Shortage of New Built Homes in there any light at the end of the tunnel

Many economists estimate the housing shortfall in Auckland about 35,000 houses. This issue has been there for the past 8 to 10 years and continues to worsen.

When Kiwi’s were migrating to Australia and the New Zealand population did not fell the shortage of homes. Soon after the Rugby world cup in 2011, the permanent residents who left the country started to come back to New Zealand to settle down. Also the migration boom in the last 3 years have started to put pressure on this shortages issue and now is the centre point of discussion for the upcoming election on the 26th of September 2017.

There are plenty of causes for this shortage of homes. The supply of homes is not coping with the demand situation, due to availability of land, skilled labourers, council permits, willingness of developers to construct smaller homes and availability of finance etc.

Though the council has identified some of the land available in Auckland, it takes at least about two to three years to have some decent houses placed built on the land. Hobsonville point is a great example and it took about 9 years to develop and is still not complete. Even if the council identifies the land now and bring in say a few affordable homes, the damage is already done (more shortfall of homes), due to the fact that these houses will be in place only after 2 to 3 years. The other issue is some of the developers buy a big part of land with a house in a section with an aim of taking away the existing house and building 2 or 3 houses in that particular section. Remember the net effect
(additional stock of homes will go down by 1 home, since the developer is taking away the home from the section) will be lower.

The other issue is the developers are not constructing homes which are smaller and affordable. Huge impact for the first homes buyers since the prices of these newly built homes are astronomically high. Developers make reasonable margin on homes which are reasonably bigger and developers margin dwindle down quite a bit if they construct a smaller home.

Availability of finance is another big factor. The banks want to support developers who got good track record in the past. So new developers will face more stringent credit criteria to get funds. The second tier lenders also have restricted capital and therefore finance becomes a major stumbling block for the developers.

Council is taking longer time to sort out the permit requirements to build the homes and developers have to pay interest costs on the loans which they have taken for the land. So cost of construction goes up. Despite council doing their level best, the statistics relating to the issue of consents is not painting a good story to sort out the shortage of homes in Auckland.

In a nutshell, the issue of shortage of homes is a universal problem which exist in all major international cities in the world. Especially in Auckland there is no light at the end of the tunnel because we have fallen into this trap and none of us have any solution to come out of this issue. When the economy contracts (during recession) the developers are less willing to risk their funds and that will add additional pressure to the existing shortfall of homes. Different statistics indicate that
Auckland will have a population of 2 million in the near future. Unless and until we have some good infrastructure to support along with housing, this issue of shortage of homes is always going to dominate the headings for the next decade.