New Zealand\\\'s Looming Housing Crisis: The Challenges of Building amidst Profitability Concern

In recent years, New Zealand has been grappling with a housing crisis that seems to be reaching unprecedented levels. The perfect storm is being set up as new building activity slows down and immigration grows at an alarming rate of 100,000. This unexpected turn of events has once again put the housing market on the brink of a severe shortage. However, what makes this crisis unique is that it is primarily driven by the sudden influx of new immigrants to the country.

New Zealand's Looming Housing Crisis: The Challenges of Building amidst Profitability Concerns

Analysis conducted by the former chief economist for Auckland Council has revealed that the current rate of new home construction is no longer sufficient to keep up with the rapid population growth. The recent dramatic surge in migration, which transformed a net loss of 20,000 people to a net gain of nearly 80,000 within just 11 months, is predicted to exacerbate the housing shortage even further.

Disconcerting building figures released by Stats NZ for the June quarter of this year reveal a disheartening trend. New building consents have declined by a staggering 20% compared to the same period last year. With just under 10,000 homes approved during the quarter, this marks the second consecutive quarter with a decline in approvals. To provide some perspective, building consents reached a peak of 51,000 in the year leading up to May 2022. However, by the end of last year, this number had already decreased to slightly over 49,000 annually. Additionally, about 25% of the buildings that receive consent never actually get built due to developers altering their plans.

While it is true that some of the surge in immigration can be attributed to a change in how Stats New Zealand measures migration, using actual passport travel data rather than stated intentions on an immigration card, experts argue that the numbers have returned to pre-Covid levels. Norman, the aforementioned former chief economist, highlights the fact that aside from the decline in building activity, the Reserve Bank has signaled no further interest rate rises and a slowing of inflation. Consequently, it is the surge in migration that is likely to become the driving force behind the impending increase in house prices.

Despite the surge in building productivity, as measured by the real value of completed buildings compared to building employment numbers, the construction of new homes has failed to keep up with demand – primarily due to exorbitant land prices. This combination of soaring immigration and limited housing supply has created a dangerous concoction that is pushing New Zealand towards another housing crisis.

In order to address this crisis effectively, it is imperative for New Zealand to adopt a multifaceted approach. Firstly, there is a need to significantly ramp up building activity to ensure a sufficient supply of housing for the growing population. This can be achieved through a combination of government incentives, streamlined regulations, and increased collaboration between the public and private sectors.

Additionally, efforts should be made to explore alternative housing solutions, such as modular and eco-friendly constructions, to address both the demand and sustainability challenges. By embracing innovative technologies and construction methods, New Zealand can not only meet the housing needs of its population but also contribute to a more sustainable future.

Furthermore, it is crucial to address the issue of high land prices, which have become a major hindrance to the construction of affordable housing. This can be achieved by implementing policies that encourage landowners to make underutilized land available for housing developments at more reasonable prices.

Lastly, in order to ensure the long-term stability of the housing market, it is essential to strike a balance between immigration levels and the ability to provide adequate housing. This requires a careful consideration of immigration policies and a proactive approach to adapting to changing demographic trends.

New Zealand finds itself facing an imminent housing crisis, driven by a combination of slowing building activity and a surge in immigration. It is imperative that immediate measures are taken to ramp up construction, explore innovative housing solutions, address high land prices, and carefully manage immigration levels. Failure to act swiftly and decisively could result in severe consequences for the country's housing market and social fabric.