How many houses are enough to address the shortage?

STUFF
Housing Minister Megan Woods has announced funding of $1.4 billion for infrastructure projects in Auckland.

The Government is throwing billions of dollars, along with new planning rules, at the housing shortage, but experts say the country is still years away from having enough houses.

On Thursday, Housing Minister Megan Woods announced funding of $1.4 billion for infrastructure to allow the construction of about 16,000 new houses in Auckland.

It would allow the building of 6000 Kāinga Ora homes and 10,000 affordable and market homes, as well as provide capacity for development of another 11,000 homes on privately owned adjacent land.

That meant there could be up to 27,000 new homes built in the suburbs of Mt Roskill, Māngere, Tāmaki, Oranga and Northcote over the next five to 16 years.

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The funding came from the $3.8b Housing Acceleration Fund, which pays for infrastructure to speed up the pace and scale of residential development.

When it was announced last March, Woods said it would help green light tens of thousands of new houses in the short to medium-term.

New housing densification rules were also announced last year, and PWC analysis estimated they would add between 48,200 and 105,500 new homes to the housing stock over the next five to eight years.

The funding and planning rules aim to address the severe shortage of housing, but how many new houses is enough?

Auckland Mayor Phil Goff and Housing Minister Megan Woods at the announcement of $1.4 billion funding to allow the construction of at least 16,000 new homes in Auckland.
Ricky Wilson/Stuff
Auckland Mayor Phil Goff and Housing Minister Megan Woods at the announcement of $1.4 billion funding to allow the construction of at least 16,000 new homes in Auckland.

Kiwibank chief economist Jarrod Kerr said his team’s modelling of the housing market showed there was a 65,000 shortfall nationwide, with most of it in Auckland.

It would take a long time and lots of building to make up that deficit, especially as another 20,000 to 30,000 houses were needed in Auckland alone, he said.

“The closed borders during the pandemic and the expected outflow of Kiwis as they open up again does take the pressure off the market a bit. But migrants will return, and that will increase demand again.”

Shortage of supply had been one of the main drivers in recent price increases, and as more supply came on to the market it would affect prices, Kerr said.

“But good things take time, and it will be years before the housing shortage is resolved.”

AUT construction professor John Tookey said Auckland’s “massive” shortfall had developed over decades due to a planning approach which had not supported development.

Redressing that, and setting up systems and infrastructure which allowed for the successful growth of the city required further initiatives and more funding, he said.

“Funding like that announced on Thursday is an essential first step towards developing the necessary infrastructure for the future of Auckland.

AUT construction professor John Tookey says the new funding is a drop in the bucket of what is needed.
Supplied
AUT construction professor John Tookey says the new funding is a drop in the bucket of what is needed.

“Will it solve the problem in its entirety? No. It’s a step in the right direction, but at the current levels it is little more than a drop in the bucket of what is needed.”

Independent economist Tony Alexander said how the extent of the shortfall was estimated depended on what was considered a desirable household occupancy rate.

In 2001, Auckland had an average occupancy rate of 2.94 and by 2018 it was 3.15, so to return the city to the 2001 rate 37,000 new houses would be needed, he said.

“But the occupancy rate across the rest of the country was 2.68 in 2018. It would take 87,000 houses to get Auckland’s rate back to that.”

At the same time, there were high levels of building in Auckland and the city’s population had fallen slightly, with more people expected to head overseas.

That meant discussion about over-building was likely to pick up pace later this year, Alexander said.

“None of this changes the fact we have a fundamental shortage of social housing. It makes up less than 4% of our housing stock, compared to an OECD average of 8%.

“We have also tended to build bigger, more expensive new homes, so we have a significant shortage of entry-level housing for first-home buyers.”

Residential building levels are high, and there is an increased focus on townhouse development.
Amy Baker/Stuff
Residential building levels are high, and there is an increased focus on townhouse development.

Over time that would change, particularly with the increased focus on townhouse development, he said.

“Should we go into an oversupply that means more listings and options for first-home buyers. It would allow them to focus less on price, and more on what they wanted in a home.”

Housing affordability campaigner Hugh Paveltich said the only true measure of scarcity or abundance of houses was pricing trends, so they had to be watched to assess supply.

But there were some positive trends, and one was the high level of new home consents being issued, he said.

“Nationally, we are now a global leader among developed countries in the consents per 1000 residents ratio. New Zealand’s ratio is 9.7, as compared to Australia at 8.3, the United States at 5.6 and England at 3.6.”