Threat of potential housing shortage looms

If the number of new homes being built doesn’t increase New Zealand could be facing a housing shortage, according to the latest independent research from the New Zealand Institute of Economic Research (NZIER).

With immigration on the rise, population growth of 47,000 in the year to June 2009 and the population predicted by Statistics New Zealand to hit five million in ten years, will there be enough houses available?

The New Zealand Property Investors Federation told NBR recently that 20,000 new homes need to be built each year to meet population growth but currently that target is not near being met with only 7000 new residences being built each year.

The number of new building consents issued halved from the peak of 27,000 to only 14,000 in the year to August 2009.

“Given construction activity lags consent issuance by around six months, the rate of new home building will stay anaemic through to early 2010,” NZIER principal economist Shamubeel Eaqub said.

The complicated nature of the Resource Management Act and the expense of applying for consents could be partly to blame for putting some off building homes, but the act has recently undergone an exhaustive overhaul intended to make the consent process easier.

The changes to the act include removing “frivolous, vexatious and anti-competitive objections that can add tens of thousands of dollars to consent applicants”, improving plan change processes, and “streamlined” decision making. The new act became law on October 1.

Housing demand is more complex than just looking at population growth. Households are becoming smaller (shrinking from 3.0 people home in 1966 to 2.67 in 2009) as more people live alone as singles, more families break up and more elderly people live independently.

Looking at these figures, Mr Eaqub said that 125,000 additional homes would be needed in five years but only 100,000 are forecast to be built, suggesting a looming housing shortage.

“If the household size were to stabilise temporarily as it has done in past recessions or permanently, we estimate the additional demand to be for around 90,000 to 105,000 dwellings. This is around our forecast of the growth in dwellings.”

While house prices are slowly rising to an average of $385,426 in August 2009 up from $382,758 the previous month, rents have been dropping recently which shows the rental market does not have excessive demand on its supply yet.

“There is a potential for a shortage over the coming years if home building does not lift beyond current forecasts,” Mr Eaqub said. “If this happens we can expect rents to rise again.”