Is New Zealand heading for a housing oversupply?

With a record number of new homes consented in 2021 and the weakest population growth in three decades, is New Zealand on track to have too many houses? 

“I don’t think we are moving toward an oversupply,” says Westpac Senior Economist Satish Ranchhod, “but the balance between demand and supply will undergo a big transformation over the next few years.”  

‘We’ll have more houses per capita than we’ve seen for some time’ 

From 2009 to 2020, between the GFC and the pandemic, home building didn’t keep pace with Aotearoa’s fast-rising population. As a result, there was a significant shortfall of houses in Auckland, along with more moderate shortages in almost every other region.  

“Now we have record home building but very low population growth. Going forward it’s going to get interesting,” Ranchhod says.  

In Auckland, there have been sky-high levels of homebuilding over the past two years, with a large fall in population.  

“The underbuilding of homes that we saw in Auckland over the past decade is on track to be eliminated, and we’ll have more houses per capita than we’ve seen for some time. However, that’s not going to result in an oversupply situation. Auckland will still have a relatively tight housing market compared to the rest of the country,” Ranchhod said.  

Across the rest of New Zealand there hasn’t been the same dramatic rise in the number of new builds, nor has the population declined as much. Ranchhod believes housing levels outside Auckland will shift from the slight undersupply of the pre-pandemic years, falling back into line with the historic trend.  

Auckland’s population decline may soon reverse 

With borders reopening, it’s likely Auckland’s population will begin to bounce back. That may also be helped along by Kiwis turning away from the flexible working trend that dominated in 2020 and 2021.  

“A lot of people have been choosing to work away from their offices; I think we could see a little bit of a reversal over the coming year,” Ranchhod said. 

“They could be moving back to the cities where there is an agglomeration of offices.”  

Construction cooling off, pressure coming out of the market 

The current boom in building consents means the construction industry has a strong pipeline of work to carry it through the next year at least. Beyond that, Ranchhod thinks there’s likely to be a cooling off period as the construction industry settles down to a more moderate pace of activity. Construction costs will probably level out, too.  

“Material shortages are starting to ease now, but we are still seeing a labour shortage and a very high cost of labour.”  

Considering all these changes in the housing market, is this the right time to buy? It will depend on your personal situation, but there are some factors working in favour of first-home buyers, says Ranchhod.  

“Earnings growth is picking up, interest rates are at about average levels and house prices have fallen in many parts of the country. Against that backdrop, more people are looking at whether it’s a good time to get into the market.”