The bank has just released its latest Home Truths report and it warns the Super City’s already acute supply shortage will get worse before it gets better.
This is because of ongoing strong population growth and a legacy of underbuilding which is still not being adequately rectified.
Westpac estimates that Auckland currently has around 35,000 too few homes, which is equivalent to around 7% of the housing stock.
In order to address this housing shortfall Auckland should be building around 11,000 new homes per year – and that rate of building will need to go up over time to keep pace with population growth.
Westpac senior economist Satish Ranchhod said that means building levels will need to remain elevated for around a decade to produce the approximately 100,000 new homes required.
“Building 11,000 new homes a year would be a rapid pace of home building, requiring a more than 20% increase from current levels that is maintained for an extended period.”
While house building has increased in recent years, he estimates that between 2011 and 2016 the housing stock only increased by around 6%, yet the population increased by around 11%.
But the last time Auckland achieved the sort of building levels that it now requires was in the late 1990s / early 2000s, he said.
And these days the construction industry is struggling with capacity constraints, increasing costs (the cost of a newly built Auckland home has gone up by 8.2% over the past year) plus the need to ensure better build quality.
Ranchhod said Westpac expects home building in Auckland will rise over the coming years – especially now the Unitary Plan has cleared many of the legal hurdles to its implementation
“With strong economic incentives to build, consent issuance has picked up again in early 2017, including a rise in multi-unit consents.
“However, it will still take some time before building levels rise to the required pace. This means that Auckland’s housing shortfall will get worse before it gets better.”
The demands of a growing population and ongoing low interest rates will continue to exacerbate the physical demand-supply imbalance in Auckland.
This makes significant or sustained falls in prices seem unlikely in the near-term, Ranchhod added.
“While we expect that housing supply in Auckland will increase over time, this will be a gradual process.
“And, in the meantime, pressures in Auckland’s housing market are likely to become more pronounced. “
This week Standard & Poors also warned about New Zealand, particularly Auckland’s, supply deficit, and the financial downside risk it ultimately poses, in their outlook on the country’s banking system.
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