25 June 2010
Source: NZ Herald
About 10,000 new homes need to be built in New Zealand to keep pace with population growth and ease the current housing squeeze, a report released by Westpac shows.
The report says the number of houses built halved in the two years to 2009, while population grew 0.4 per cent as fewer Kiwis crossed the Tasman.
The resulting squeeze on housing – only the third since reliable data began in the 1960s – had boosted the average number of people per house in New Zealand from 2.52 to 2.55 during 2009.
A rapid growth in construction activity was needed to ease the squeeze, the report says.
“By our calculations the current rate of house building will be enough to keep the number of people per house constant through 2010, but will not be enough to bring it down,” the report says.
Westpac is picking a 23 per cent growth in residential construction for 2011, and even that would only just be enough to keep up with population growth.
Even more would be required during 2012 to make inroads into the shortage.
“Those forecasting lesser increases would have a job to explain exactly where people were going to live,” the report says.
Earlier this year the Salvation Army said the slowdown in the building sector had left Auckland short of at least 6000 homes, with the greatest pressure going on South Auckland households.
Population growth in Auckland had far outstripped residential construction, which had plunged to a 20-year low, forcing more than 20,000 Aucklanders to live in overcrowded conditions, the organisation’s 2010 State of the Nation report, A Road to Recovery said.
Westpac said one way to consider the current situation was to compare the number of people per house to its estimated trend.
“That suggests that New Zealand has a housing shortage of about 10,000 houses,” the report says.
Historically every time New Zealand has gotten into a housing shortage situation, the residential building industry had responded by ramping up production to restore balance, the report says.
“We expect this time will be no exception.”
Fears that difficulty obtaining finance will prevent a pick-up in residential construction, like it had following previous recessions, ignored the lessons of history and economics.
“Market economies tend to find ways of getting around obstacles, normally by throwing up new price signals.
“In this case developers who relied on cheap finance have been forced to sell land, pushing the price of undeveloped residential sections down by 15 per cent since 2008,” the report says.
Over the same period house prices have remained unchanged, therefore the margin on offer for successful property development was now much wider than it was during the boom.
“There is a juicy profit opportunity on offer for larger firms that are less reliant on finance to get involved in residential property development which is precisely what we think will happen,” the report says.