Tuesday 29th March 2011
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BNZ economists are anticipating a "massive" rise in housing construction, as the rebuilding of Christchurch gets under way, and as leaky building problems add to demand.
While forecasting just 15,000 new housing consents nationally this year, they expect 21,000 a year from 2012 to 2014.
Adding in renovation work, they estimate residential construction rising 41% next year after a 7.7% drop this year and then 22.4% in 2013 before a return to normality begins to set in.
"The housing and construction markets have been through a torrid time over the last four years," BNZ head of research Stephen Toplis said today.
"We believe that the worm will soon turn and turn dramatically in the case of residential construction. It's just unfortunate that the key driver of this transition was such a terrible tragedy."
Toplis cautioned that estimates for Christchurch were back-of-the-envelope for now, while there was no guarantee of full replacement, and the timing was extremely uncertain and likely to take a number of years.
Best estimates suggested that as many as 10,000 homes would need to be demolished and that total damage to the housing stock would total around $9 billion.
Even before the earthquake, too few new houses were being built nationally to meet future demand. By itself that would tend to suggest significant upward pressure on rents, property prices and construction activity - in that order.
Before investors were willing to re-enter the housing market they were likely to require positive cash earnings flows, and for that to happen rents would need to rise or property prices fall, Mr Toplis said.
Anecdotal evidence supported a view that rents had started to push higher, while official data on rents from Statistics New Zealand indicated that was not yet happening nationwide.
Assuming roughly 2-1/2 people per household, enough houses were being built to cope with 35,000 more people each year, but annual population growth of 1.2% for the past decade was adding around 52,000 a year. As a start, that left a shortfall of 7000 houses a year.
On top of that, it had been estimated the cost of dealing with the leaky building debacle could be $10 billion to $15 billion.
There was a risk that if demand did pick up, the supply response would be so constrained that the result would be house price inflation, but BNZ's central scenario was for an appropriate supply.
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