Economic Weekly: Construction lifts as housing shortage grew in 2019

Building Activity figures released by StatsNZ last week confirmed that construction activity continued its post-lockdown recovery without skipping a beat.  Building work completed over the September quarter lifted a whopping 35% - with residential building activity leading the charge and activity surging to above pre-COVID levels.   Strong demand from an on-going need for additional housing continues to support residential construction activity.  Earlier this year, when expectations for the economy were grim, we had expected that pending construction plans would be ditched amid heightened economic uncertainty and rising unemployment.   However, NZ’s stoic ability to keep calm and carry on proved economists wrong – the NZ economy quickly pulled itself together after lockdown and NZ housing demand is possibly the strongest since the 2006/07 housing boom.

Prior to the COVID-19 outbreak, net migration into NZ surged over the second half of 2019 – likely in response to the increasingly tight NZ labour market and demand for skilled labour.  Given the change in methodology for calculating NZ population growth by StatsNZ, the sheer strength of this population surge wasn’t immediately clear.  Now it is.  NZ’s housing stock was already stretched due to chronic housing shortages which have emerged right across NZ.  Despite NZ housing construction rising to record levels, it has not been able to keep pace with population growth.  Recent updates to NZ’s population count by StatsNZ (a very delayed input of the woeful 2018 Census) revealed the NZ housing shortage is worse than ever.

An outcome of the devastating COVID-19 pandemic is the opportunity for NZ to finally deal with its housing shortage.  Population growth over this year is set to be very soft by historical standards, due to limited MIQ capacity capping NZ net migration (indeed over winter, NZ has recorded net outflows with departures outstripping arrivals).  But with construction holding up at record levels, NZ can finally make a good progress in reducing the extent of the housing shortage.  NZ can probably overbuild for a good couple of years before housing stock is at risk of being ‘over supplied’.

But this approach, if not carefully managed, comes with some risk.  Price signals are the catalyst for private investors to build – higher prices for existing housing stock increase the incentive to build new houses.  This risk is, come 2022 and 2023, if population growth does not recover fast enough, will NZ be set for a rather uncomfortable correction in house prices and housing construction? jane.turner@asb.co.nz

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Jane Turner

Senior Economist

Originally hailing from sunny Nelson, Jane moved to Auckland to join the ASB team in 2008.  As Senior Economist, Jane's main focus is co-ordinating the team’s macro-economic forecasts.  In this key role, Jane was thrilled by the team’s twice consecutive win of the Consensus Economics Forecast Accuracy award.   

During her decade-long career in economic forecasting, Jane has gained a thorough knowledge of the New Zealand economy.  Her current focus is on New Zealand GDP growth, including both manufacturing and the construction sectors.  She has spent time forecasting most sectors of the economy, including inflation, trade, housing, labour and financial markets.

Prior to joining ASB, Jane honed her macro-economic forecasting skills at the Reserve Bank of New Zealand.  Jane is a qualified scarfie, attending Otago University and graduating with a Bachelor of Commerce in Economics with 1st class honours.  In 2014, she took a career break from ASB to travel the world and learn to snowboard.

Mark Smith

Senior Economist

Mark joined ASB in 2017, with over 20 years of public and private sector experience working as an economist in New Zealand and the UK.

His resume includes lengthy stints at ANZ and the Reserve Bank of New Zealand, and he has also worked at the Bank of England, HM Treasury and the New Zealand Transport Agency. Mark's areas of specialisation include interest rate strategy, macro-economic analysis and urban economics.

Born and bred in the Waikato, Mark studied at Waikato University where he graduated with a Master of Social Sciences, majoring in Economics.

Mark's key strengths are the ability to use his extensive experience, inquisitive nature, analytical ability, creativity and pragmatism to dig a little deeper and to deliver common sense solutions to tackle complex problems.

When not at work Mark likes to travel, keep fit and spend time with his friends and family.

Mike Jones

Senior Economist

Mike joined ASB in 2019 armed with almost 15 years of experience in applied macroeconomic and financial markets analysis.

Mike's career has been all about distilling the risks and opportunities of economic and financial market trends for business. Basically asking the "what does it all mean" question. Mike's enthusiasm and skill for drawing out practical, commercial insights from the murky world of economics has been honed over a relatively broad base of experience.

After spending the early part of his career on the tools at the Reserve Banks of both NZ and Australia, Mike had a lengthy stint at BNZ where he was NZ’s top-ranked currency strategist. His regular and topical macro research also saw him pick up several FX forecast accuracy gongs from Bloomberg.

Drawn in by the prospect of putting strategy into practice, Mike moved from Wellington to Auckland in 2013 to join Fonterra as GM Treasury Risk Management. In this role, Mike lead Fonterra’s macroeconomic research output, and was responsible for the strategy and execution of Fonterra’s foreign exchange, debt, and interest rate hedging programmes.