In the year to March, 13,000 new homes were built, dropping the housing shortage from 80,000 to 67,000 dwellings. It is the first time in eight years new house building has put a dent in the shortage.

The silver lining catch-up on house building is a direct result of the Covid-19 pandemic border closure and consequent drop in migrants.

After peaking at 90,000 people in the year to March 2020, net migration added only a tenth of that figure to the country’s population this year. At the same time, the supply of new housing continues to rise, with growth the fastest since the 1970s.

On the demand side, Kiwibank is predicting net migration to rise sharply from about the June quarter next year, when the border is expected to fully reopen.

Kiwibank senior economist Jeremy Couchman says a pent-up desire to move here is probable. The bank has assumed net migration will settle near the new long-term average of 30,000, well below the last peak.

“There is significant uncertainty around net migration forecasts,” says Couchman.

“Globally, there might be hesitancy to move across borders, or demand to move to New Zealand may surge as the country is viewed as a South Pacific oasis – extending the housing crisis.”

Acceleration
On the supply side, residential consents are at multi-decade highs. Consents point to a further acceleration in housing stock over the rest of this year.

However, says Couchman, the construction boom looks to be approaching its peak in this cycle.

“Beyond 2021, the growth of new housing stock could slow.”

NZIER’s latest quarterly survey of business confidence reveals capacity utilisation among builders is running well past the red line.

“Accelerating house prices also provides property developers with the confidence they can sell new builds for a profit in the future. However, house price growth is expected to cool from the second half of 2021,” says Couchman.

“At some stage in 2024, supply should meet demand and there might even be an oversupply. That’s increased affordability.”

Price growth to peak
Couchman believes there is enough momentum in the market – with its chronic shortage of listed property – to see house price growth peak at around 25% year-on-year in this quarter.

After that affordability constraints, new housing supply, and recent policy changes are expected to start taking the heat out of the market.

“The return of loan-to-value (LVR) restrictions for investor mortgages combined with the Government’s tax changes should result in a drop in house price growth this year and next, hitting a low of 1% year-on-year by the end of 2022.”

Despite an opportunity to balance the housing market, there remains a longer-term issue. 

“The supply of housing is far too slow to respond to changes in demand. The investment in new infrastructure isn’t keeping up with the rate of home building. And that’s on top of the mountain of upgrades required to existing infrastructure,” says Couchman. 

The Government’s $3.8 billion Housing Acceleration Fund for local housing-related infrastructure is merely a drop in a leaky bucket, according to Kiwibank. 

“Unfortunately, it feels a little underdone,” says Couchman. “The fund ignores the years of underfunding of existing infrastructure in many older cities.”

He says densification of housing will be hampered if infrastructure is not up-to-scratch.

“Densification is often blocked by vested interests winning out over the collective benefit of building homes closer to where the most productive jobs are located – the centres of the largest cities.

“Finally, more needs to be done to speed up and lower the cost of construction. A revamp of the Resource Management Act is certainly part of the solution. If housing supply remains too rigid in the future, then we are likely to see a case of history repeating itself.”