By Alex Tarrant
Auckland's booming housing market is expected by businesses and economists to stay strong as they see little potential for a supply response to demand pressures there, Treasury says.
Even though land for residential development was available on the outskirts of Auckland, Treasury said demand so far away from the city centre was negligible, based on discussions it held with 40 businesses and economists in September.
Those discussions will feed into Treasury's assumptions in its December half year economic and fiscal update.
However, the expectation from businesses and economists of little potential for a supply side response to the Auckland housing situation comes as government ministers are working on how to achieve just that (see below).
Prime Minister John Key said on Monday afternoon that two government bills amending the Resource Management Act are set to be introduced to Parliament shortly as part of the government's response to the Productivity Commission's report on housing affordability earlier this year.
In its latest Monthly Economic Indicators release, Treasury said discussions with business and economists in the three main centres pointed to buoyant economic activity in Auckland, led by a surge in the housing market there.
Activity was starting to pick up in Canterbury as the earthquake rebuilding effort gathered momentum, while Wellington was perhaps a little more subdued, possibly owing to a comparatively quiet public sector.
"The residential housing market in Auckland is ‘booming’. Sales and prices are well up on last year across all price ranges as a result of high demand and little supply," Treasury said.
"Land for residential development is available on the outskirts of Auckland, but demand so far away from the city centre is negligible. The Auckland market is expected to continue its strength, as there is little potential for a supply response," it said.
"Allied to this, the construction sector is quiet. Residential construction in Auckland is weak, with consents around 1960s levels.
"House building in Christchurch is also weak, with the main focus of the rebuild so far having been on demolition and repair. Firms were optimistic regarding the prospects for construction with housing reconstruction expected to get underway in Christchurch next year and the CBD rebuild shortly thereafter," Treasury said.
Govt eyes supply response
Environment Minister Amy Adams, who has responsibility for the Resource Management Act (RMA), is working closely with a group of other ministers, including Finance Minister Bill English and Housing Minister Phil Heatley, to fashion a government response to the Productivity Commission's report on housing affordability.
Interest.co.nz has been told "pretty much all" of the package addressing housing affordability issues, to be released this month, relates to RMA reforms.
While the Productivity Commission recommended more land be released on the outskirts of Auckland for residential development, it said there needed to be more medium-density 'brownfields' development within Auckland's existing limits. The Commission noted high costs associated with house building had put upward pressure on prices.
See the Commission's recommendations here: Productivity Commission recommends immediate release of land for residential development in Auckland, Christchurch, in final housing affordability report.
The Auckland Council is looking to allow 30-40% of all new development in the city to occur outside existing limits over the next 20 years, meaning 60-70% of new dwellings will be built within the city's current metropolitan urban limits.
Finance Minister Bill English has said the biggest opportunity for brownfields housing development within Auckland's city limits was in the hands of central government, due to its large land holdings for state housing.