Residential building consent numbers dropped another 5% in September to the lowest levels before the pandemic.
Over the past 12 months, just over 40,000 new dwellings were consented, down 20% on the previous year. The fall in consent numbers has been widespread, including Auckland, down 22%, Wellington, down 18% and Canterbury, down 17%.
The downturn reflects much tougher financial conditions in the sector where there have been large increases in building costs, a sharp fall in house prices, as well as continued increases in interest rates.
Against that backdrop, developers have been reluctant to bring new projects to market, and prospective buyers have been nervous about making purchases.
Westpac says given those conditions, it is forecasting a sharp fall in residential building over the coming year.
“The extent of that decline will be moderated to a degree by the fact that over the past year large numbers of projects were consented, but staff and materials shortages delayed how quickly work could be completed, Satish Ranchhod, Westpac senior economist says.
“Even so, a period of weak building activity is ahead of us, and some planned work will likely be cancelled.”
This has come at a time when there is record migration.
About with 199,500 non-New Zealand citizens immigrated to New Zealand over the past 12 months and the net gain was 110,200 once those leaving have been accounted for. That is more people than live in Palmerston North or New Plymouth when not enough houses are being consented or built to keep pace.
The extra demand for housing is putting upwards pressure on house prices and rents, especially in Auckland.
Almost half of recent migrants to New Zealand have come from India (38,197), the Philippines (30,350) and China (19,876), which is well above their usual percentages of our migrant pool. Historically migrants from these countries have earned slightly below average wages in New Zealand.
To the extent that remains the case, that implies more upwards pressure on lower-priced homes and rentals relative to those at the top end of the market, ANZ’s latest Property Focus report says.
The size of the migrant flows in both directions mean property market churn will be higher than otherwise. This will support house sales volumes and also rents, to the extent it makes rent reviews more frequent (within the constraint of the new rules limiting the frequency of rent changes for existing tenants).
The recent boom in net migration has seen New Zealand grow by the population of a decent-sized city over the past year.
Of course, no new city has popped up in New Zealand this year. Rather, many migrants have moved to Auckland.
As the country’s largest city it naturally provides a gateway for new migrants to establish themselves, easily find a job and connect with others from their country of origin. Migrant flows into Auckland have helped spur on economic activity despite nationwide gloominess.
The concentration of migrants arriving in Auckland has been placing upwards pressure on the city’s house prices. Auckland has been building houses rapidly in recent years, but this is not keeping pace with the volumes of new arrivals, making the evolving demand-supply balance a tailwind for prices once more.
ANZ chief economist Sharon Zollner expects the additional pressure in the Auckland housing market to cause spill overs to neighbouring regions such as the Waikato and Bay of Plenty as relative prices adjust.
“It's not just house prices where we expect upwards pressure to emerge; rents are also likely to see sustained increases from higher population growth. However, at some stage the cooling labour market will reduce tenants’ wage growth, meaning they will be less able to pay higher rents. This will limit landlords’ ability to continue to raise rents.”