NZ Government is failing on housing supply

By Leith van Onselen

In the lead-up to September’s General Election, pressure continues to build on the incumbent National Government of New Zealand around the issue of housing affordability.

Yesterday, Interest.co.nz’s David Hargreaves penned a stinging critique of National’s promise to boost housing supply in Auckland, which has fallen way below demand:

This is a Government that spent a long time refusing to accept that demand pressures might have anything to do with rising house prices and sought instead to make it all about bumping up supply.

Personally I’ve never accepted it’s just all about supply… There is a demand issue there too. Be that as it may though, the Government made it all about supply from its perspective and therefore should be measured by how it has done at ramping up supply.

The answer is: Not brilliantly at all…

The Independent Hearings Panel, in its Auckland Unitary Plan recommendations last year, put the current housing shortage in Auckland at 40,000 units and said 131,000 new dwellings – so, well over 18,000 a year – were needed in the next seven years to make up both the shortfall and to provide for expected growth.

In recent years about a third of Auckland’s population growth has come from ‘natural’ growth and two-thirds migration. But the latter ratio is probably even higher now.

Statistics New Zealand figures for the full 2016 year suggest (after a bit of necessary arithmetic to account for migrants who didn’t disclose a final destination) that as many as 42,000 net new migrants settled in Auckland last year. If you add in the current natural net growth rate (births minus deaths) of around 14,000 to 15,000, then it’s entirely possible Auckland’s population grew by not far short of 60,000 last year.

If you look at the current living ratio in Auckland of three people to a house – that would mean something in the order of 20,000 houses would have been needed to cope with the extra numbers – and we got half that number.

Of course, one of the key reasons why National is failing so badly to alleviate Auckland’s housing shortage is because it has juiced demand by opening the immigration floodgates. From Interest.co.nz’s Greg Ninness:

Migration remains by far the main driver of demand for housing in Auckland…

Statistics NZ estimates that Auckland’s population increased by 44,300 people in the year to June, with 69.5% of the increase (30,800 people) coming from migration…

As the table shows, the biggest surge in migration occurred from 2013/14 onwards as the Government encouraged immigration on a number of fronts to try and spur economic growth.

That included creating what became known as a “pathway to residency” for overseas students studying here, which resulted in a huge influx of overseas students applying for residency at the end of their studies, a scheme that has since run into numerous problems…

Such rapid population growth has had an obvious effect on Auckland’s housing market… although the problem is not new, it has been exacerbated over the last three years by the rapid increase in migration…

These problems should all have been foreseen when the Government left the immigration taps open three years ago.

If it didn’t, that suggests incompetence.

And if they did see the problems and proceeded anyway, it reeks of recklessness.

Focusing purely on the supply-side of the housing market, while simultaneously juicing demand, was always going to lead to policy failure.

A comprehensive housing affordability plan requires a multi-pronged approach, including:

• Freeing-up supply-side barriers (including land-use and planning);
• Investing in housing-related infrastructure;
• Reducing immigration to sensible and sustainable levels;
• Removing tax distortions that bias investors over first home buyers; and
• Cracking down on foreign speculation and ownership, as well as money laundering.

There are two sides to the housing market: a demand-side and a supply-side. Policy action is required on both fronts.

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