NZ 'housing market crisis' more entrenched as costs outstrip income gains: govt report
By Rebecca Howard
Feb. 12 (BusinessDesk) - New Zealand's housing crisis is "deeper and more entrenched" and an inadequate supply of new houses means both the cost of homeownership and renting is increasingly unaffordable, according to a government-commissioned report.
"Fixing the housing crisis will take bold action. The government has a significant work programme to respond to these failures: implementing KiwiBuild, improving conditions for renters, increasing the supply of public housing, and rebalancing tax settings to discourage speculation," Housing and Urban Development Minister Phil Twyford said in a statement.
The report, written by Alan Johnson of the Salvation Army, Otago Public Health Professor Philippa Howden-Chapman and economist Shamubeel Eaqub, said "homeownership rates have fallen to a 60-year low and could fall further. These falls have been alongside rapid house price inflation in many parts of New Zealand and, with this, deteriorating affordability."
The authors underscored a lack of new housing lies at the root of the problem. "Between 2012 and 2017 population estimated growth outstripped estimated housing stock growth by 2.1 percent. This difference is the root cause of the present housing shortage – essentially, we have not built enough houses for our growing, but ageing population," it said.
Residential property development stalled at the turn of the decade when a raft of New Zealand's mezzanine lenders collapsed, removing a favoured funding option for residential developers, while the global financial crisis saw major banks more reluctant to back speculative investments. The lack of building was exacerbated by strong inbound migration as New Zealand's economy fared better than many of its international peers through the middle of the decade.
In order to address this shortfall, the government plans to pump in $2 billion over the next three years to kick off the KiwiBuild programme targeting 100,000 affordable houses being built over the next decade, something Twyford said would deliver a "step change."
Still, the housing report warned while current levels of building consents and house construction are at decade highs, these levels are not exceptional over a longer period and have not been adequate for the strong population growth experienced over the past five years.
Constraints around planning, and resource and building consents have been blamed for this shortfall, however the report said "bigger existing and future constraints are around the funding and provision of urban infrastructure to support new house building and it is by no means clear the local councils and their ratepayers can continue to borrow to fund these assets."
The report's release follows Finance Minister Grant Robertson announcement last week that the government accepted the business case for a housing project being spearheaded by the Hamilton City Council.
The council had applied for funding under the previous government's Housing Infrastructure Fund for the area of Peacockes, a development site on Hamilton's fringe area, opening up residential land for 3,750 new homes within the next 10 years, representing nearly 4 percent of the KiwiBuild target. It would then rise to 8,400 over the next 40 years. Robertson said final documentation is being worked on and "we expect that construction can start in earnest when long-term plan approval is gained in June."
Today's housing report noted high house prices have also caused rents to rise faster than wages and salaries.
"Between late 2012 and late 2017 average rents for three-bedroom houses rose around 25 percent while wages rose only about 14 percent," it said.
However, it also said that the market is being "masked" by increasing overcrowding and state assistance through the accommodation supplement and income-related rent subsidies and those programmes "are doing little to relieve these affordability problems."
The report said that about 40 percent of the private rental market has some level of state or public support and the number of people receiving both superannuation and the accommodation supplement is growing by 2000 a year.
It noted the government is pushing ahead with increases the supplement and will eventually put a further $500 million annually into the accommodation supplement (AS) and more than $400 million into private rental housing markets.
However, regarding its future, it said the "extent to which the AS is effectively a tenants’ or landlords’ subsidy is unclear, but will be partly determined by the available rental supply and will be tested by changes in rents during mid-2018 as this increased expenditure feeds through." The authors added that the supply-side pressure in private rental housing markets suggests that much of this increase will be soaked up in even higher rents.
"If that is the case, then the need for a radical review of the AS will become apparent," it said.