A home of one’s own

This Issue This is a part of the Uniquely NZ feature

By - , Build 142

Most New Zealanders aspire to owning a home – more so than in many countries. At present, with the economy on the up and migration numbers on the rise, new home consents are healthy.

Figure 1: New dwelling consents are generally in step or slightly behind economic growth.
Figure 1: New dwelling consents are generally in step or slightly behind economic growth.
Figure 2: Existing house sales trends are usually followed by new housing numbers. (Source: REINZ and Statistics NZ.)
Figure 3: Migration is another driver of new housing.

THE DEMAND for new housing is closely tied to the state of the economy in many countries but particularly so in New Zealand where new housing consents are generally either in step with overall economic growth or 3 to 6 months behind (see Figure 1).

The reason generally given is household confidence – in a growing economy, continuing employment is more certain and households are more confident to take on a new mortgage. The converse occurs in downturns.

Existing versus new homes

But new housing demand does not only arise through employment confidence.

Figure 2 demonstrates how important the existing housing market is for new housing demand. As we get a positive change in demand for existing houses, the demand for new housing also moves upwards, although there is typically a lag between the two lines of about 6 months.

This behaviour is quite marked in New Zealand because housing is a major store of household wealth, more than for most other countries.

Figure 2: Existing house sales trends are usually followed by new housing numbers. (Source: REINZ and Statistics NZ.)

Slow decline in home ownership

While our ownership rates are slowly declining – from the peak of 74% in 1991 to 65% in 2013 – ownership is still quite high by world standards.

Interestingly, in the last year or so, new consents have continued to grow while the increase in existing house sales has slowed significantly, though they are still slowly increasing. This means the end of the chart looks different to the rest of the chart and suggests we could be due for a downward trend in new housing consents.

Migrants boost demand

This brings us to another driver of housing demand – migration – that may explain the continuing strength in new consents. Net permanent and long-term (PLT) migration is growing strongly at present with net inflows of about 30,000 persons per year (see Figure 3).

Consents are shown as the annual change in numbers, and quite often, though not always, the peaks and troughs of the two lines correspond. Most forecasters expect some lag between inflows and eventual new housing starts.

The recent strong growth in migration probably explains the continuing growth in new housing that is otherwise not explainable in Figure 2. At 25%, New Zealand has one of the highest overseas-born percentages of population among developed countries.

The only other developed countries with a similar percentage are Australia (28%), Switzerland (29%), Israel (27%) and Canada (21%).

Figure 3: Migration is another driver of new housing.

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Figure 1: New dwelling consents are generally in step or slightly behind economic growth.
Figure 1: New dwelling consents are generally in step or slightly behind economic growth.
Figure 2: Existing house sales trends are usually followed by new housing numbers. (Source: REINZ and Statistics NZ.)
Figure 3: Migration is another driver of new housing.

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