New residential housing construction has already picked up over the first half of 2010 and is predicted to lift by 23% in 2011 as New Zealand's housing shortage continues, according to Westpac.
The 2008/2009 recession hammered the country's residential construction industry, with the number of houses built in 2009 half that of 2007.
The recession also boosted annual population growth to 1.3% from 0.9%, as fewer Kiwis crossed the Tasman and more came home from overseas. This has resulted in a housing squeeze, said Westpac chief economist Brendan O'Donovan, shown in an increase in the average number of people per house in New Zealand lifting to 2.55 from 2.52.
"By our calculations, the current rate of house building will be enough to keep the number of people per house constant through 2010, but will not be enough to bring it down," O'Donovan said.
The number of people per house has been trending down for decades as family sizes have shrunk, incomes raised and the number of elderly living in one and two-person households has increased. Comparing the number of people to its estimated trend suggests that New Zealand has a housing shortage of about 10,000 houses.
"Every time New Zealand has gotten into a housing shortage situation, the residential building industry has responded by ramping up production and eventually restoring balance," said O'Donovan. "We expect this time will be no exception."
O'Donovan said a 23% boost in 2011 residential construction would only just be enough to keep up with population growth, and even more will be required in 2012 to make inroads into the housing shortage. "Those forecasting lesser increases in residential construction have a job to explain exactly where people are going to live," he said.
There was $5.9 billion of residential building work put in place in calendar 2009, down 20% from 2008, according to Statistics New Zealand.
The price adjustment signal of the latest recession has been seen in developers who relied on cheap finance being forced to sell land, pushing down the price of undeveloped residential sections by 15% since 2008. Over that same period house prices have remained unchanged, though the ‘invisible hand' of the market will change that, he said.
"The margin on offer for successful property development is now much wider than it was during the boom," said O'Donovan.
"There is a juicy profit opportunity on offer for larger firms that are less reliant on finance to get involved in residential property development, which is precisely what we think will happen."