Are we heading for a housing oversupply?

Are we heading for a housing oversupply?
For the past decade, New Zealand has had an undersupply of houses – the usual estimate was that we were about 75,000 properties short of what our population needed. The shortage was most acute in Auckland.

Now, with house prices having dropped significantly and building consents at record highs, are we on track for a housing oversupply?

It’s easy to see why people are concerned. The housing shortfall has dropped by 30,000 since the start of the pandemic, according to one economist, and it’s still falling quickly as construction continues. Plus, our population has been stagnant since 2020, growing just 0.4% in the year to March 2022. With young Kiwis heading for Australia’s higher-paid job market, we’ve seen net migration losses in recent months.

However, it seems likely that the construction boom of 2021 is going to bring our housing market back into a reasonable balance, not tip the scales toward an oversupply, for three main reasons:

  1. The undersupply is falling, but not yet been resolved. Estimates put Auckland at about 15,000 homes short of what is required.
  2. There’s been a slowdown in residential building and consents, so the number of new homes being built won’t continue at the current speed. Also, with a shortage of labour and materials leading to high construction costs, plus falling house prices, it’s possible some of the consented builds won’t go ahead.
  3. The borders are now open and more people will soon be moving to New Zealand. New residents tend to move to the major cities, particularly Auckland, and they’ll need somewhere to live.

All this means we should see housing supply and demand more aligned, which will hopefully alleviate the housing crisis to some extent. As Kiwibank’s economists put it: “The good news is that the housing market should be better balanced in the coming years”.

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