Housing crisis: Increased supply, slowing price growth could reduce pace of declining affordability in New Zealand

Housing Minister Megan Woods said there's no quick fix for the housing crisis, but significantly boosting the number of new homes, improving affordability, and enabling infrastructure is "critical".
Housing Minister Megan Woods said there's no quick fix for the housing crisis, but significantly boosting the number of new homes, improving affordability, and enabling infrastructure is "critical". Photo credit: Getty Images.

Cutting red tape to allow more density in urban areas will help to make homeownership more attainable for everyday Kiwis, the Housing Minister says.

It comes as a OneRoof-Kantar housing survey which polled just over 1000 Kiwis from October 20 to October 27, shows 42 percent of Kiwis want the Government to bring house prices down to pre-COVID-19 levels, compared to 31 percent who disagree.

CoreLogic November data shows national property values grew by 28.4 percent over the last year alone, the average property now valued at $987,401. Since the 2007 market peak, property values have more than doubled, rising 138.7 percent nationwide.

Over 80 percent of Kiwis think house prices in their area are too high - and 68 percent expect affordability of houses to worsen over the next two-to-three years, the poll results showed.

Concerns were most prevalent among people aged 18-39, those living in Auckland and Wellington, and those with household income up to $100,000.

Asked what was responsible for the doubling of house price growth over the past seven years, 62 percent of respondents said they were due to investor activity.

Just over half (52 percent) thought rises were due to overseas buyers, while 35 percent said the current Labour Government was responsible. Others said it was due to the previous National Government (24 percent), banks (22 percent), and first-home buyers (4 percent).

Responding to Newshub about Government initiatives currently underway, Housing Minister Dr Megan Woods said there's "no quick fix" to the housing crisis. 

It's going to require "multiple initiatives", starting with cutting red tape to allow more density in urban areas, she said.

"The simple equation is that denser housing featuring the likes of duplexes and multi-unit apartments equals more affordable housing, thanks in part to cheaper build and infrastructure costs," Woods said.

A cost-benefit analysis by PwC and Sense Partners estimates that up-zoning changes would bring 48,200 to 105,500 new homes in the next five-to-eight years, starting from the second half of 2022, she said. 

That would be in addition to an estimated 72,000 new homes built over the next 20 years (to 2043), under the National Policy Statement on Urban Development (NPS-UD).

"The cost-benefit analysis also found that house prices would be $133,000 cheaper on average than they would be without the Medium Density Residential Standards by 2043," Woods added.

The Government's $3.8 billion housing acceleration fund for infrastructure is about increasing the "pace and scale" of new and affordable housing, she said. It will spend $282 million on large-scale projects in Auckland, expected to benefit five suburbs in the region.

CoreLogic House Price Index data shows property values rose by 1.8 percent in November, slightly less than October, at 2.1 percent. 

CoreLogic head of research Nick Goodall told Newshub rising property values have been the greatest influence on the deterioration of affordability over the last two years.

While rising interest rates and tightened lending conditions are likely to make things more difficult for home buyers, recent data shows the rate of growth is slowing.

"I think affordability is likely to continue to worsen but probably not at the rate it has done in the last couple of years," Goodall said.

Improving stock levels will give buyers more choice, but it may take time before the rebalancing of supply and demand is reflected in easing of prices.

"We’re not yet seeing more properties newly come to market - the increase in stock has been caused by sales volumes reducing, so properties are simply staying on the market longer and may eventually be withdrawn if the vendor doesn’t get the price they were hoping for," Goodall added.

ASB and BNZ are among the banks forecasting small house price falls in 2022. ASB forecasts show a "cumulative fall of 4 percent" over the second half of 2022. A Markets Outlook released by BNZ on November 22 said there were signs rising interest rates and tightened lending conditions had started to affect the housing market. 

At best, this would lead to a stalling in house price appreciation. More probably it would result in a "modest correction in prices", (in the order of 5 percent to 10 percent), BNZ said.