Building consents in Auckland not keeping up with demand

Strong construction activity continues to boost the regional economic outlook especially in Auckland and Canterbury, say economists at Westpac. They report that building consent data for February, released on 30 March, confirms that Auckland is cranking up production of housing, currently up 23 per cent year-on-year.
The bank’s weekly economic report says that after January’s breather — following three months of solid growth in the number of building consents for the SuperCity — consents bounced again, and have totalled more than 9500 in the last 12 months.
However, the report’s authors say there is still a long way to go to have consents meet demand.
The economists say: “We have long forecast that Auckland needs to deliver around 11,000 dwellings a year over several years to eat into its housing shortfall, and strong net migration continues to widen this gap.
“Even in Canterbury, where consents fell particularly sharply last month, there was a rebound that was surprising in its scale, although we were already expecting some recovery.”
Wellington is on the up and up. The economists say that after years of little growth in the capital confidence is returning as concerns about government job cuts fade. With the highest salaries in the country, unemployment down, and house prices half those in Auckland, they say there is little reason to be pessimistic.
Population growth
BNZ economist Tony Alexander says demand for housing in Auckland is growing by about 15,000 a year, while actual supply is less than 8000. Therefore, he says “prices rise”.
He says: “The rest of the debate regarding Chinese buyers, interest rate changes and so on is just fluffery.
“Things will get a bit difficult when and if supply is rising over 10,000 a year and population growth has slowed.”
But he doesn’t know when that will happen — but it will one day.
Alexander also theorises that some investors are content to let their properties sit empty as the rise in value is more than the rental yield (and the risk of damage by tenants). In essence, a small proportion of properties are being taken out of circulation — compounding the housing shortage.
Prices up
Property prices in Auckland are starting to rise again, according to Peter Thompson, managing director of Barfoot & Thompson.
He says the average sale price obtained by the firm during March was $866,782, and the median price reached $798,000. The median price is the second highest on record, within $2000 of the all-time high and up 8.1 percent on February’s median price.
“As it has been for the past two years, lack of supply remains the main price driver,” he says.
Interest rates
There’s still talk of two further interest rate cuts, with the official cash rate expected to end the year at 1.75 per cent. One can only hope the banks pass on the full cuts to its floating rate mortgage payers.
Among the fixed rate deals that caught my eye this week is ASB’s 4.15 per cent for 18 months.