Housing supply

“Five to seven years” to solve the problem of housing supply

Steps taken to tackle the housing supply problem won’t yield immediate results, but experts say the supply-demand equation will improve – eventually.

Years of underconstruction, especially after the global financial crisis of 2008, meant that housing supply did not keep pace with a rapidly growing population.

The result is that there are not enough homes available to meet the high demand, which contributed to the recent spike in house prices, as well as the previous boom in 2015 and 2016.

The government hopes to boost <a class=housing construction with its new $3.8 billion Housing Acceleration Fund.” style=”width:100%;display:inline-block”/>

BRADEN FASTER / Stuff

The government hopes to boost housing construction with its new $3.8 billion Housing Acceleration Fund.

Most people agree that tackling the shortage of supply is the best way to tackle the nation’s housing problems, with recently released advice to Housing Minister Megan Woods making that clear.

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Increasing the overall supply of new homes in the right places will have the biggest impact on affordability, the Department of Housing and Urban Development told Woods as the government prepared its latest housing policy.

The government subsequently announced a housing package that aims to increase supply and curb investor demand with the aim of creating a more sustainable housing market.

Since then, the prime minister, finance minister and Woods have said the housing crisis is a decades-long problem that will take time to recover, but the new measures will make a difference.

Housing Minister Megan Woods

Kevin Stent / Stuff

Housing Minister Megan Woods

But building large numbers of new homes, and the infrastructure to support it, takes time and new data from Realestate.co.nz reveals how tight the supply of homes is for those looking to buy.

The data shows that inventories have remained consistently low over the past year and that in April, the quantity of inventories in the domestic market stood at 15,838, a decrease of 19.6% from April of Last year.

This is despite the steady increase in the number of new listings on the market over the past year. There were 9,145 new listings in April 2021, which compares well to April 2019, when 8,944 hit the market.

The Reserve Bank has highlighted the housing market and “increased risk taking” as the main threats to the stability of the financial system.

Realestate.co.nz spokeswoman Vanessa Taylor said new listings were healthy and it was promising to see new listings in April ahead of the same period in 2019.

But the real measure of supply is total inventory, or the number of homes, on the market and therein lies the challenge, she says.

“Total inventory is already low and they’re not being replenished by new listings. People are buying properties as soon as they come up for sale and so they’re not making a lot of noise in the market, rather the total inventory keeps going backwards.

April’s total stock of 15,835 is weak, but it was an improvement from December, when the total stock was just below 13,000, which was the lowest in 14 years for Realestate. co.nz maintained records.

The total number of homes available for sale nationwide is at a very low level, Realestate.co.nz chief executive Vanessa Taylor said.

Provided

The total number of homes available for sale nationwide is at a very low level, Realestate.co.nz chief executive Vanessa Taylor said.

Taylor says that for supply to start meeting demand, it will take a flood of properties to come on the market and that’s not happening right now.

But the government’s new tax policies for investors, which include the abolition of interest deductibility, provide exemptions for new construction and are likely to entice investors to invest their money in new properties.

That could help address supply challenges, and the new $3.8 billion infrastructure fund to accelerate housing development was also a good start, though more investment is needed, Taylor says.

“The big unknown is how population growth will unfold after Covid, over the next five to ten years. But if we start building as fast as the population grows, it would help supply catch up with demand and dampen rising property prices.

There are some encouraging signs, however, with Kiwibank economists calculating that the Covid-induced drop in population growth has resulted in a glut of new homes for the first time in eight years.

Kiwibank’s chief economist, Jeremy Couchman, says the surplus of 13,000 homes is only chipping away at the edges of the huge shortage the bank estimates at around 67,000 homes.

But Covid-19 has provided a rare opportunity to make a significant dent in the housing shortage as Kiwibank expects the border to remain closed, save for a few quarantine-free travel bubbles, until the year next, says Couchman.

“According to our projections, the accumulated housing shortage will decrease further this year and next. More importantly, we estimate that housing supply and demand could finally balance out in 2024.”

Years of underconstruction, especially after the global financial <a class=crisis of 2008, meant that housing supply did not keep pace with a rapidly growing population.” style=”width:100%;display:inline-block”/>

ROSA WOODS/STUFF

Years of underconstruction, especially after the global financial crisis of 2008, meant that housing supply did not keep pace with a rapidly growing population.

However, Couchman says the outlook is very uncertain as future housing demand depends on what happens when the border fully reopens while, on the supply side, capacity constraints are still present.

Independent economist Tony Alexander agrees that housing supply is growing faster, with a sharp rise in the number of housing permits issued over the past decade.

The annual number of consents issued is 39,700 compared to around 13,500 in mid-2011, but the underlying level of activity is around 44,000 per year if annualized over the last three or six months, he said.

Economist Tony Alexander doesn't see supply catching up with demand anytime soon.

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Economist Tony Alexander doesn’t see supply catching up with demand anytime soon.

“The growth in supply is the strongest since 1976 and it continues to increase with all the stops being removed to boost housing supply across the country, particularly in Auckland. Increased housing supply means greater ability to meet growing demand.

But he doesn’t see supply catching up with demand anytime soon, unless buyers suddenly pull back significantly from the market.

That seems unlikely, so it will take a huge supply of new properties to come to market and that’s in about five to seven years, he says.

“Even then, you will only get a reduction in prices in the market, as happened after the construction boom of the 1970s, if interest rates also explode at the same time, and I do not don’t see that happening.”