25 July 2016

Homebuilding to reach an all-time record by 2018

New analysis by economic consultants Infometrics shows the supply response to the housing crisis is on its way, with homebuilding consents forecast to hit record levels by 2018.

Infometrics Chief Forecaster Gareth Kiernan has predicted a 39% increase in the number of new dwelling consents over the two years to June 2018, taking consents to an all-time record high of 40,044pa.

“This growth will be driven by the rapid lift in house prices nationally and Auckland’s massive undersupply of housing,” says Mr Kiernan.

However, he cautions that “such a sharp lift in building activity will not come without side-effects, with intense pressures on construction sector resources fuelling increases to building costs.”

Mr Kiernan has predicted that residential building cost inflation will average 5.2%pa over the three years to March 2019 – well above the Reserve Bank’s target of 2%pa inflation across all types of consumer prices.

“These cost pressures are a necessary evil that will encourage the flow of more resources into building sector.”

“But even with these additional incentives, we see a risk that activity will struggle to expand to the extent that we are predicting, which would further exacerbate cost pressures,” says Mr Kiernan.

“With the undersupply of housing in Auckland possibly as large as 32,000 dwellings, we are not suggesting that the region’s housing shortage will be rectified in the short-term.”

“However, if building activity hits the levels we are predicting then there could eventually be some softening to house prices in Auckland and regional property markets in the “halo” around Auckland,” adds Mr Kiernan.

Infometrics is forecasting an 11% drop in house prices over the two years to September 2019.

“The Reserve Bank’s moves last week to increase restrictions on lending to investors and low-deposit households were merely a sticking plaster on demand and are likely to have the unintended consequence of shutting some first-home buyers out of the market.”

“There may be some short-term dampening effects on the housing market from such a policy, but ultimately lifting housing supply is the only way to get lasting improvements to home affordability.”

“The construction sector must continue rising to the challenge and build like never before,” concludes Mr Kiernan.

ENDS

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