If you’re looking to buy a property at the moment, chances are you’re thinking more about getting one newly built than you’ve ever considered before. Why? It’s certainly not because new builds are relatively cheap. Instead, it’s likely to be because you simply can’t find the property you want among the limited number of listings for existing properties.
At the end of August, the number of properties listed for sale around New Zealand sat at just 14,000 houses, apartments, townhouses, etc. This was 30% fewer than just a year ago and 71% down from the number 10 years back.
We can put these sorts of numbers into a form that is perhaps easier to understand. Back in August 2011 there were 48,000 properties listed for sale. Last August there were 20,000. Now there are just 14,000. In Northland, listings in August were 47% down from a year ago and 87% lower than 10 years back.
Many frustrated buyers – of which there have been many since interest rates fell to record lows last year – have either given up the search or decided to get something built instead. The result has been a surge in the number of consents being issued for new dwellings.
Outside of Auckland consents have risen by 160% since 2011. But in the Auckland region growth has been 460%. No other region exceeds even half of that growth.
Why has new house (mainly townhouse) construction soared in our biggest city when people consider housing is in short supply all around the country? Partly we can put it down to the Unitary Plan’s implementation from 2016 making much more land available for redevelopment than in the rest of the country.
In a way, the plan is a version of what happened in Christchurch after the 2011 earthquake. Vast swathes of land were made available for development, with the result that average Canterbury section prices since 2014 have risen by only 23% whereas they have soared 70% nationwide. In Auckland, average section prices have risen 47%.
Tony Alexander: “Many frustrated buyers have either given up the search, or decided to get something built instead.”
But most of the construction surge in Auckland we can attribute to unusually weak home-building from the mid-2000s. Back then, the pullback in the construction of apartments spread to dwellings more generally, with the result that by 2011 the number of new builds in Auckland was equal to only 0.26% of Auckland’s population.
That ratio was 0.38% below the 0.64% average and the largest gap for all regions back then, except volatile Queenstown. Auckland built up a considerable shortage - that is being addressed, and in the past year consent numbers have run at 1.1% of the population, 0.47% above average. No other region comes close, and all NZ excluding Auckland is just 0.2% above average.
Auckland is experiencing a boom in new-house supply, and it may not take long for Auckland’s shortage to disappear. Before we get there, however, and the pace of house price inflation flattens out, there are many things which buyers of new builds need to navigate.
First, builders are exceptionally busy and are struggling to get the skilled staff they need. This situation will probably get worse when the borders open up. There is a regional house-building boom in Australia and developers there are desperate for staff. Being able to offer far higher wages than are available in New Zealand, and given the historical tendency for Kiwis to go to Australia for work, many tradespeople will probably do so next year and through 2023.
Thus, new-build buyers need to be flexible regarding their project’s completion date as circumstances beyond the builder’s control could stretch the timeframe out.
Second, the supply chain of building materials is fractured, with 70% of materials coming from offshore and shipping times uncertain. Again, this calls for flexibility regarding completion dates.
Third, costs are rising for materials and labour. Buyers need to lift their traditional 10% buffer for extra costs to perhaps 20%. In fact, some lenders now require buyers to be able to service the higher debt needed to cover this 20% buffer before they consider advancing funds.
Related to that, the availability of fixed-price contracts is declining. A motivation is not just the builders’ uncertainty over the final construction cost. Banks are increasingly requiring the builders they finance to insert cost-adjustment clauses into contracts.
As with virtually all industries in a boom, some strains are appearing. But as long as a buyer is awareness of these issues beforehand and with a larger than usual buffer to handle surprises, contracting for a new build could be a good option for some time, compared to searching through listings of existing properties.
NZ Herald: Commentator Tony Alexander