Shortfall of 25,000 homes possible

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Home building is keeping pace with demand for now, but the exceptionally low number of new homes means a shortage could be looming, according to a report by NZIER.

Given present population growth and a trend to fewer people living in each home, NZIER expected demand for about 125,000 new homes in the next five years. But the economics group is forecasting only 100,000 homes being built in that period.

"This suggests a looming shortage of housing," NZIER says in a report on housing.

But if young adults stayed at home with their parents for longer and the average household size steadied, as happened in past recessions, demand may be more like 90,000 to 105,000 homes, close to expected supply.

House prices had risen recently, but that appeared to reflect not enough homes for sale on the real estate market.

If there was an imbalance between supply and demand, rents would rise rapidly, NZIER said.

"This has not been happening in the New Zealand market – rent bond data shows rents have been dropping," NZIER said.

That suggested there was no shortage of housing at present, the forecasting group said, although there was potential for a shortage if house building did not lift above current forecasts. Overall, rental cost inflation was 3 per cent in 2008, under general inflation at 3.4 per cent. Rents have followed general inflation closely for many years.

Latest figures from the Department of Building and Housing for the six months to September showed the national average rent for a three-bedroom home was $321 a week, compared with $308 a week in June last year, a rise of 4 per cent. But in June last year, the average for a one-bedroom flat was $229 and it is down to $200 this year. Two-bedroom flat rents were down more than $30 a week.

NZIER's report said house building consents have slumped from a peak of 27,000 in 2007 to 14,000 in the year to August this year.

Actual building lags behind consents by about six months, so the level of home building is expected to be weak through to early next year, NZIER said. At the same time, the population has been growing, up about 47,000 to June, slightly more than the previous June year.

"Following some years of close balance between population-driven demand and (housing) supply, supply is now undershooting demand, at least temporarily," NZIER said.

The average household has 2.67 people, which implies demand for about 17,600 new homes given the population growth.

Fewer people are living in each home on average than 40 years ago because of a trend to smaller families, more marriage break-ups and more older people living alone. If that trend continued for the next five years and the population kept growing as expected there would be demand for 125,000 more homes.

The potential misalignment between new homes being built and population growth was not necessarily a cause for concern, NZIER said.