Staggering Apartment Boom
For those without economics degrees this is a simple guide to something significant which happened in the world of economics today that has relevance to the person on the street.
Statistics New Zealand released monthly data showing the number of consents issued for the construction of dwellings around New Zealand. During October the number of apartment consents sky-rocketed to 1,526 from 485 in September. This was a record high massively above the previous high of 686 in July. Annual apartment consents have risen 109%. This surge took the monthly seasonally adjusted rise in dwelling consents up 35% from September. For houses only the monthly change was a decrease just over 11% with numbers still however 12% higher than October 2001 and up 19.5% for the year ending October.
WHY DID THIS HAPPEN?
The apartment surge we can put down to the accommodation requirements of a booming foreigner education sector, along with a general trend toward inner city living in Auckland predominantly due to roading problems and improving lifestyle options around the Viaduct Basin.
But the housing weakness is interesting and needs examination. The 11% monthly seasonally fall in house consents followed only 5.8% growth in September and in the three months to October house consents were down 3% from the three months to July. The weakness may reflect weakness in consumer confidence which fell sharply in August, plus a delayed reaction to the 1% rise in mortgage rates between March and July.
Regarding the overall 30.4% rise in total consent numbers issued in the year to October (apartments 109%, houses 19.5%), this surge reflects
Below average interest rates since June 2001. Firm consumer confidence until recently. Surging population growth from migration flows. Booming foreigner education. Investors switching away from equities. Rising house prices caused partly by below average construction of dwellings over 2001.
WHO IS AFFECTED AND HOW?
Builders as the apartment surge suggests continuing shortages of tradespeople. House rents, because unless people are truly flocking to apartments, the housing pullback at a time of strong population growth will leave continuing rental property shortages. House prices as construction may fail to meet supply in the short term. Prices look set to rise further.
WILL THIS CONTINUE?
We fail to see how strong population growth can do other than lead to increased housing construction. So we expect the 3% seasonally adjusted fall in house consents the past 3 months to reverse, especially with consumer confidence recovering recently and interest rates not looking like rising for many months. The apartment boom risks causing an oversupply of the predominantly one bedroom/studio style type accommodation – but not for quite some time given the booming foreigner education sector and some shift toward inner city living.