’s happening in the rest of the world who are experiencing similar problems. https://youtu.be/tOy1rk8QHt4

Anyone in the building Trades have known this for nearly a year, but the mainstream rhetoric is that NZ was going to have an oversupply.Absolute rubbish.

Interesting stuff in North & South about how NZ competition law is a standout because it basically helps dominant market players. Be good to see some action.