‘Under-building’ warning as housing activity plummets

Saturday, 3 February 2024

Consent numbers have fallen significantly.

Falling consent numbers could cause another, new headache for the housing market, commentators are warning.

Data this week showed that there were 37,239 new homes consented in the year to December, down 25% on the year before.

Stats NZ said the 2022 figure had been the highest on record for a calendar year.

The number of multi-unit homes consented dropped 23% and the number of apartments was at its lowest since 2016. Standalone houses were down 27%.

Mike Jones, BNZ chief economist, said consents were trending firmly lower, despite migration pushing the population up by more than 120,000 people in the year to November.

Simplicity chief executive Sam Stubbs says it is profitable for KiwiSaver fund managers to help the country build its way out of its housing crisis.

“The number of consents issued in December was almost 40% lower than two years ago. That doesn’t mean actual building activity is set for a similarly sized decline - pandemic disruptions have distorted the lags between consents and actual building activity. But it does point to the downturn in construction deepening this year.

“In short, it looks like we’re underbuilding. We think a big part of this relates to record high build costs and the large gap to the cost of purchasing an existing home. Basically, the economics of building are stretched, meaning the financial incentive to build – at a macro level – is low. It’s one of the key factors likely to push up house prices this year.”

Jarrod Kerr, chief economist at Kiwibank, said falling house prices had put potential developers off.

“Interest rates are high as well, the cost of construction has been quite high in recent years. All those things point to a slowdown in supply which doesn’t help. If we look at the housing market in isolation, we need a lot more supply. We need to do things to stimulate supply. But we’ve got an inflation problem and the Reserve Bank is trying to cool everything down on the demand side.”

He said measures to discourage investors had been unhelpful in fixing the “true problem” of the housing market.

“When you restrict supply, you boost prices more than otherwise would be the case. It doesn’t help affordability at all.”

Miles Workman, a senior economist at ANZ, agreed the drop was not unexpected given high interest rates.

“The combo of surging net migration alongside the current downward trend in consenting activity means NZ certainly has a widening housing deficit problem.”