Migration flows and Auckland's housing shortage


#1

I might have done this exercise here previously, but if I haven’t here is something you should find interesting, and if I have then this is an update. On average in Auckland there are three people per household. So in the absence of any specific information suggesting that Kiwis returning to NZ and migrants, along with Kiwis deciding not to leave NZ who might otherwise have done so, being different from this average, lets use it for calculating the extra number of houses needed to handle population change from migration flows.

In 2015 the country received a net population gain from migrant flows of 65,000 people. This resulted from 122,000 people coming in and just 57,000 leaving. Three years earlier in 2012 those numbers were respectively 85,000 and 86,000 giving a net loss of 1,000 people.

About 60% of the net migration flow goes to Auckland. For 2015 that means a boost to Auckland’s population of 39,000 people. Housing those people requires 13,000 houses. Yet last year only 9,200 consents were issued for new houses to be built, and in practice usually only 80% of consents add to the housing stock (some don’t get used, some consents replace demolished houses).

Thus roughly in the past year Auckland’s housing stock grew by 7,400. The shortage of houses therefore worsened by almost 6,000. But that only takes into account migration flows. If we allow for natural population growth of births less deaths then the shortage got bigger by more than that. In fact we can do that exercise but only for the year to June based on latest population estimates from Statistics NZ.

They estimate that in the middle of last year Auckland’s population was 2.8% greater than a year earlier. For all the rest of NZ growth was only 1.4%. Auckland is growing twice as fast as the rest of the country. In raw numbers Auckland’s population grew by 43,000 meaning a need for 14,300 or so extra houses.

Because the Auckland housing shortage is getting worse one would be unwise to extrapolate the 3.8% fall in average Auckland property sales prices over the three months to January into a trend. In fact there are other reasons for being careful about excessive pessimism.

First, as investors bid to buy property before the introduction of minimum deposit and the two year bright line test Auckland prices jumped by 3.8% in the three months to October, 6.1% the three months before that, 8% the three months before that, and 5.5% in the three months to January 2015.

Those earlier rises could never continue and this latest result will to a large degree reflect the ending of the pre-October 1 binge.

Second, we are in the part of the housing cycle where investors seek better yields and smaller mortgages outside Auckland. That has resulted in soaring house sales in the likes of Northland, Waikato and Bay of Plenty, the appearance of listings shortages, rising construction in the regions, and now accelerating regional price rises. Rises of house prices outside Auckland will be the key feature of New Zealand’s housing market this year.

Third, buying by Chinese has dried up to a large degree as the Chinese authorities tighten regulations around individuals and businesses taking funds out of China. Eventually the controls will again be eased and these buyers will return – probably more determined than ever to get funds off the Chinese mainland.

So the question then becomes, when will Auckland prices start drifting back up again? It would not seem reasonable to expect gains exceeding 10% this year given the attraction of investing outside Auckland. But price rises between 5% and 10% look likely as the fundamental of a still worsening housing shortage bites more deeply. Those gains are highly likely to start well before the middle of the year, especially giving the improving outlook for low interest rates and still rising net migration inflows.

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