Kiwibank economics has released a report claiming that New Zealand’s housing market has become critically undersupplied by “surging migration, again and again”.
Their report comes as net overseas migration into New Zealand has surged to a record high.
New Zealand’s experience is similar to Australia’s, where population growth (immigration) has surged to a record high at the same time as actual dwelling construction has collapsed:
Below are key extracts from the Kiwibank report, which mirrors the situation in Australia.
We’re hopeless at building houses. And we refuse to build the infrastructure required to expand. We fail to maintain the infrastructure we have. But we insist on adding to the existing (creaking) load…
In this century alone, we’ve seen three significant spikes in population growth.
At the turn of the century, we saw migration boom. The spike in migration led to a spike in demand for properties, both rentals and houses. House prices rose in response.
Did we increase our spending on infrastructure (not to mention health, education and other services) to handle the flow of migrants? No…
From 2013 to 2019, we experienced the greatest migration boom in recorded history. In 2018, we estimated the shortage in dwellings blew out to a frightening 100,000.
The shortage worsened to 130,000 in 2019. Did we increase our spending on infrastructure (not to mention health, education and other services) to handle the flow of migrants? No…
In 2020, we went into Covid fearing the worst. We locked down and closed the borders. We saw a net outflow of migrants. We allowed housing supply the chance to catch up.
Supply outstripped demand, and our housing shortage improved. This was our best chance to eliminate the housing shortage. We did good, for a while.
But then the borders reopened. And over the last year we have seen a net 120,000 migrants enter Aotearoa in search of a home. That’s the largest increase we’ve seen in one year.
Will we increase our spending on infrastructure (not to mention health, education and other services) to handle the flow of migrants? Probably not enough…
At a time when we need the supply of homes to surge, to meet migration demand, we’re seeing a fall in consents.
Over the last year or so, the decline in housing activity and prices have seen builders scale back.
It’s expensive to build in NZ, for a variety of unacceptable reasons. And developers are no longer getting the premium price they need. Pre-sales are also soft…
The surge in migration will play a big role. The demand/supply imbalance will worsen…
Demand is likely to outstrip supply. That puts upward pressure on price. It’s overly simplistic, (something that is frowned upon in the economics profession), but for every 120,000 people, we need roughly 50,000 new dwellings (with roughly 2.5 people per house).
And if we follow the downtrend in people per house to say 2.1, a more ‘desirable’ number, we need more like 60,000.
Regardless of your assumption, 2.5 or 2.1, we need more than we will build. We built 46,000 last year, a record effort, but that pace is slowing fast. We expect supply to fall back into the low-to-mid 30,000s.
The residential construction boom is cooling quickly. Supply is unlikely to keep up with demand for the foreseeable future…
The RBNZ has also lifted their forecasts for house prices. And they don’t like the inflation implications that brings (it’s all about migration).
