A massive housing shortage is looming in New Zealand, with construction levels down and demand high despite recent interest rate hikes. According to a new report by the NZ Initiative, there could be a shortage of 113,800 houses in New Zealand by 2031 unless conditions change and new government initiatives are put in place. Despite the Reserve Bank recently saying house price inflation should fall to zero in three years, high prices and lack of supply continue to cause social and economic problems throughout the country.
The figures used by the NZ Initiative are based on a range of official population and market projections, and take into consideration current construction levels and New Zealand's aging population. While lack of supply in the housing market has been an issue for a long time now, this report differs in the way it combines long term forecasts with current construction and housing market data to paint a rather pessimistic picture.
According to NZ Initiative executive director Oliver Hartwich, construction levels are at a much lower level than officially forecast. This has a number of serious implications for the housing market, both in the short term and further down the road. “The crisis is far more urgent than we think. If we don’t build at least 113,800 additional houses within 20 years, we could see Auckland house prices match or even exceed Sydney levels within that time.” said Hartwich.
In the report, Hartwich goes on to say the impending housing shortage is the biggest crisis facing New Zealand: “Unless we ramp up supply well beyond current levels, home ownership could be out of reach of most families within 20 years... You’ll see more and more houses with one occupant while next door you’ll see larger numbers of people crowded together.” This is a situation no-one wants to see in New Zealand, which is why housing supply and affordability remain such important issues in 2014.
The housing market is an obvious blip on a New Zealand economy that is mostly performing well, with frustrated first-home buyers less than enthusiastic about rising prices, healthy clearance rates, and other indicators of a so-called healthy market. The rate of home ownership has declined in part because of property investment, with people already in the market snapping up additional properties for rental income and capital gains. While recent interest rate hikes and LVR restrictions are designed to dampen the market, they are less likely to affect investors who are benefiting directly from the overheating conditions.
Along with the unhealthy balance between investors and first-home buyers, the other problem to overcome is the issue of supply, with the NZ Initiative report recommending the creation of separate development districts to finance the construction sector. Greater financial incentives for local government and reforming water provisions are other key steps outlined in the report to address the impending housing shortage, with Hartwich simply saying, "We need to build more and we need to build now.”