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The Housing Crisis –The Gift That Keeps on Taking

John Lenihan
glove box

The cost and lack of supply of Housing, according to the polls, is Kiwis' number one concern. It used to be Health, Education, Crime & the Economy. These issues appear like luxuries when we have over-crowding, homelessness and housing cost burdening a majority of New Zealand.

The government has been scrambling to address this issue generally it seems with PR smoke and mirrors, such as KiwiBuild with vague maths and requirements.

The indicators appear to have the housing crisis getting worse before it gets better, or potentially getting much worse, as is likely without some significant change at a legislative level.

The Bank economist reports are telling us that building consents are going sideways and actual construction activity which has been flat-lining is looking to move down, ironically not helped by the Banks lending criteria which is getting tougher. 100% pre-sales and 50% equity requirements will drive supply down at a rapid pace. It’s important to remember that 90% of our houses are built by small building companies who employ 5 or fewer people. These small builders who build the vast majority of our homes have only been able to build half what they used to build in a year. 

It’s little wonder that expected profitability is declining and liquidations and receiverships in the construction industry are rising, not helped by slower payment – positive cash flow is the lifeblood of the construction industry.

Construction costs have been increasing at a compounding rate of 3-6% over the last 8 years and this shows little sign of abating with a shortage of skilled construction workers and demand pressure for materials. To put this in perspective on a build that cost $300,000 in 2010, the same thing costs $450,000 8 years later.

So enough of the problems, what about the solutions?

Westpac are trialling funding pre-fabricated houses. Don’t get too excited as the trial is for 6 houses. The cynics will say this trial smells strongly of getting positive PR and good press for Westpac.

The Government appears to be establishing a programme to buy a few houses from developers to on-sell at a loss to create the impression of affordability.

Auckland Council has a solution that beggars belief as they are proposing to increase Development Contributions by at least 30%. Greenfield developments are being asked to fund 50% of infrastructure through these contributions adding $70,000 to every section. The rest of NZ should not be complacent- where Auckland Council goes, most other councils follow.

Smart investment by our public sector into housing infrastructure does not look likely, rather the increase in Development Contributions coming at a time of declining profitability, finance constraints, cost inflation and overall declining confidence is going to firmly push up costs and house prices, increase household debt and reduce supply.

We should all be very concerned – Construction is 10% of our GDP and employment, it has been the source of 25% of all new jobs created in the last 5 years.

It’s our most volatile industry and housing debt has increased 60% in the last 10 years and is over $500billion.

The best bet is to look at a cheap renovation of our existing homes to convert them into flats which can accommodate 2 or 3 generations under one roof. Over-crowding is becoming a middle-class problem.

Housing is that gift that keeps on taking.

Constructive Thought: Consent Vs Completion

Consent Construction

Auckland Council has granted building consent for more than 10,000 homes in each of the last two years – but there’s a long, and growing, lag between consent and completion. Only 8,000 homes were completed in 2017, and even fewer in previous years. We expect completions to hit 10,000+ in 2018.

In the Press

Local Media Highlights 7 May - 15 May 2018

 

Prefab construction 'no silver bullet': Calls for Budget to address housing, infrastructure

Prefabrication or house-building factories are no "silver bullet" for the stretched residential construction sector, says an industry chief whose businesses use traditional techniques.

Commenting on his expectations for Thursday's Budget, Grant Porteous - managing director of Deacon Holdings which is the master franchise holder for more than 20 G.J. Gardner building franchises - said prefab housing was no quick solution.

(Source: NZ Herald)

 

The Bulletin: Inflation hits poorest hardest

Good morning, and welcome to The Bulletin. Rate of inflation higher for those with less, Winston Peters is going to China, and the government backtracks on much–needed Official Information Act reforms.

The rate of inflation, typically assumed to be low recently in New Zealand, has been found to be higher for those who can least afford to meet it. 

(Source: Spinoff)

 

Some 80% of the 'Kiwibuild' houses planned for completion in the 2019 financial year will be constructed by private developers underwritten by the taxpayer

About 80% of the 1000 'Kiwibuild' homes the Government's targeting for completion in the 2019 financial year will likely be constructed as part of private developments that will be underwritten by the taxpayer.

Housing and Urban Development Minister Phil Twyford launched what's been termed the 'Kiwibuild Buying off the Plans Initiative' this week.

(Source: Interest)

 

Small business needs to step up, says economist

Small businesses need to step up and fill the void left by other sectors whose growth is dwindling, says a leading economist.

Bagrie Economics managing director Cameron Bagrie said growth in agriculture and other industries which the New Zealand economy had traditionally relied on would falter over the next couple of years.

(Source: NZ Herald)

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