Ageing population to become one of the biggest drivers of New Zealand's housing crisis, report finds

New Zealand's ageing population will be one of the biggest drivers of the housing crisis in decades to come if nothing is done to dramatically increase supply, a new report has found.

The Need to Build: The demographic drivers of housing demand, published on Tuesday by think-tank The New Zealand Initiative, outlines how as the population ages, the average number of people living in each household shrinks. 

Fewer people per house means more housing is needed even without immigration or other increases to the population - a fact "rarely discussed in the public sphere", according to report author Leonard Hong. 

"In the long-run, this is bound to get worse - this is just the tip of the iceberg," he told The AM Show on Tuesday. "Population ageing is going to increase housing demand more than we thought."

New Zealand's median house price is now over $720,000, and when compared to income, ranked as 'severely unaffordable' by analysts Demographia. 

In 1966, nearly two-thirds of homes had three or more people living in them - by 2018, that had fallen to considerably less than half, the report shows. In 1966 just over a third of households had only one or two people - they now make up more than half.

"Our ageing population has helped increase couple-only and one-person households or empty nests," the report says. In other words, people are living as couples or alone for longer after their kids have moved out than they used to - tying up housing that in past years would have been freed up much earlier. 

New Zealand's fertility rate hit an all-time low last year, continuing a decades-long decline. Combined with life expectancies increasing by almost a decade since 1966, the median age of Kiwis has increased from 25 to 37. 

An older population also means a smaller proportion of working-age people paying taxes, which can fund the infrastructure required to support new builds.

Leonard Hong.
Leonard Hong. Photo credit: The AM Show

Learning from Germany

Oliver Hartwich, director of the New Zealand Initiative, said he first realised what that kind of demographic shift does to a country when he was doing research in his native Germany in 2005.

"A city planner I interviewed... said many cities in his region had to keep building new homes due to the changing composition and needs of households even as population figures stagnated. Demographic change had reduced household sizes. Only 27.6 percent of all German households were single-person in 1975 compared with 42.3 percent in 2020.

"Since Germany's reunification in 1990, population has lingered at around 82 million, but the number of households increased from 35 million to just under 42 million in 2020. These worrying developments in Germany are New Zealand's demographic future."

Yet Germany has managed to keep its house price inflation in check - going up just 11 percent since 2000, compared to New Zealand's 171 percent. 

Hartwich and Hong say most of the Government's focus to date has been on limiting demand, which hasn't worked; and their modelling suggests immigration only has a minimal effect. Just look at 2020, where migration ground to a halt thanks to the pandemic - and prices went up nearly 20 percent anyway. 

The report looked at a range of fertility and immigration scenarios looking four decades into the future. It found even with 'low' migration and fertility, the rising median age and fall in household sizes would see us need at least 26,246 new dwellings a year to keep up with demand - more than we've built each year on average over the last three decades - and that's not taking into account the existing shortfall of about 40,000. 

The number of new dwellings being consented is currently at its highest in more than 40 years, but still only about half the rate we were building at in the 1970s when population is taken into account, says Hong. 

"We have 5.1 million people now, back then we had 3 million people. The numbers are going up, which is a good sign, but if you look at the [new] dwellings per thousand according to Stats NZ, that index was 13.2 in the 1970s - now it's only 7.6, it's only half of that."

The Government was due to announce new measures on housing this week, but postponed it to mid-March after the latest COVID-19 outbreak in Auckland. 

The ACT Party said the report backs up what they've "been saying for a long time".

"ACT has long said the only solution to a shortage of housing is to make it easier to build houses," deputy leader Brooke van Velden said.

"No matter how obvious this may seem, successive Governments and their opponents have obsessed over taxes, grants, lending restrictions, overseas buyers, Government-owned houses, anything they could think of but making it easier to build homes." 

She welcomed the Government's move to scrap the Resource Management Act, but feared its replacement would simply replicate the roadblocks it puts in the way of construction. She also said councils have been slow to approve construction, "paranoid" about a repeat of the leaky homes fiasco and wary of having to fund new infrastructure. 

"There's no silver bullet, there's so many factors," said Hong. "My paper is to highlight the fact that we're severely underestimating the supply - whatever it takes to build. Build more supply. 

"The current Government's been tinkering around with demand, LVR, capital gains - that won't do anything. There are two things we should be focusing on - one is, how can we build more dwellings? And second, how can we incentivise councils."