Kiwi Dream? More like a nightmare

Last week’s Covid cases in Auckland delayed Finance Minister Robertson’s housing policy announcements. The housing shortage has been at crisis levels for a long time, but the delay in this case is not likely to make any difference.

The government has hinted that further tinkering on the demand side is coming, but enabling more building is what is needed.

Demand-side initiatives from both National and Labour-led governments have failed to address the underlying shortage, so house prices continue to rise.

If homeownership is part of the Kiwi Dream, we are deeply into nightmare territory instead.

And the problem is worse than you probably thought.

The Initiative’s new report, The Need to Build, discusses the relationship between population ageing and declining household sizes. Places with older populations require more and different housing than places with younger populations. As New Zealand ages, the housing shortage will worsen. The trend holds both here and across the OECD.

The problem is hardly unknown. Statistics New Zealand and local councils already consider declining household sizes when estimating housing demand. But it is underappreciated elsewhere.

We projected new housing needs for 2038 and 2060 – the numbers are striking.

Even if the the border stayed closed for the next 20 years, we would still need to build at least 20,000 new net dwellings every year to meet demographic changes.   

For the six most realistic scenarios in the report, from 2019, New Zealand will need to build between 26,000 and 35,000 net dwellings – above and beyond the replacement of decrepit houses –  every year until 2038, and between 15,000 and 29,000 per year by 2060.

But we also have a current shortage of some 40,000 homes that also needs to be filled. There has not been nearly enough building for well over a decade. While the current construction boom has brought consenting numbers to the highest level since the 1970s, consenting rates are only a little above long term averages.

Population ageing adds fuel to the fire.

The Kiwi Dream for younger generations – Millennials and Generation Z – is slipping further away. Shortages mean high rent and little disposable income after housing costs. Continuously tinkering with demand policies such as the LVR, bright-line tests, and first home buyer programme will do little to make housing more affordable. 

The government must switch priorities to rapidly free up housing and land supply, or find ways to incentivise councils to be more pro-development.

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