Auckland supply drive at risk

Cranes continue to crowd the city’s skyline and KiwiBuild continues to dominate the headlines, but Colliers latest report into the Auckland market finds supply production is at risk.

That’s because of land and construction costs and it means the housing development market is now in hiatus.

Colliers national director of research and consulting Alan McMahon says slower pre-sales and rising construction costs make achieving positive feasibility more difficult and bank funding harder to secure.

The problem is that a lot of land sold in Auckland between about 2013 and 2016 was priced on the assumption of continuing house price inflation, he says.

“Since then, house price inflation has slowed, while construction costs have increased by 5.0% in the last year alone.

“As a consequence, some land owners can’t sell for a profit, nor can they develop at a profit, so they are essentially sitting tight for now.”

While robust demand ensures there dramatic price movements are unlikely, the urgency to make decisions has reduced, McMahon says.

“What may happen in this hiatus period is that Auckland’s anticipated housing supply will reduce, due to an insufficient supply of developable land that can actually be bought at a realistic price.”

The Colliers report shows that over the last six months, 10 apartment projects (which total 668 apartment units) have been completed while 13 projects (of 670 apartments) have been announced.

Of the 75 projects currently under construction, 57 are expected to be completed by the end of 2019, which will provide around 4,534 new units.

Another 31 planned projects will not proceed as originally planned: six sites are being resold, 10 projects have been abandoned and 15 projects have been deferred.

But it is generally estimated that Auckland has a shortage of around 35,000 homes and needs to have 11,000 to 12,000 built each year for supply to keep pace with demand.

McMahon says that Auckland is clearly undersupplied for new dwellings.

“But providing new dwellings in the current market is tough for developers who are experiencing tight profit margins due to high land and build costs.”

This does nothing to accelerate building at scale which is urgently needed, he adds.

“Innovation is coming, in terms of construction methods, financing and tenure, but we will need all of them, plus a fully operative KiwiBuild programme to really change the game.”

Colliers’ warnings are not new.

Earlier this year Westpac said that Auckland’s housing shortage has continued to worsen and the region needs a decade of strong building activity to address its housing needs.

Further, construction capacity constraints, tighter bank lending for developers, consent delays and infrastructure costs are all known to be impacting on housing supply production.

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