Housing supply outstrips demand

New housing supply has far exceeded a rise in new housing demand over the last year, according to new Kiwibank research.

Meanwhile, New Zealand’s housing shortage shrank to an estimated 23,000 homes in the year to June, from a revised 57,000 homes in the previous year.

The NZ’s Current Housing Shortage and Housing Market Report from Kiwibank reveals that New Zealand is forecasted to start accumulating a surplus of housing over the coming years as projected building activity outstrips rising demand. However, a cloud hangs over future building activity as the current housing market is not conducive to property development.

Kiwibank senior economist Jeremy Couchman (pictured above) said the construction industry has been busy.

“Despite all the disruption from COVID-19, the lack of materials and the difficulty finding staff, StatsNZ estimates a total of over 41,000 homes were built in the year to June 2022,” Couchman said. “That is by far the largest addition to Aotearoa’s housing stock in the data going back to 1991.”

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Couchman said at the same time, new housing demand had slowed to a trickle as population growth hit the lowest rate since the 1980s.

“The seismic shifts we’ve seen in housing supply and demand drove down New Zealand’s housing shortage to an estimated 23,000 homes, which is still large but massively down from a revised 57,000 shortage estimated last year,” he said.

“However, a growing surplus of houses ahead is likely to weigh on the housing market and generate a slow recovery in house prices.”

Couchman said New Zealand’s population growth over the 2010s was large by historical standards and home building was only starting to catch up now.

“Supply is catching up in part because COVID-19 restrictions at the border have seen population growth slow to a trickle – a rare positive from the pandemic,” he said. “Overall population growth slowed to just 0.2% which was the lowest rate since 1986.”

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Couchman said major shortages of both materials and labour, in addition to COVID-19 absenteeism in the construction sector, were pushing out the build times of many projects.

“Data on the net increase in residential electricity connections provides another source of evidence of the change in dwellings,” he said. “Since the middle of 2021, there has been a divergence between the net increase in dwelling estimates and electricity connections.”

Couchman said unlike the building boom of the mid-2000s, there had been a massive increase in the share of building consents issued for multi-unit housing.

“Multi-unit developments such as apartments are more common closer to city centres rather than city fringes,” he said. “The concern now is that with a housing market in decline and a lack of prospective buyers, some developers may further delay or even cancel planned construction work.”

Couchman said housing demand looked set to recover from recent lows.

“Additional demand has been artificially held down and population growth has slowed dramatically. Now the border has fully reopened, we’re seeing what appears is the start of a turnaround in net migration,” he said.

“The good news is that labour shortages should ameliorate as a result. The long-term flow of people across our border should normalise and we continue to forecast annual net migration will recover to around 30,000 over the next few years – which is around half of the pre-pandemic trend.”