It’s supply not demand

Auckland’s housing issues can’t be solved by fiddling with demand.

Taxes and high LVRs don’t work, and the proof already exists.

That’s because demand outstrips supply so much that even with the possibility of tax, or with a high LVR, the growth curve is so large it negates the effect. There is still plenty of cash to be made on the upside.

Demand levers won’t change a thing. Only supply will.

Which brings me around to it. So far supply hasn’t mustered any more capacity than 8,000 dwellings.  It’s possible that the property industry is peaked out on capacity.

Except that in 2003-2005 the supply curve did hit 12,000 dwellings.

The main difference was that the majority of it was standalone houses on sections. Whereas now there is a vastly greater proportion of intensive housing.

Hint: greenfield development is the easiest way to increase supply.

The Government pretends to want it with talk of SHAs but isn’t really doing much more than sabre rattling.  

Council plead poverty and hope the Government will pay for the big interconnecting pipes and roads if they have to release greenfield land but secretly hope they can stave it off and continue to compact the city.

But, in the end, the buyers of houses pay all the costs. So what’s the issue? Short-term pain for long term gain.

But no matter there are 480 houses coming…in 2020.

A Maori tribe has agreed to build 430 new houses at Hobsonville with 80 per cent priced below the Auckland median price.

Ngati Whatua o Kaipara investment committee chairwoman Anita Mazzoleni said the tribe had committed “a reasonable chunk” of its 2013 Treaty of Waitangi cash settlement of about $30 million to buy 9ha at Hobsonville for the project.

Thirty per cent of the houses will be sold at set prices at or below the KiwiSaver Homestart loan maximum price of $550,000.

Another 50 per cent of the homes will be priced between $550,000 and the Auckland median price, which is now over $800,000.

The other 20 per cent will be high-end houses selling for whatever the market will bear.

Iwi development company chief executive Daniel Clay said construction would start next year, the first houses would be completed in early 2018 and all 430 houses would be built by 2020.

Witness the utter stupidity. Those so-called “affordable houses” will cease to be affordable 5 minutes after they are sold the first time. After that they will go on the market with everything else…at market rates.

But it’s all good; there are going to be 430 new houses, so really cheap and pouring into a market that has massive demand and no supply…so figure out for yourselves what will happen.

Yep, some lucky people are going to make windfall profits from their “affordable house”. Well done Ngati Whatua o Kaipara.


– NZ Herald


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  • PsychoKea

    There are always 2 sides to the equation, I believe a damping down of the immigration numbers would defiantly help to even the supply demand equation, with a reduction in demand the speculative economics would start to disappear, as soon as people start to see a leveling in prices you could see the start of market exodus by investors cutting their losses.

    • Mark

      Indeed. I also thing red tape, regulatoins, RMA etc are also a huge hold up in supply. And by that i mean higher quality and denser housing

    • Observer

      Of course, Reddell has pointed out on his blog that if land supply restrictions were removed prices would fall, but with restrictions then the other policy that drives prices is the immigration target as each 1% increase in population equates to a 10% price rise (going back to the 1960’s).

  • Urbanviper

    It is easier in politics to blame the Chinese and foreigners in general, or the specter of property developers. Everyone likes a scapegoat. Unfortunately politics, and desperate politicians, love easy answers and scapegoating. It doesn’t give me a lot of hope for serious, intelligent discussion and decision making.

    • Observer

      Well the two obvious Government policies which impact prices are land supply restrictions and immigration targets. Each 1% increase in population via immigration equates to about a 10% price rise. And from 1991 to 2013, non-New Zealand citizen immigration accounted for around 71 per cent of the change in the number of households (or dwellings required).

      So it would be seriously weird if no-one mentioned immigration policy given that is one thing that can be controlled/tweaked. For example, Woodhouse could reduce the target number of visas issued from about 50,000 to 20,000.

      • Urbanviper

        Where did you find 1% increase in population via immigration equates to 10% price rise? Population growth is erratic but trending downwards. Still we double as a country almost every 50 years. Why is it suddenly a problem then?

      • Urbanviper

        Found it: “He says Reserve Bank modelling shows a 1% boost in population will lead to a 10% increase in house prices and history shows that when unexpected population increases happen it has a big impact on house prices.” So really it is just population growth in general (it doesn’t matter where it comes from) and the reason it is a problem, as they say in the report, is because we’re no longer building as many homes (less than half the number per person as in 1970).

  • biscuit barrel

    Wheres does that max number of 8000 houses per year for Auckland come from ?

    The Branz forcecasts were 94,000 for 8 years back in 2013

    “The forecast shows 94,400 new dwelling consents in Auckland between January 2013 and December 2020.”

    Those are well out of date and too low. its well over 12,000 per year now

    • Raibert

      I really think this whole debate is full of ” statistics, damn statistics” when what we need is the facts. Depending on which side of the discussion a particular person is espousing the facts seem to change.
      However what is true is that at a ratio of 10 times household income, houses in Auckland have never been so unaffordable before.
      It is time for the politicians to act!

      • I heard yesterday the median price in Auckland was $830,000.00. I’m pretty sure the average wage is no where near 80k!

  • contractor

    Demand goes hand in hand with supply deficit; over two decades until recently an average of 20,000 net mmigrated from NZ to Australia, peaking at net 40,000 in 2012, but last year we had a net gain of immigration from Australia of 1,900. This is one of the big contributors to the shortage but the fact remains that the RMA and Auckland Council regulations gave been making supply deficient for decades.
    On the present path we will never have housing that is affordable by the masses without them taking massive mortgages, thus seriously dampening consumer spending on new household formation which is usually a far greater stimulus than the oft cited supposed wealth effect spending which is highly exaggerated because your more valuable house cannot be spent as most of us want to quit debt, not borrow more against the increased market value.

    • Observer

      There’s also significant non-citizen immigration which has been driving prices. From 1991 to 2013, non-New Zealand citizen immigration accounted for around 71 per cent of the change in the number of households (or dwellings required).

  • Observer

    It’s both. Without significant non-citizen immigration the prices wouldn’t have gone up to the extent they have. A Reserve Bank discussion paper a few years ago noted there is a 10% rise in house prices for every 1% increase in population via immigration. That relationship goes back to the 1960’s.

    The difference is that in the last 25 years New Zealand has had a policy of seeking relatively high inward-migration. From 1991 to 2013, non-New Zealand citizen immigration accounted for around 71 per cent of the change in the number of households (or dwellings required).

    So obviously, aside from increasing supply, reducing the inward migration target would ease pressure on house prices.