The New Zealand housing market is surging, with record prices recorded in Auckland and over much of the country. The current discrepancy between supply and demand and wider economic environment has led to a sharp rise in building consents, with house consent levels almost surpassing long-standing 1970s records as they "continue to defy gravity". If the current rate of building consents continues, annual figures could rise above 70s levels and put some much-needed downward pressure on property prices.
According to new data from Stats NZ, a record 11,291 new dwellings were consented in the December quarter. The previous quarterly record was set way back in December 1973, when 10,713 new homes were consented. According to Michael Heslop from Stats NZ, however, 70s figures are still much higher when you consider population size and consent numbers issued per 1000 residents: “The number of new homes consented per 1000 residents in the December 2020 year was 7.8, while the record was in the December 1973 year at 13.4. The population of New Zealand in the mid-1970s was around 3 million, compared with about 5 million today.”
Despite this divergence, current levels come during a global pandemic when few people expected to see such strong growth. Over the 12 months ending December, 39,420 new dwellings were consented across New Zealand, which was an increase of 4.8% from 2019. While consents were up across the country, Auckland and Canterbury saw particularly strong figures at 9.9% and 11% growth respectively. There was a sharp increase in consents for new townhouses, flats, and units, which accounted for almost a third of the total.
Building consents indicate an intention to build, with most constructions completed a year or two after the consent is granted. While COVID-19 is likely to cause delays, this is good news for a struggling economy and out-of-control property sector. According to Heslop, “Typically, high levels of new homes consented are followed by high levels of building activity in following quarters, which has wide benefits for the economy.” Kiwibank chief economist Jarrod Kerr estimates the conversion rate of consents to new dwellings to be between 80 and 90%, even during such challenging times. If this transforms into real activity, we could see a strong period of home building throughout 2021 and 2022.
According to Westpac senior economist Satish Ranchhod, “Much of the strength in issuance has been centred on Auckland, where just under 16,700 new dwellings were consented over the past year. That’s more than enough to keep up with population growth, and if that pace can be sustained it will erode the shortage of houses in the region... That’s being underpinned by the low level of interest rates and strong gains in house prices, which are boosting developers’ confidence. Yesterday’s labour market data signalled that this is already boosting employment in the construction sector.”