Apartment construction not keeping pace with demand

Rising construction costs and a lack of labour are making it hard to build enough apartments.

Rising construction costs and a lack of labour are making it hard to build enough apartments.

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Construction of new apartments is picking up pace but still lagging behind what is required to house a growing population, particularly in Auckland.

Some 2770 apartments are set to be completed in Auckland in 2017 – the largest number since the 2005 peak, when 3600 apartments were finished.

Even more apartments will become available next year, when a record 3840 are due to be completed.

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Colliers International research and consulting national director Alan McMahon said that was despite constraints on the sector including increasing building costs and a tight labour market.

In Australian cities like Sydney, high-rise living is common.
Derek Flynn

In Australian cities like Sydney, high-rise living is common.

"There's no doubt it's a challenging time for residential development, but it's pleasing to see the sector is delivering results," he said.

"The supply and demand imbalance may have worked in developers' favour by boosting sales prices at a time of high demand, but now a shortage of high rise construction industry capacity is working against them.

"Building prices are up and projects are being pushed out in duration. There's talk of easing those pressures with pre-fabrication and the large-scale use of imported skills, but so far no significant improvement is evident."

Infometrics chief forecaster Gareth Kiernan said, in all the major centres, the number of consents issued for apartments had not yet returned to previous peaks and was not yet at the level required.

In Auckland, there were 2141 apartments issued consent in the past 12 months, compared to 4928 in 2004.

In Waikato, there were 75 over the past year, compared to 336 in 2007, Wellington had 296 compared to 817 in 2009, and Canterbury 234 compared to 247 in 2007.

At the same time, more than 70,000 people a year are settling here, the majority of whom plan to live in Auckland.

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ASB senior economist Jane Turner said both Auckland and Wellington did not have enough supply of houses to meet demand.

"Based off our forecasts for building consents over the next year, we expect both regions will still be under-building over the next 12 months. 

"In addition, apartment building demand in both Auckland and Wellington has been more subdued compared to the previous housing construction cycle. Physical housing shortages and relatively more subdued levels of apartment building suggest a low risk of oversupply of apartments in Auckland and Wellington over the next year."

Westpac acting chief economist Michael Gordon said apartments and townhouses made up an increasing proportion of building consents.

"But the numbers involved one way or another still sit short of what is needed to meet population growth."

He said Auckland still had not seen anything like the apartment development of Melbourne or Sydney, where high-rise living was common.

Will Coates at Colliers International, said there was growing demand for apartments beyond the city centres, too, particularly as empty-nesters sold houses but wanted to remain in their neighbourhoods.

"Purchasers are moving away from the traditional CBD unit and looking to city fringe and suburbs for high quality apartments to replace the family home," he said.

Coates said a good quality apartment building coming on to the market would lift the price of other apartments nearby because it would indicate the area was being transformed, and it was good for retail businesses and nearby commercial space.

 - Stuff


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