Westpac economists are predicting a surge in house building in the next two years, with larger firms that are less reliant on finance than some other developers getting involved in residential property development.
In a note today, Westpac chief economist Brendan O'Donovan and senior economist Dominick Stephens said they expected residential construction to grow 23 percent next year, with even more needed in 2012 to make inroads into a housing shortage in this country.
The 2008/09 recession had hammered the construction industry, with the number of houses built in 2009 half that of 2007, while the recession also boosted annual population growth to 1.3 percent from 0.9 percent as fewer New Zealanders crossed the Tasman, the Westpac economists said.
The result was a "housing squeeze", with the average number of people per house rising from 2.52 to 2.55 over 2009. That was only the third episode of squeeze since reliable data started in the 1960s.
The squeeze had not been eased by factors such as a rise in the rate of house building in the first half of 2010 -- with building consent data suggesting a further acceleration in the second half -- and a slowing of population growth as fewer foreigners immigrated to this country.
The number of people per house had been trending down for years, and comparing the number of people per house to the estimated trend suggested the country had a housing shortage of about 10,000 houses, the economists said.
"Historically, every time New Zealand has gotten into a housing shortage situation, the residential building industry has responded by ramping up production and eventually restoring balance. We expect this time will be no exception."
The Westpac economists disagreed with suggestions from some quarters that difficulty obtaining finance would prevent residential construction from picking up as it had after previous recessions.
Developers who relied on cheap finance had been forced to sell land, pushing the price of undeveloped residential sections down by 15 percent since 2008, they said.
Over the same period, house prices had remained unchanged, so the margin on offer for successful property development was now much wider than during the boom.
"There is a juicy profit opportunity on offer for larger firms that are less reliant on finance to get involved in residential property development. Which is precisely what we think will happen."