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31 May 2021

The New Zealand Housing And Building Market Needs Attention

There are several problems facing the New Zealand housing market right now – and they cannot be explained by the simple adage of supply and demand.

Stats NZ has released the new housing consent numbers and brings good news – a record high number of consents have been issued in the year ending March 31st 2021 – but for some reason no one expects house prices to fall. 

Not even the experts are questioning that even with supply going up the prices are still increasing – despite the fact that house prices in New Zealand are incredibly high already.

Is there a housing shortage in New Zealand?

No, with over 196,000 homes permanently empty at any time there is no shortage of physical buildings. The reasons for these empty homes are many – guest houses, estate properties, ghost homes – just to name a few.

What is a ghost home?

A ghost home refers to a property which has been purchased in lieu of putting it in the bank – when savings accounts earn you 1% per annuum, but a house standing empty will increase in value by more than that, why choose the bank? What this means is that availability isn’t the problem - affordability is.

Housing affordability in New Zealand is the worst of any developed nation – even though the government changed the ‘Brightline Rules’ they also allowed exceptions to developers, builders, and many others in the supply chain - which has resulted in no improvement in housing affordability. With the situation as it is, prices should be expected to fall or even collapse, but in New Zealand it seems house prices can only ever increase.

In a country where the average national house price has just reached $800,000 when the median income is approximately $55,000 – the government and industry should be more focussed on a strategy to provide better housing for lower production costs.

While there is no single, pre-packaged, and easy solution to the problem, there are questions that need to be asked and lessons learned from other places who have dealt with similar issues – not a carte blanch attitude of hoping it will solve itself.

Is there a shortage of land to build on in New Zealand?

Not significantly enough to explain the constantly rising price of houses. Plenty of other countries with smaller land masses and larger populations – the UK for example – manage. Land banking is a major problem, which has a follow-on effect for house prices.

What is land banking?

 Land banking is the process of buying up land for future use or re-sale, and globally it is controversial.

What about building supply shortages?

This is a more complicated question – there does appear to be a building supply shortage. However, New Zealand has two main suppliers for domestic materials - both say there are indeed shortages. With over 800 merchants in New Zealand serving a population of 5 million, whereas Sydney which also has a population of 5 million has less than half of that. It seems that Australia is not facing a supply problem like New Zealand is – why does New Zealand seem to have so much trouble getting basic building supplies when our closest neighbour does not? 

In fact, the building supplies industry in New Zealand seems unfit for purpose. When online ordering and delivery of goods covers everything from furniture to take away, luxury jewellery to bathrooms. The way the New Zealand building supply industry is run needs to radically change if it hopes to keep up with the increasingly developing online world.

A labour shortage?

Yes and no. With traditional methods of building, there is a shortage of skilled labour able to complete the work but if the industry modernized then output would be considerably increased without increasing from the current labour levels.

Are building land packages a good deal in New Zealand?

The type of land parcels in these packages are not a good deal when compared to global markets – many are unfit for purpose and require remedial work before any development can take place, work which would be included in the land price in other countries.

What can the banks do?

It falls to the banks to adjust their lending practices when it comes to developers. For example, typically bank contracts for lending require each new development to be registered as a separate company – so when the property is sold off the plans, and the development company is wound up, any complains or legal liability is not on the bank or the company.

Are the costs of building in New Zealand justifiable?

Building costs?

No. The basic cost of construction in New Zealand is $2000 - $2,400 per metre compared with $1,300+ in Australia, despite the fact that Australian wages are higher. The reasons for this are complex with productivity, bespoke methods, standardisation issues, small scale costs, higher wastage and higher material costs contributing to the overall problem.

Consent costs?

No. consents have become a lucrative income stream for many councils in a way that could be seen as profiteering – directly countermanding the role of the council as a service to the people of their jurisdiction. As with other relevant issues, the cost of compliance is more in New Zealand as compared to other places where the wages are higher and the process more complex.

Utility connections?

Also no, not when compared to those overseas. Even more worryingly - there are often no sustainable options offered and no legal requirements for developers to install solar or other renewable options. These issues, and others, begs the question if there basic building code in New Zealand is good enough.

The Building Code Issue

The building code, while better than some in other countries, only requires a residential building to have a fifty-year life span which is appalling when you consider that many countries have safe, liveable, and attractive buildings in the 200-year-old range.

Do New Zealand home construction times compare well to other countries with similar building codes?

No. With new homes getting larger globally the typical new home is now almost double the size of comparable properties 35 years ago. If we work on the basis that the site is reasonable and doesn’t require remedial or structural work then the average build times overseas put New Zealand to shame – Australia and Canada come in at 12-14 weeks and the USA at 10-12 weeks.

New Zealand is 26 weeks. 

The real problem is a lack of questioning the status quo

There are many things that need to change about the building industry to ensure there it is a long and prosperous future of New Zealand construction but the very first thing that needs to change is the hesitant attitude to change and asking hard questions.

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