Friday, 8th May, 2015

Gearing up the capacity of Auckland’s house building industry to build more new houses faster will be critical to solving Auckland's long-term housing shortage, says Auckland Chamber of Commerce head, Michael Barnett.

In a week in which the average sale price of an Auckland home topped $800,000, blame for the crises has been laid at the door of a web of factors – Auckland Council costs, red tape, availability of land, developers ‘land banking’, insufficient supporting infrastructure, and Auckland and Wellington fighting over Housing Accord detail.

“But even if all these factors were sorted – and they need to be, fast – Auckland will still have a housing crises with no end in sight,” said Mr Barnett. “This is because the house building industry does not have the capacity to build the number of houses needed to meet current and future demand.”

A snapshot of industry and house supply numbers provides the evidence:

  • Five years ago it was assessed that for Auckland to keep pace with its population growth rate of about 26,000 people a year – or a Tauranga every five years - the city would need 13,000 new houses built every year for the next 30 years.
  • But a recent surge in net migration - partly from more people returning from Australia and fewer Aucklanders heading overseas - means that Auckland's population currently is increasing by around 100 people a day, or 36,000 a year – or a city the size of Tauranga and Timaru every five years.
  • This rate of growth may not last for long, but even if it’s just two years, the Housing Accord target of 13,000 houses a year set two years ago is now more likely to have risen to around 15,000.
  • But Auckland’s housing industry has never built 13,000 houses a year. A 2013 report shows the sectors strongest growth was over a 16 month period from 7300 consents in 2001 to 12,500 consents in the year ending January 2003. This was sustained until 2005 when the Global Financial Crises (GFC) hit Auckland.
  • Since the end of the GFC there has been a gradual lift – 6300 consents in 2013, and around 7700 last year.

“This is well short of the agreed 13,000 per year target every year for the next 30 years.” Just 170 houses have been built so far of the 47,000 that has been targeted to be built in Auckland's 84 Special Housing Areas over the next few years. If the target is achieved that will meet projected demand for the next 4 years! What happens after that?

“I note that around 55% of Auckland’s house building firms are small-medium, employing less than five people. It makes sense for them to let new house construction supply continue to outstrip demand, to ensure a continuous supply of projects for the about 3500 employed directly in residential building.”

Further, there is a big skill shortage across the whole construction area. More than 35% of workers in the sector leave secondary school with no qualifications, even though some later obtain them. And there is a particular lack of people with strong management and leadership capability.

Against these numbers, it would be a major surprise if house prices weren't sky rocketing, said Mr Barnett. “Prices will stabilise, I suggest, only when the number of houses being built matches the number of people seeking them.”

Looking ahead and beyond the Wellington-Auckland rhetoric, expansion of the house building industry will be crucial for Auckland getting anywhere near close to building the number of new homes it needs to keep up with demand.

For more information contact Michael Barnett, mobile: 0275 631 150.
Michael Barnett, Chief Executive, Auckland Chamber of Commerce.