Empty Nests, Crowded Houses

Insights Newsletter
29 August, 2014

Our regular readers will not be surprised that we believe the high cost of housing is a major challenge facing New Zealanders. As a crucial election issue, we have eagerly awaited each major party’s housing announcements, hoping they will pave the way for restoring housing affordability.  

Disappointingly, thus far only the ACT party seriously addresses the true roots of the housing crisis. They at least recognise that houses are not unaffordable because first home buyers don’t have the money, but because there are serious obstacles choking the rate of construction.  

Bureaucracy, NIMBY-ism, planning regulations and artificial land supply restrictions are all to blame for soaring house prices. Because of these constraints, we are currently experiencing the lowest construction rates since the mid-1930s.  

Unless political parties across the spectrum commit to lifting these barriers to construction, demographic change will bring unprecedented challenges to the housing market. 

The enormity of the problems that lie ahead for the housing sector have been laid out in The New Zealand Initiative's latest report Empty Nests, Crowded Houses: Building for an ageing population. Using projections produced by Statistics New Zealand, this report examines the likely demography of New Zealand’s future population, and what this will mean for the future housing market. 

The report found that under a range of scenarios considering future migration rates, life expectancy, and fertility rates, the population is likely to grow larger and older. This poses challenges for a housing market that is already manifestly unable to cope with demand.  

A growing population will demand more houses, but an ageing population generally means fewer people per household. This means that even if the population were to remain stagnant, we would still need more houses. 

In fact, while the population is projected to increase by 16 per cent between 2011 and 2031, the number of households is projected to increase by 25 per cent. If we keep to current levels of construction, New Zealand could face a housing shortfall of up to 113,800 houses within 20 years.  

Pumping demand through cash subsidies will not address this shortfall. Meanwhile, a government-run building boom may add to supply, but at the cost of private sector efficiency. Finally, any limitation on migration will simply decrease the workforce precisely at a time when the economy needs to be attracting and retaining highly-skilled workers.

The only way to ensure the future housing market copes with almost inevitable demographic change is to remove the barriers to increase housing supply, starting today. Because this housing crisis will last well beyond September 20.

Jenesa Jeram is the author of the report, Empty Nests, Crowded Houses: Building for an ageing population which can be downloaded here.

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