The supply of new housing has exceeded population-driven demand by almost 60,000 homes over the last two years

By Greg Ninness

The supply of new dwellings now exceeds the demand from population growth by a substantial margin following a major turnaround in the balance between supply and demand for new homes.

The latest figures from Statistics NZ estimate New Zealand's population increased by just 12,700 in the 12 months to June this year. That's down from an increase of 21,200 in the 12 months to June last year, and well below the average of 94,800 a year over the three years from 2018 to 2020.

The slowdown in population growth was mainly caused by the sharp drop in immigration occurring as a result of the pandemic and a decline in the natural increase in the population, the excess of births over deaths, which is at its lowest level since World War II.

Interest.co.nz estimates the population increase of 12,700 in the 12 months to June this year would have created demand for an additional 4885 new homes, based on average household occupancy in the 2018 census. But it's likely around 37,614 new homes were completed during that period, giving a surplus of supply over demand of 32,729 homes.

That comes on top of an estimated surplus of 26,650 homes in the 12 months to June last year, giving a total surplus of 59,379 homes over the last two years.

That is a substantial turnaround from previous years when demand for housing was significantly exceeding supply, creating a growing housing shortage.

Interest.co.nz has previously estimated that high levels of immigration in the year to June 2020 meant the demand for new homes exceeded supply by almost 10,000 homes that year.

The strength of the turnaround has come about because the immigration pipeline was turned off very quickly by pandemic restrictions introduced in March 2020, but housing supply continued to increase at pace.

It generally takes about two years from the time a dwelling is consented until it is completed, so building supply usually takes longer to adjust to changes in demand.

The big turnaround in the balance between supply and demand that's occurred over the last two years should have substantially, if not completely, alleviated the housing shortage built up in previous years as soaring immigration levels saw demand for housing significantly exceed supply.

That has major implications for the housing market because it is likely to reduce pressure on rents and could significantly reduce rental yields for residential property investors. This in turn could put downward pressure on property prices and capital values at a time when they are already under stress.

However it's important to note that the supply and demand figures are estimates and not exact figures.

That's because Statistics NZ's latest population growth figures are provisional and could be revised over the next few months, either up or down.

And the dwelling completion figures are based on the number of building consents issued two years previously, although when these are compared to Code Compliance Certificate numbers, issued when a building is completed, it suggests using consent figures offset by two years gives a reasonably reliable indication of new housing supply.

The tables below give the regional breakdowns of housing supply and demand over the 12 months to June 2021 and 2022.

They show the biggest new housing surplus has occurred in Auckland, which had a net population loss of 19,000 over those two years, meaning the supply of new homes exceeded population driven demand by 35,386 dwellings.

There were also substantial surpluses of housing in Wellington, Canterbury and Otago.

In the year to June 2022 two regions, Northland and Gisborne, had housing deficits, although the numbers were small and the data suggests supply in those regions may also be catching up with demand.

This story was originally published on Interest.co.nz and has been republished here with permission.