Statistics New Zealand recently released data showing their estimate that the New Zealand population grew on average by 1.9 per cent or 89,000 people per annum between June 2013 and June 2018. That adds up to an extra 445,000 people. The average household occupancy rate around New Zealand is 2.7 people per house. So housing those extra people required an extra 165,000 houses. Have they been built?
We can make an estimate of new house numbers by looking at consents issued from the period June 2012 to June 2017 running on the assumption that most consents will be acted on within 12 months. These consents totalled 127,000. Only about 85 per cent of consents actually do get acted on, so the addition to our country’ housing stock was some 108,000.
However, the actual net addition to our housing stock would have been less than this, perhaps close to 100,000 for the following reasons. Some new houses will be holiday homes. Other houses would have been demolished to make way for new residential developments, new roads, and new commercial buildings. And some houses will have simply become too old or unsafe to live in while others may newly sit empty because people are leaving that location.
The upshot is this. Whatever your estimate was of the size of the country’s housing shortage five years ago in 2014 when debate about such shortages skyrocketed, you now need to raise your estimate by as much as 65,000. Are 65,000 families living in cars, on the streets, or in camping grounds and garages?
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Some unfortunate people are. But what will have happened is that the average household occupancy rate will have risen from 2.7 in the last proper census to something higher now. The jump for Auckland will have been from 3 to something higher.
Some of the people doubling up will be young couples who would otherwise have moved out if accommodation were available. For these people, while buying conditions in the regions remain tough because prices are still moving upward to their new equilibriums, in Auckland young buyers hold the upper hand.
Auckland’s housing market peaked two and a half years ago and since then turnover has fallen, prices have eased marginally, and no-one is feeling FOMO – fear of missing out.
Investors are backing away with some selling because of new regulations or simply because they feel like taking their capital gain. Many are not selling however because the returns on money they realise from a sale will be so low sitting on bank deposit that continuing to get some yield with capital gain potential later on remains attractive.
For young people the time is good for buying because there are far fewer people showing up at open homes, attending auctions and submitting tenders than was the case up to three years ago. Will buyers stop going to the regions? Eventually yes. This will be partly because the big housing cost savings from lower prices will ease further (prices rising in the regions), tourism has flattened, and jobs growth will likely remain stronger in the cities than regions. This latter factor is something happening globally and not just here in New Zealand.
Does this means one should be despondent about locations outside our main cities? Not at all. It simply means that Auckland soared then plateaued and the same will happen eventually everywhere else. When that occurs, possibly in most places by the end of the year, general housing commentary in New Zealand will likely remain fairly uninteresting and muted until the next cyclical upturn comes along, perhaps over 2022-23.
- Tony Alexander is chief economist at BNZ
