Earning a reputation as the catalyst for New Zealand’s national housing crisis, supply and demand dynamics continue to put upward pressure on house prices despite a global pandemic and local recession, says Nick Goodall, head of research at CoreLogic New Zealand.
A comparative shortage of residential building activity accumulated over many years has undoubtedly played a role in rising property prices, he says, however, it’s not quite as simple as regulatory red-tape and the effect of overseas investment.
A hot topic and scapegoat for growing property prices, estimates have seen New Zealand’s housing shortage tapped anywhere between 50,000 to 150,000 too few homes.
So just how has residential building activity impacted the price of property, and what does it tell us about the future, Bayleys asks?
“Despite strong building consent numbers which have arguably kept pace with demand over the last five years, New Zealand’s residential construction industry is still playing catch up,” Mr Goodall says.
The catch-up he’s referring to is the Global Financial Crisis (GFC) of 2008/09 when international economic disruption trickled down the financial system to bankrupt businesses and decimate household wealth, with a lasting effect on New Zealand’s residential construction industry.
“Following the GFC, there was little appetite for businesses to take on risk and households more debt, which saw building consent numbers slump to all-time lows,” he adds.
“Following the GFC, there was little appetite for businesses to take on risk and households more debt, which saw building consent numbers slump to all-time lows,” Mr Goodall says.
While leaving the country with a lingering dearth of dwellings, building consents have actually stabilised at a high level of activity since 2014, however a combination of policy, population growth and COVID-19 related disruption has cast doubt on continued productivity.
“The government is playing their part, where consenting dropped away after the GFC there was a long, hard slog to build activity back up, the government is conscious of this, actively monitoring early indicators for a downturn in the construction industry to ensure provision of support, and a continued supply of housing for New Zealanders,” Mr Goodall says.
“Growing New Zealand’s housing supply is a slow-moving beast, and while our borders remain closed there is a longer-term expectation that strong population growth will return, so we need to continue to build at high rates to meet this demand,” he adds.
In the five years to 2014 where construction activity remained muted, New Zealand experienced huge population growth with some 40,000 new Kiwis needing a place to live every year.
“Where migration and the effects of a rising population were exacerbated by stagnant building activity pre-2014, the cost of a home began steadily rising, largely owing to increased competition across the national market place,” Mr Goodall says.
“Today, as the cost of ownership increasingly dictates residential property choices, we’re seeing a new wave of trends emerge which balance lifestyle with affordability.”
“A greater proportion of first home buyers are turning to the likes of new build townhouses, and apartments, in order to secure affordable properties in desirable locations,” Mr Goodall says.
“This appetite is best exemplified in Auckland, where recently, more consents for units and townhouses were issued than for standalone dwellings,” he adds.
Through the recent economic downturn there was concern around funding these larger-scale projects, however, Mr Goodall says the recent buyer appetite for modern, affordable homes in good locations has meant successful developers have been able to secure the necessary pre-sales to receive funding and reach the next stage of project completion.
This in turn, has provided a welcome air of confidence to the residential property market as activity on both sides of the development equation continue.
Urban development and policy
Much as population growth fanned the blames of sluggish building activity pre-2014, urban development policies have impeded the supply pipeline, Goodall explains.
While policy changes such as Auckland’s Unitary Plan Operative in-Part (AUPOP) have encouraged growth by rezoning fringe locations to allow greater intensification, linear infrastructure and the funding required to create roads, parks, motorways and the vital foundations for communities are a persistent constraint for supply.
“There’s an opportunity now to focus on improvement, something which New Zealand’s major political parties have discussed in length when addressing what they want from our national housing industry - which is to remove existing barriers to build at scale quickly,” he says.
“When looking at greenfield data, early indications show the appetite for development remains resilient with the absence of a meaningful slowdown across the sector taken as a signal that developers are confident, active, and the housing supply pipeline is in good shape for now,” he explains.
“Early indications show the appetite for development remains resilient with the absence of a meaningful slowdown across the sector taken as a signal that developers are confident, active, and the housing supply pipeline is in good shape for now,” Mr Goodall says.
“Despite the global economic climate, the rate of building consent issuance is holding up with record levels of building activity over the last several years, and there’s little substance in recent data to suggest that the property market is about to be thrown off course,” Mr Goodall continues.
“A combination of record low interest rates, access to credit and renewed market confidence continues to see demand for quality residential property hold firm.”
“Furthermore, a lack of any meaningful lift in unemployment has minimised the number of urgent listings or strongly motivated vendors willing to discount their sale price.”
When asked bluntly whether building more houses will help to bring down the cost of homeownership, Goodall says that building more houses will not in isolation bring down the value of land or homes, especially as interest rates continue to fall and managing a mortgage becomes more affordable.
“We simply cannot build fast enough to have a meaningful impact on price.”
“But the better New Zealand becomes at utilising more efficient building practices, such as implementing modular or prefabricated homes, there’s potential to relieve upward pressure created by persistent demand, though not in the short-to-medium term,” he concludes.
Nick Goodall is the head of research at property data, information and analytics service provider CoreLogic New Zealand