Housing has been a key driver of the economy over recent years, both in creating strong growth and the recent recession. Recent house price, house sales and building consents data suggest the cycle is turning up, although there is considerable uncertainty around the sustainability of the recovery.
A key point of contention is whether there is a shortage of housing. There is a considerable divergence of views among commentators. Our analysis suggests the rate of home building has kept pace with underlying demand and there is no shortage at present. But comparing the current exceptionally low rate of homebuilding with the growth in underlying demand suggests pressures could emerge.
Housing supply is sluggish…
Construction of new homes has been slowing over the past year. This is clearly illustrated in building consents, which has practically halved from a peak annual trend rate of 27,000 in 2007 to 14,000 in August 2009. Given construction activity lags consent issuance by around six months, the rate of new home building will stay anaemic through to early 2010.
…in contrast to strong population growth
While the rate of new home builds has slowed, New Zealand has been experiencing relatively strong population growth, with population growth of 47,000 in the year to June 2009 (compared to
44,000 in the year to June 2007). This translates to an increase in households.
Following some years of close balance between population driven demand and supply, supply is now undershooting demand – at least temporarily.
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