A shortage of houses?

By ANZ chief economist Cameron Bagrie

There’s no shortage in housing across the country. Rising migration and population growth mean current consent issuance isn’t keeping pace with demand, but there is enough excess supply from previous years to cover the imbalance.

Regional data reveals excess demand intensifying in Auckland, but areas outside of the main centres have an overhang of supply. There is widespread talk of a shortage of housing, and this has been used as one justification for house prices moving up. ANZ believe that much of the commentary in relation to the housing supply misses a key point in terms of the housing market correction. This cycle is concentrated as a land price adjustment as opposed to a physical housing story. The majority of the price appreciation of the boom appeared in the former, and while land may be in a limited supply in Auckland, this is certainly not the case nationally.

But, ANZ nonetheless feel the need to respond to the analysis presented in relation to the housing supply, particularly to it driving up housing prices and creating a “mini-boom”. Building consents have collapsed to levels last seen in the 1960’s. The number of dwelling consents issued in the last three months ran at a rate of 14,000. Yet, net migration has accelerated to an rate of 26,400. Throw in a population growth of around 35,000 a year and applying the average household size, suggests there is a demand for over 20,000 new dwellings over the next 12 months.

Based on this it’s easy to see that an excess demand situation for housing. On the face of it, it would apply an upward pressure on house prices. Indeed there have been anecdotes lately that new listings have been getting scarcer. The rebound in the number of house sales has resulted in a lower market ‘inventory’ from the equivalent of over 12 months sales at the end of last year to less than 8 months currently.

So are we really heading for a housing shortage crisis? To answer this, it’s important to distinguish between the flow and the stock. Based on recent flows, there is no doubt that excess demand exists, but we need to take into account the fact that this comes after several years of excess supply.

The upshot - there is no housing shortage nationally. A simple snapshot of one year of demand relative to supply is too simplistic; you need to look at the cumulative picture over several years. There has been enough excess supply in the past few years to absorb the rising demand for housing in the short term.

So what about the limited number of listings? We suspect this is due to the broader de-leveraging dynamic across the economy. When you buy a property, the tendency is to trade up and typically take more debt. This is where altered lending appetites and reduced job security could be playing a role. In this environment, the bias is to stay put. In practice this should influence supply (listings) and demand (the decision to buy). Hence, we shall be paying close attention to prices, which should remain capped if this dynamic is at play.

Bary McKean
Bayleys Residential Specialist