With the New Zealand National Government’s single-minded focus on solving Auckland’s housing crisis by boosting supply failing dismally, and it facing possible election defeat as the nation hits the polls on Saturday, Prime Minister Bill English has defended the Government’s housing record. From Interest.co.nz:
Prime Minister Bill English has defended his government’s record on housing supply and demand responses, saying demand had both been underpinned by government subsidies for first home buyers while also being cut by way of loan-to-value ratio restrictions and introduction of a two-year capital gains tax which excludes the family home.
Supply was set to be boosted by government moves to allow increased land supply, although the building industry was saying it was maxed out at the current rate of 10,000 a year in Auckland. He used that argument to defend the need for continuing high immigration.
English brushed aside suggestions that wages would have to keep rising for 50 years with house prices remaining flat for affordability metrics to return to more acceptable levels in Auckland, or that house prices would alternatively have to fall 60%. It was good that prices were steady now, he said…
“The house prices are now flat to falling. And…30,000 first home buyers got in, remarkably, even [with] these house prices.” And a further 80,000 will further, he said referencing the new HomeStart package again. “Because we want people to be able to get into those houses.”
He then tried to turn attention to the supply side. “We’ve worked intensively over recent years to change the way that councils operate with the availability of land. Because the fundamental problem, particularly here in Auckland was that, when the demand came on – 150,000 Kiwis who we thought would leave in the last five years, but stayed home, that’s extra pressure in the market – the market took too long to react.
“Now, the supply is there. We’re in the biggest construction boom that New Zealand’s seen in decades. Both the housing and the support infrastructure,” English said.
Ryan jumped in to put to English that the government’s own housing pipeline report showed building wasn’t keeping up with demand…
You can’t make this stuff up.
The National Government has been in office for nearly nine years. It had ample opportunities to reform the housing market but instead allowed immigration to ramp-up, while promising to solve the resulting housing shortage by building more homes.
During National’s rein, the housing situation has gotten unambiguously worse, especially in the major city of Auckland.
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As shown in the next chart, the average dwelling value in Auckland has nearly doubled since National was elected in 2008, exceeding $1.0 million:
The median house price-to-income ratio in Auckland has also soared, from just over six in 2013 to nearly 10 times currently:
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English’s comments about boosting supply also don’t hold much water given the circa 30,000 consents issued across New Zealand (circa 10,000 in Auckland) is running well below the nation’s immigration-fueled population growth of roughly 100,000 people (44,500 in Auckland):
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This mass immigration has been underpinned by around 45,000 permanent migrants each year (not including Australians) – equivalent to roughly 1% of New Zealand’s population:
This excessive permanent intake is the long-term driver of New Zealand’s overall mass immigration program, given temporary migrants are by definition temporary. As long as immigration remains at such high levels, the country will continue to suffer from chronic population pressures, especially in Auckland.
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The housing supply situation is probably even worse than suggested above, with CoreLogic in August estimating that “while Auckland consents increased by almost 10,000 in the past year, the housing stock increased by less than 6000 dwellings”. Moreover, “less than half the number of new homes that Auckland needed last year were actually built”, and “the housing gap is bigger than is being talked about”.
Sadly for FHBs, the housing shortfall continues to worsen, and will likely continue to do so under current settings.
Recent population projections from Statistics New Zealand estimated that Auckland’s population will rise between 56% (medium growth scenario) and 75% (high growth scenario) between 2013 and 2043:
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Driven by mass immigration:
Auckland will continue to be New Zealand’s fastest growing region. Among regions, Auckland is projected to receive over half New Zealand’s net migration, and account for over half the country’s growth in the period to 2043…
With at least 15,000 new homes needing to be built (not consented) in the city each year – more than double the current build rate – it is obvious that the housing situation in Auckland will continue to worsen as dwelling supply falls well short of rapid immigration-fueled population growth.
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New Zealand needs genuine action on both the demand and supply-sides. And only Labour seems to have comprehensive policies (see here and here).
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
