Last month, a government-commissioned ‘stocktake’ of New Zealand’s housing market revealed that the nation faces a “deeper and more entrenched” housing crisis than previously thought, which is having “devastating impacts” particularly on homelessness.
Central to the problem was that dwelling construction has fallen well short of immigration-driven population growth over the past decade – a point raised repeatedly by MB:
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With the situation worst in the immigrant hotspot of Auckland:
Yesterday, the Reserve Bank of New Zealand (RBNZ) released a discussion paper entitled Residential construction and population growth in New Zealand: 1996-2016, which estimates that Auckland’s huge immigration-driven population growth has caused a supply shortfall of approximately 10% percent of Auckland’s housing stock, or up to 55,000 homes:
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Rapid population growth has been one of the most striking features of New Zealand’s economy in recent years. The migration-fueled population increase, in excess of 1 percent per year, created buoyant conditions for New Zealand’s construction and real estate markets. Real estate prices increased by more than 200 percent in real terms between 1992 and 2016, and the fraction of New Zealand’s workforce in the construction sector increased from 4.8 percent in 1992, a post-1970 low, to 7.7 percent in 2009 (prior to the Christchurch earthquake) and 8.2 percent in 2016…
Auckland’s population increase was particularly large. The number of residents increased by 45 percent between 1996 and 2016, or by more than twice as much as the 18 percent increase recorded in the rest of the country (see Table 1). Despite an increase in building activity, several indicators suggest insufficient houses were built in Auckland to keep up with the population increase. Even though the population increased more in Auckland than the rest of New Zealand put together, only half as many new dwellings permits were issued in Auckland as the rest of the country, 153,000 versus 304,000. Moreover, prices increased much faster in Auckland than the rest of the country, by 406 percent in real terms. Finally, the size of Auckland’s construction sector is smaller as a fraction of the workforce than the rest of the country…
The estimates also suggest Auckland’s construction shortfall between 1996 and 2016 was between 40,000 and 55,0000 dwellings, or approximately 10 percent of Auckland’s housing stock. The estimates of the shortfall… suggest that the shortfall was modest until the end of 2005, when it increased rapidly…
The reasons for this shortfall are unclear, but may reflect the impact of land-use restrictions imposed after 2005. Even if land-use restrictions were solved, Auckland has such a shortage of construction workers relative to the rest of the country that it may need 9000 more construction workers to meet its ongoing demand for new houses…
Yet another depressing (but unsurprising) report if you are a young or renting Aucklander.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
