Fears over building industry capacity

Tuesday 21 February 2017

Auckland’s housing shortage is likely to get worse before it gets better, some bank economists are warning as concerns over building industry capacity constraints grow.

By Miriam Bell

The Super City’s struggles with its major housing supply shortage are well documented, as is the widespread agreement that the problem needs to be tackled.

But now a chorus of commentator voices are expressing their fears that the ingredients needed to effectively address the problem are simply not in place.

In Westpac’s latest economic overview, the bank’s economists said addressing the estimated shortage of 35,000 houses will not be easy and the building industry is already running into capacity constraints.

Labour shortages and build quality are growing issues while the pace of building remains inadequate - with building consents falling again in recent months.

“Now that the city’s Unitary Plan, which allows for more and different kinds of homes to be built, has cleared its last legal hurdles, the pace of building should pick up again by mid-year,” the Westpac economists said.

“But as it currently stands, the housing shortage is likely to get worse before it gets better.”

They said that while other North Island centres offer a potential escape valve for Auckland’s housing pressures, the relative size of Auckland means there is a limit to what those other centres could absorb.

In turn, the ongoing mismatch between supply and demand makes it hard for Westpac to justify forecasting an outright decline in house prices – although they expect the higher cost of borrowing will lead to slower house price growth in the coming years.

Westpac’s economists are not alone in their construction industry concerns with ANZ economists raising similar issues in their latest market focus report.

They said the supply side is responding to considerable housing pressures in Auckland, but barely sufficiently to keep up with demand.

In their view, there are several major challenges - cost escalation, capital constraints (especially in the multi-dwelling space) and finding skilled labour – which risk curtailing the supply side response further.

“It all points to growth headwinds intensifying for dwelling supply. In fact, there is a risk that the above pressures actually result in a slower rate of dwelling construction over coming months.

“At a time when net migration inflows are showing few signs of turning, a weaker supply story certainly doesn’t paint a picture of Auckland housing imbalances and affordability challenges being corrected any time soon.”

In a bid to address the issues, Auckland mayor Phil Goff yesterday convened the first meeting of the new Auckland Mayoral Taskforce on Auckland Housing Supply.

The goal of the taskforce is to first identify barriers and constraints to building more homes in at a pace and scale which meets the demand created by population growth.

It will then identify options and make recommendations to try and overcome those barriers and constraints.

The taskforce will release its recommendations publicly in May.

Read more:

Supply is key to boom end 

Forget demand – address supply 

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