Surging migration means demand for housing in Auckland will outstrip supply by a considerable margin

Surging migration means demand for housing in Auckland will outstrip supply by a considerable margin

Auckland could be about to face one of its worst housing shortages in more than 10 years due to the current surge in migration.

Population and building consent figures suggest construction of new homes in the Auckland region has not kept pace with its burgeoning population since 2005, but as the region’s population growth accelerates, the housing shortage could be about to take a turn for the worse.

The accompanying table shows the Auckland Region’s population growth from 2004 to 2013, as estimated by Statistics NZ.

It shows that from 2005 to 2013, Auckland’s overall population growth has been reasonably consistent, at about 20,000 to 25,000 new residents a year.

But that could be about to blow out to about 42,000 new residents a year if current migration trends continue, increasing the pressure on the region’s already tight housing supply.

Census data suggests that the average household size in Auckland has been between 3 and 3.1 residents per dwelling over the last decade

Assuming an average household occupancy of 3.1, there would need to be 8065 new dwellings added to its housing stock for every 25,000 new residents.

The last time the supply of new dwellings exceeded the region’s population growth was 2004 - 2005, but that was driven by the shoebox apartment building boom in the CBD.

Building consent figures suggest that the supply of new homes has been falling woefully short of what has been needed since 2006, when the region’s population grew by an estimated 24,100, which using average occupancy of 3.1 people per household, would have required an additional 7,774 homes.

But only 7,250 new dwellings were consented during that period, leaving a shortfall of 524 homes.

That shortfall got bigger every year and peaked at 4,380 homes in the year to June 2011, before dropping back in 2012 (shortfall 2771 homes) and 2013 (shortfall 1,689 homes) as building activity rose to meet demand.

Those shortfalls are significant because until the supply of homes starts to exceed demand again, they are cumulative.

Equivalent of Hawke's Bay population added to Auckland in 7 years

From June 2006 to June 2013 the region’s population is estimated to have increased by 156,400, roughly equivalent to the entire population of Hawke's Bay, including the cities of Napier and Hastings.

To accommodate all those extra people, 50,451 new homes should have been built, but between June 2006 and June 2013 only 32,352 new dwellings were consented in Auckland, leaving an accumulated shortfall of 18,189 homes.

The figures for the 12 months to June this year are not yet available, but if the trends until April this year continue until the end of this month, Auckland’s housing shortfall could have ballooned out 24,943 homes, largely due to a surge in migration numbers.

It is often assumed that overseas migration is the main contributor to Auckland’s explosive population growth but that’s not the case.

Statistics NZ estimates that from 2011 to 2013, the region’s population gains from net external migration (the difference the number of people arriving from overseas to live in the region and those departing to live overseas) accounted for about a quarter of its growth. The rest was due to internal migration (people moving to Auckland from other parts of the country) and the region’s natural increase in its population (the extent to which births exceed deaths). But in the 12 months to June this year, growth from migration is likely to be much higher.

That’s because in the year to April, the latest period for which figures are available, the national net migration gain was 34,366, compared with just 4776 in the previous 12 months, caused by a 13.3% rise in the number of immigrants coming to this country, and a 21.8% decrease in the number of people leaving to live elsewhere.

Auckland is by far the biggest destination for migrants coming to this country, and Statistics NZ estimated that two thirds of the net population gain from migration in the year to June 2013 occurred in Auckland.

If that figure holds true for the current year, Auckland could be looking at a net increase in its population from migration of 25,500 in the year to June, a near five fold increase on the figure for the previous 12 months.

And if internal migration and the natural increase in the region’s population continue at previous level, the region’s total population could have increased by about 42,000 by the end of this month, compared with a year earlier, equivalent to the population of Wanganui.

Housing that many people comfortably would require around 13,548 new homes to be built and although residential building activity in Auckland has been steadily increasing, the current rate of construction is nowhere near enough to meet such a big surge in demand.

Shortfall of 25k homes since 2005

If the rate of residential building consents issued up until April continues, it’s likely that only around 6,794 dwelling consents will have been issued in the year to June, leaving a shortfall for the year of 6,754 dwellings and taking the accumulated shortfall since 2005 to about 25,000 homes.

That ongoing shortfall between supply and demand is probably the main reason that house prices in Auckland have so far largely resisted the onslaught the residential mortgage Loan to Valuation restrictions the Reserve Bank introduced last year, and more recently the impact of rising mortgage interest rates, while prices in most other major centres except Christchurch, have been flat or falling.

The figures will give anyone renting or looking to buy a home in Auckland little to cheer about because the surge in demand is likely to, at the every least, support currently high property prices and rental levels and has the potential to push them higher.

But property developers, landlords and people who already own a home will be laughing because the increased demand and limited supply could lift the value of existing homes and increase their owners’ equity, and landlords will be buoyed by the prospect of improved rental yields and equity levels.

However finding additional properties to add to their portfolios at prices that could provide an adequate return could become more difficult, because in the current market cycle, property prices have tended to rise faster than rents.

Housing Supply & Demand
Auckland Region
Year to June 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*
Estimated population 1,326m 1,349m 1,373m 1,396m 1,417m 1,439m 1,462m 1,486m 1,508m 1,529m 1,571m
Annual increase 28,400 22,900 24,100 23,100 20,700 21,800 23,300 24,100 21,600 21,800 42,000
New dwellings required** 9,161 7,387 7,774 7,451 6,677 7,032 7,516 7,774 6,968 7,032 13,548
New dwelling consents 12,937 9,435 7,250 6,781 5,769 3,212 3,656 3,394 4,197 5,343 6,794
surplus /deficit 3,776 2,048 -524 -670 -908 -3,820 -3,860 -4,380 -2,771 -1,689 -6,754
                       
Net migration to Auckland 12,150 6,814 7,753 8,319 6,134 8,611 8,805 6,220 5,079 5,286 25,500
Dwellings required for migrants**  3,919 2,198 2,501 2,684 1,979 2,778 2,840 2,006 1,638 1,705 8,225
                       
*Year to June 2014 figures are indicative forecasts by interest.co.nz, based on migration and building consent data to April. 
** Assumes one new dwelling required for every 3.1 extra people.        
Source of data: Statistics NZ.        

 

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A massive supply shortage and there just isn’t the tradesmen to meet demand, let alone catch up. With internal and external immigration to Auckland set increase we can expect Auckland house prices to increase for years to come. I’m guessing a further 50% rise in prices by 2018.

What is with this lack of trades people?
Are the trades not well paying enough for Auckland to be the place to work?
How can you have all this immigration without a fair share of trades among them?

When I was in college (in the nineties) all of the teachers talked up university and degrees, they didn't care what degree as long as you got to Uni.  Schools were often measured by the number of students that they managed to get to uni.  Trades were seen as the second best option and only something the drop outs did so now we have a over supply of administrators and art grads and not enough tradesmen.  The trades are having the last laugh because they're now earning $65+ per hour. 

Happy123....Where are the trades earning $65+ per hour?
This might be their charge-out hourly rate but not their earnings rate. Lots of overheads for the tradies.
 
I know builders and other tradies leaving NZ to go to Aussie.....$50 an hour and no tools.
 
I agree that schools promoted Uni......and there is an over-supply of administrators and to counteract that over-supply all the Government has to do is create a bit more work for them by creating more compliance work which ends up adding to overheads for all business who have a physical labour component......and the stoopids wonder why productivity is poor.

$65 per hour would be self-employed builder, plumber, and electricians.  It is far more for a business manager/owner, foreman or developer.  Many tradies I know are being incentivised by their employers through stock offering, often gifted or paid for through dividends (which is essentially gifted). 

Well the self employed builder, plumber, electrician have all the overheads of a big company but can generally provide their services for cheaper than the latter.
There will be some variation on these prices if they are labour only contracts in which they are self-empoyed. But there are still some overheads involved like ACC, vehicles, insurances, tools, accountants etc.
If these pricing trends continue then I would expect to see a reasonable sized cash market in Auckland which is a little bit bothering from more than one perspective......shoddy workmanship by unqualified people leads to building problems down the track, not contributing to the taxation system to name a couple.
 
I'm not so sure the same pricing holds true in Christchurch. I know of contract labour only builders here getting $35 per hour. These are LBP qualified people. Some I know that are qualified on wages/salary are only getting $30 to $35 per hour.......so as you can see I'm rather curious as to what is going on.
 
I just had a quick look on seek but couldn't see any advertised hourly rates available in job adverts.

Found this link which is about what I thought was happening in Chch and Otago.
http://www.tradebox.co.nz/pb_resource.asp?resourceid=88

Is this the type your talking about Happy123?
http://www.youtube.com/user/mitre10nz

Have done both (construction in UK and NZ, 1990s) now PhD and academia. Friends still in trades are aged late-40s/early 50s and struggling phsycially (shoulders, backs, knees). In academia I get sore from over-using a keyboard. B.F.D (plus very few academics lose limbs or lives on the job).
I'm glad I made the jump thogh O do miss seeing something that is actually FINISHED!!

It would be easier to follow the argument if we had a definition of the words "Auckland Region".
What suburbs, what regions? 
That can make a big difference to the assumptions made in the article.
 

Lots of houses coming on line around Flatbush, Beachlands, the back of Orewa etc show lots of development at the edges. Bring on high density in the Central City.

Poor analysis. Surely the author realises the "18,000" house shortfall is only equivalent to the difference between having 3 and 3.1 persons per household. Which in reality is of course what happens when there is a "shortage" - more people live in each house. As Westpac and others have identified, rents show there may not be a shortage at all.
 
Wake me up when rents are rising at 6% in Auckland and then I'll believe there is some pressure on the market.
 
Another significant drop in year on year mortgage approvals today, doesn't look like much demand to me, not at current prices anyway.

Thanks for your comments. The 3.1 average occupancy figure I used was based on the rolling estimates of Auckland's population which appear in the table below the article, divided by the number of households as per the 2001, 2006 and 2013 census counts, to get a trend.. This does give a slightly higher occupancy figure than the numbers you have quoted. But if the lower occupancy figures you have quoted are used, then the number of new homes required to house the growing population will be even greater, as will the shortfall. When you also factor in that some projects that are consented do not proceed and that some are merely replacing existing homes and therefore not adding to the number of available dwellings, it may well be the case that the shortfall in new homes compared to what is required is greater than the numbers I have used., but I have tried to take a conservative approach to the numbers. June year figures were used for both the population estimates and the consent numbers. 
 
 

Hi Greg, how does this shortage manifest itself in practice? I take your point with respect to the numbers you've chosen, but we aren't seeing another 10,000 homeless immigrants on the street. Where are these people living?
 
 

You just cram them in. It's overall population growth that drives demand, not just growth form migration. As demand exceeds supply and the market tightens, a family might stay in a two bedroom unit when they would prefer to be in a 3 bedroom house, young adults may stay in the family home longer before leaving the nest, shoebax apartments that may have  appealed only to students in the past start attracting young working couples as tenants, rental vacancy rates decline and properties that may have been difficult to let when supply was easier have less trouble attracting tennats, and so on.

Good post Ostrich.....
People will change their investment porfolios to where they can get the best return.
Your post also highights to me why the Government is unconcerned by Foreign Investors into housing....risk spread strategy at play. I have noticed particularly in Dunedin and Christchurch a growing number of real estate adverts with headlines "off-shore investor liquidates, off-shore investor selling as surplus to requirements etc"........I have a wee habit of following and keeping tabs on these adverts.
 
i also found it interesting when the Government provisioned extra funds to the IRD so as they could collect more of the tax-take off speculator type transactions.
 
Given that NZ'ers are Socialists at heart then we will always have swings and round-abouts that are driven by distorting the market..

This article counts houses and building and comes up with the shortage result.
But rental level changes don't show a shortage.
I prefer the second indicator.

Let's take that same information and look at it another way Kimy.
2004 - Rent   $320 a week
2014 - Rent    $390 a week
It's a whole decade Kimy.  And 25% increase.  Not a vast increase in any terms.  About the rate of inflation probably.
And rental up to now $390 per week.   But the tenant vacated.  (yes I know they had a reason, but there was no incentive for them to hold onto it, or pass it to a relative etc).
Asking rental to be $490 per week.  My experience is that you can hike the price to anything you like.  And you will get it.  Initially But then there is trouble, and you will get a vacancy. 
As for your capital gain.  Good lolly there I agree.
But this post was about housing shortage, not the merits of being a landlord.   My response was the relatively flat rentals indicated no more shortage than before..

Kimy what would the property be worth on todays market? It would be interesting to find out what kind of return the $490 per week would give you. I was reading somewhere recently that a lot of Auckland central properties are only returning around 3%. If that is the case I would be very disappointed with that kind of return on capital. I was talking to a BNZ bank manager yesterday and she said that deposit returns were getting close to 5% currently.

Say 2.5 per cent return and that is if you get the $490 rent. How long has it been empty? Wow I will buy it off you.

No Kimy you have to work it out on today's value. Otherwise you are not living in the real world. Any one with real skills would sell it and put the proceeds into something that gives a better return than 2.5 per cent and that might be bank deposits short term or US dollars at 87 cents. That should be fairly safe as our currency is over valued. You should not fall in love with any particular investment or class of investments. But that takes skill and guts. I don't have it either. I have too much in one public share which has its risks and it is not Xero.

Missed out on Xero because I love one  public stock too much. The money I have in it most people would have in 20 stocks. My broker keeps reminding me of the risk but I am not listening which is dumb. The private companies are heavily weighted to land development and are 50/50 owned. The one risk is the retail company that has existed for ten years. It is hard work but also stimulating and a challenge.

How much capital gain do you get on that bank deposit?

None as I do not have any. But those who do will never get capital losses. Share and houses always face that risk. And no one talks about inflation. There has been a lot in the last ten years and I presume some losses that needed covering by capital gains.

Huh? No bank deposits Gordon? 
But you told this board that you are a successful early retired professional who now follows his passion for share trading on the internet. And you also said you have no portfolio because you are a short term trader. No property investments, just your own home you said.
Pray tell, how do you manage this with no bank deposits? Do you feed $100 notes into a slot in your computer?
I got kinda interested when you appeared here as a hot-shot share trader. Was looking forward to all these "hot-shot share trader" posts. Maybe I could pick up a few pointers. But you seem to be here only to poke the borax at property investors.   

Wrong Snoddy. I started buying shares in 1985. Made the initial mistake of just trading then over the next 25 years or so started to accumulate shares in public and private companies which is hard for me to do as I am a trader by instinct. Hardly have any money in the bank as I really love equities. When I retired last year I put some funds aside under a different entity to do some share trading. Just for fun. A bit like the horses really. Up one day down the next. My retirement is based on dividends basically. 

... it is sweet to receive tax free dividends from one's holdings ... with no need to lift a finger , no worry about rates or insurance , or the tenants trashing the place & doing a bunk ...
 
Just settle back , and let the income flow freely to you ...
 
... yeah , shares are way cool ... the stockmarket's where the sizzle is at !

Trade Me today ......the Auckland area has 3260 listings (2+ bdms) for rent and 6401 listings (2+ bdms) for sale.

There is no shortage of houses for sale or rent in Auckland ....just a lack of people who are prepared to pay the asking price.

The sheeple have woken up and realised what represents "true" value in a property and how much potential capital gain is left in this market ....

Actually Crazy Horse both those figures are low for the Auckland market. Three years ago there were nearly twice the "For Sale" listings and 20% more rental listings.
However, if you want to believe there is this huge excess of properties for sale or rent you go for it. If it makes you happy, what's the harm.

.....so out of 6,401 listings for sale ......nothing suits you Snodgrass T ???

Greg, I think you need to update yourself with not only the operative legislation but the  proposed legislation around household units for Auckland.
 
The Proposed Auckland Unitary Plan (PAUP) - Chapter I 1.3.3 - 'The Conversion of a Dwelling into two Dwellings', is very clear.  Once in effect the Unitary Plan will allow the majority of houses (existing at the time of notifcaition), to be converted into 2 dwellings
 
Furthermore, there is no limitation as per building extensions for the 2nd dwelling (i.e. the size is not limited like granny flats/minor household units) and there are no parking requirements for the 2nd dwelling. 
 
This is really what the Unitary Plan is all about, not the garbage most people discuss or read about in the papers.  The impact of this legislation and this particular rule (assuming it becomes operative) will be significant!!
 
Therefore, the so called experts like Olly Newland and Tony Alexander who say rents must go up because their just aren't enough houses and they're never will be, are entirely incorrect.  Once PAUP slowly works it way through the submission process this new rule will create the opportunity for many, many new household units on existing titles.
 
I wouldn't be holding my breath expecting a huge housing shortfall or huge rent increases.

Thanks for your note and it will be good if it results in more homes becoming available. But it's the type of thing that would take 1, 2, 3, or more years to happen., while the surge in migration is something that is happening now and migrants need somewhere to live the moment they step off the plane, as does everyone else that's looking for somehere to live. As long the population grows at a faster rate than the supply of homes the situation will continue to get worse. 

You are correct there will be a delay waiting for PAUP to become operative. In fact last time i checked with the Unitary Plan team they had received over 9000 submissions - so they've got a few to work their way through. 
 
However if this rule has not recieved submissions (i.e. objections) then in theory it could have effect and hold some legal weight fairly soon.  The devil is in the detail though - i.e. Council have not indicated what development contributions will be applicable for these conversions, or will applicants be charged for additional water connections, etc....
 
As a point of interest - everyone is discussing the surge in migration.  What I find confusing is my partner is a property manager and she managers over 100 dwellings.  She said: a.) rents have barely gone up over the past few years; and b.) she has more listings now than last year and she is having trouble filling some properties, especially those over $750/wk.
 
So how can it be we have this big surge in migrants/population, yet there are plenty of rental properties available?

As interest rates rise another one forcast for July and then perhaps another one in December then people cannot borrow as much as when interest rates are low. House price rises will come to a halt. Addtional to this is a widening gap of inequality.  Over the next 2-3 years substantially more houses will be available to buy on the market as construction picks up of new houses. Returning New Zealanders and migrants will be able to buy some of these houses.  The problem is that lower wage local population including first time buyers will not be able to afford the affordable housing on offer so these can only be bought by investors or well to do migrants.  Affordable housing is not in the $400-$500k bracket .  Affordable housing should be in the 250K -350k bracket with a 10-20% deposit and this is for a house/terrace/ or apartment with 3 bedrooms.  The other option is to raise the lower wage local population and first time buyers salaries by at least 30-40% so they can afford the affordable housing on offer.