New Zealand acquired 27,000 homes last year while population growth hit a 31-year low

New Zealand acquired 27,875 new homes last year – the largest increase in property inventory since 2017 when home price stagnated, according to figures from property data firm Valocity.

While supply was rising, demand stagnated. According to Statistics New Zealand data, 7,500 more people left than arrived in the year to January, driven by the departure of about 10,100 non-nationals.

The net immigration loss reversed this long-term trend that continued until the year ending January 2021, when the country gained 25,000 people.

But despite a fundamental shift in the supply and demand equation, home prices have risen about 30% last year.

Read more:
* Home sales fall to new lows after shift in market sentiment
* New home listings rose to a seven-year high
– “Five to seven years” to fix the housing supply problem


Robert McCulloch, an economist at the University of Auckland, says the Housing Provision Amendment and other issues of the Resource Management Act are likely to have a significant long-term impact on home prices.

When Robert McCulloch, a professor of economics at the University of Auckland, read the numbers, he was reminded of a guest lecture given by Harvard economist Edward Glaeser in 2013.

McCulloch says Glaser, seen as the father of urban economics and an authority in housing bubbles, has spoken about how housing shortages can drive up prices, and that even when supply is disrupted, price momentum can continue.

“Even when you release the supply, you can still get that momentum, the bubble can continue to ripple for a year or two,” MacCulloch says.

McCulloch says it’s likely that last year’s price hike had a dynamic bubble, and with home prices already down 4% this year, a correction may be in the works.

He also expects that recent amendments to the Resource Management Act, which will allow buildings of up to three stories in most locations in cities without requiring resource approval from August, will have a significant long-term impact on housing provision.

There is even a possibility of over-construction.

“They weren’t expecting it here, but the idea came to me,” McCulloch says.

Head of Appraisals, James Wilson, says his office celebrated when they realized cottages were becoming the most popular home in Auckland.

Abigail Dougherty/Staff

Head of Appraisals, James Wilson, says his office celebrated when they realized cottages were becoming the most popular home in Auckland.

Valocity data was collected by analyzing area appraisal listings, which the president of Valocity Valuations, James Wilson, says are a good proxy for completed homes.

Wilson says the price hike in 2021, which occurred at a time when more people were leaving than coming in, and housing supply soared, reflects a downturn in market fundamentals.

He says record low interest rates have made borrowing very cheap, and people are more focused on getting their hands on real estate than the prices they were paying for it.

The easing of loan-to-value shares (LVR) requirements at the start of the pandemic also played a role in the counterintuitive price hike.

It’s a ‘fuel in the fire’ effect, says Wilson, so making money a lot cheaper in response to Covid drives up demand for real estate, which outpaces the amount of new inventory being created.

“When the cost of borrowing goes beyond a certain point, people pay less attention to the price they pay and more when just getting a home.”

“It seems a little silly to say that, but we’ve seen the market behave this way.”

There is a link between the new supply that comes to market and prices, says Wilson, but the two are not necessarily completely related.

Population growth slowed last year, but exploded the year before, says Brad Olsen, chief economist at Infometrics.

Monique Ford / Stuff

Population growth slowed last year, but exploded the year before, says Brad Olsen, chief economist at Infometrics.

Maybe not a bubble – but definitely a tire with slow leaks

Calculating the housing shortage is tricky, but Infometrics cracked in late 2019 and predicted the country was short of 30,000 to 40,000 homes.

The shift to immigration losses last year has been significant, says Brad Olsen, chief economist at Infometrics, and even with normal baby boomers, in the year to September 2021, the population grew by just 0.4%.

This was the lowest annual growth rate since 1989, and supports the idea that demand is stagnant.

However, Olsen says 2021 followed a record 2.4% population growth the year before, and with new fast-track visa programs many new arrivals are adding to buyer demand.

The overall result was that during 2020 and 2021, population growth and market demand would be equal to the average.

A bubble is known only as a bubble when it bursts, Olsen says, and the market hasn’t burst yet.

“It’s something that is slowly deflating, having been pumped more heavily over the past decade and some very strong acceleration in growth during the pandemic,” he says.

New Zealand has acquired an estimated 6,990 new homes per year so far.


New Zealand has acquired an estimated 6,990 new homes per year so far.

“Given all the factors we’re seeing right now, I don’t think – yet – we can call the housing market in a bubble, simply because I don’t think at the moment it is going to explode.

“It’s more like a tire with a slow leak at the moment – it didn’t collapse, but it leaks slowly – but it still looks like a tire.”

Pain comes to some buyers

Interest rates are now back to what they were before Covid, and while they are still relatively low, Wilson says many people who have jumped into the market to buy another property will feel the pain as fixed interest rates drop.

He doesn’t anticipate a market crash, because he says banks acted responsibly, and the rapid reset of LVRs means there is a lot more “meat in the pie” in terms of money invested in homes.

The requirement for most first home buyers to pay a 20% deposit and most investors 30-40% also means the specter of homeowners with negative equity is unlikely, unless prices descend from a cliff, which Wilson says the signs aren’t.

Home page completion slow

The increase in the number of new homes being built appears to have stalled this year, with only 6,990 completed so far.

Auckland is still roughly on par with last year, with 2,848 more homes added this year compared to 10,423 last year.

In Canterbury 1,276 new homes were added this year compared to 4,933 last year, but in Wellington only 378 new homes were added, compared to 2,551 last year.

Wilson says rising construction prices and delays in receiving materials are behind the slowdown.

He expects this decline in activity to continue for a year or so after which we “stopped”.

“We’re on the right track now and this data is starting to show that.”

Light at the end of the tunnel

Wilson believes there are better times for first home buyers – particularly in Auckland.

He says the benefits of the standard plan in Auckland are starting to appear, and with townhouses and other medium-density buildings now the norm for new buildings, more homes at the right price point are hitting the market.

Creating high growth corridors in the likes of Drury will also help bring more shares to market.

“New Zealand is finally starting to understand that it’s about building smarter, not just building more,” Wilson says.

“If we keep building Mcmansions forever, we will never be able to solve the housing crisis.”

Developer activity is not expected

There were fears of a slowdown in developments after two homestead sites recently appeared in mortgage sales, and Auckland developer David Whitbourne said there was a general withdrawal of Chinese financing from the property market.

There is no widespread liquidity crisis between banks or lenders, as there was during the global financial crisis, and there are no signs of public funding withdrawing, Wilson says.

“We are now hearing about developments that are not completed, or that developers are changing halfway,” Wilson says.

“Maybe they are behind the cycle developers, or new developers who don’t have the experience or scale to ride the short to medium term turbulence.”

Developers whose business model relies on high prices to make development profitable may run into trouble, Wilson says.

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