Horror stories of promising property developments falling over have been hitting news headlines, along with gloomy figures that show construction of new homes and sales of existing homes have dropped. Meanwhile, the population is at 4.3 million and rising.

While National’s promised changes to the Resource Management Act (RMA) should improve consent processes and costs, delays have been driving developers up the wall and holding up subdivisions in recent years.

Buyers are still scarce, but the price of bare land seems to be balancing back to mid-2007 levels according to figures from the Real Estate Institute.

In July 2007, the median average price of a residential section was $180,000, with 709 sections selling that month.

In February 2009, section prices were back to $180,000 after having skittered from a high median of $200,000 to a low of $165,000 and back again in the months in between.

However, only 316 sections totalling $72.67 million of sections were sold last month, compared with $134 million (530 sections) in February 2008.

Some of the statistics are grim:

- Building consents issued are at the lowest level seen since 1965;
- In the year to January 2009, the value of residential consents fell 23% to $6.02 billion.
- Between September 2007 and March 2009, construction of new residential homes fell 32.5%.
- The value of residential building work fell by 14.2% during 2008.

However, positive signs are appearing in the market.

For example the number of buyers for residential property are picking up.

The number of homes sold nationwide in February 2009 was 5,228, compared to the slump of 4220 in August 2008 and the high figures of 6394 in August 2007.

The question is whether the industry can recover quickly enough for supply to meet demand.

According to New Zealand Property Investors Federation president Martin Evans, it is too late to prevent a housing shortage crisis.

“We need approx 20,000 new houses to be built each year to house the population –currently there are only about 7000. This has led to the much of the building industry sustaining irreparable damage including the workforce leaving the industry,” Mr Evans says.

Several major developments across our largest city have been halted for funding difficulties in the last six months, diminishing the number of houses expected to be built during the current period before funding dried up.

Construction of McConnell Property’s significant Auckland asset 450-home McLennan development at Papakura, including 145 residences dedicated to Housing NZ, has been delayed while funding talks continue.

McConnell managing director Martin Udale says there is a dwelling shortage in New Zealand for everything from flats and apartments to farm terraced houses.

"Fundamentally, we are building fewer houses than we need.”

Consent has just been approved for the first 1100 homes of the 3000-house Hobsonville development, to the displeasure of local residents used to a rural lifestyle.

In the Auckland CBD, Bayleys Research says 1230 apartments are due to be built by 2013 to add to the existing 17,537 inner-city apartments.

But while some residential construction is still continuing, it’s not enough. 

Fermah Group property developers and investors principal Dave Fermah says that the post-millenium 25,000 consents a year housing boom may be an anomaly and that the 1990s figures of 18,000 a year may be more realistic to base future business on. Immigration inflation will also affect the figure.

“Currently 15,000 houses per annum are being consented so that would lead us to believe currently we are 5000 short, or around 20%,” Mr Fermah says. “The other issue that will arise is lack of development funding for speculative development. That will be far harder to arrange in the future.”

Property Council chief executive Connal Townsend wouldn’t call the housing shortfall a "crisis" yet but says, “There definitely appears to be a lack of confidence in the residential property sector, which is flowing through to the declining number of consents for new residential dwellings.”

ANZ National bank chief economist Cameron Bagrie says, “People seem to be seriously under-estimating the scale of challenges at present.”

“It is true that signs of a housing shortage are opening up when it comes to the stock of housing when you are looking at a one-year snapshot,” Mr Bagrie says. “But the picture is not that clear when you are looking at the stock of housing over a number of years relative to supply – just look at the holiday home market for instance.”

Mr Bagrie says that there is there is also no shortage of land in New Zealand. “Hence, correction will pan out.”

Mr Evans agrees that the market will self correct. “But, it could take a long time without intervention.”

Part Two Tomorrow: Will high-density housing hurt New Zealand heritage?