What is wrong with the house building industry in Auckland? Why has the level of construction activity remained low even though the region has a huge housing shortage and house prices have risen substantially over recent years?
Dwelling consent data reveals that only 7,682 consents for the Auckland region were issued in the year to January, compared with 12,459 in the January 2003 year.
Auckland’s share of the country’s dwelling consent figures has fallen from 44.9 per cent in the 2003 year to 31 per cent in the latest period.
It is bizarre that Auckland is the country’s fastest growing region and has 33.9 per cent of its population, yet has only 31 per cent of dwelling consents.
Auckland has had one of the largest declines in dwelling consents issued since the early 2000s:
• Northland consents have fallen 51.8 per cent from the region’s 2005 high.
• Auckland numbers are down 38.3 per cent since the January 2003 year.
• Waikato is down 32.3 per cent.
• Bay of Plenty consents have declined 37.9 per cent.
• Wellington is down 38.5 per cent.
• Canterbury consents have risen 61 per cent.
• Total New Zealand dwelling consents have fallen 19.2 per cent since the January 2005 year high.
Dwelling consents; Auckland is lagging Christchurch
Rest of NI
Rest of SI
One of the major problems for the Auckland residential construction market is the Christchurch rebuild and the vast amount of construction resources it has attracted.
Canterbury consents averaged only 3,290 a year between 1992 and 2012 but shot up to 4,036 in the January 2013 year, 5901 in 2014 and 7,255 in the latest 12-month period.
New Zealand has a shortage of skilled construction workers and Canterbury is attracting a higher and higher percentage of these.
The number of Christchurch construction workers has gone from 11,970 to 27,870 in the past decade and the number of Auckland construction workers has risen from 26,190 to 34,690.
This means Auckland construction workers are now 27.7 per cent of the national total, compared with 29.6 per cent a decade ago, while Christchurch construction workers are 22.2 per cent of the total compared with 13.5 per cent 10 years ago.
One of the main conclusions from these statistics is that any significant increase in housing activity, which the Auckland Council says should be at a rate of 13,000 new dwellings a year, won’t happen until the Christchurch rebuild peaks and construction resources are re-allocated from the South Island to Auckland.
Another possible drag on Auckland house building activity is the establishment of the SuperCity in November 2010. This was supposed to speed up the consent process but there is little evidence of this.
The Auckland Council seems to be tied in knots with unitary plans, housing accords and other initiatives that have generated a huge amount of reports and debate but little increase in building activity.
Another issue with Auckland, and New Zealand, is the low number of apartment consents.
Total NZ apartment consents peaked at 6100 in 2005, when they were 19.9 per cent of residential consents. In the latest period, this figure has fallen to 3481 – 14 per cent of total dwelling approvals.
In Auckland, apartments peaked in 2005 at 4799, or 41.6 per cent of total regional consents. Many of these were extremely small one-bedroom, inner city apartments.
Auckland apartment consents have declined to 2119, or 27.6 per cent of total Auckland consents, in the latest period.
One of the main features of modern life, particularly in big cities, is the increase in apartment living.
For example, 43 per cent of Canadian building consents last year were for apartments, and 43.7 per cent of Australian dwelling units in the latest year were apartments.
Apartments are a rising proportion of dwelling consents in Canada, Australia and most other countries, particularly in metropolitan areas, whereas apartment building has declined in New Zealand.
The low level of apartment building in New Zealand stems from several factors, including consent difficulties, poor planning and our willingness to pay a huge price for a garden, tennis court and/or swimming pool.
Another feature of New Zealand residential construction is Aucklanders’ desire for larger and larger houses and apartments.
• The average floor space of an Auckland house consent has increased from 200sqm to 218sqm since the January 2003 year.
• The average floor space of housing consents in the rest of New Zealand has fallen from 199sqm to 192sqm over the same period.
• The average consent size of an Auckland apartment has risen from 81sqm in the 2003 year to 116sqm in the latest period.
• The average consent size for apartments in the rest of New Zealand has fallen from 116sqm to 95sqm over the same period.
• In Auckland, the average consent value of a new house is now $378,600 and an apartment is $182,000.
• In the rest of New Zealand, the average consent value of a house is $324,500 and an apartment is $147,700.
The latest Quotable Value statistics show that the value of the average New Zealand house rose 6.4 per cent, to $498,600, in the past 12 months while the average Auckland value soared 13 per cent to $786,100.
In light of these figures, it is surprising that there isn’t far more house building activity in our largest city because there is a huge gap between the average house value of $786,100 and the average consent value of $378,600.
Quotable Value noted in its report this month that “new developments (in Auckland) continue to sell well and are increasingly popular with first-home buyers wanting to buy off the plan to capitalise on the fact that new builds are exempt from the LVR (loan to value ratios) 20 per cent deposit rules.
“We are seeing price increases of up to 10 per cent over three months for each new stage release within new developments such as Addison, Stonefields and Flatbush.”
The low level of house building activity in Auckland is because of several factors including the large amount of construction resources committed to Christchurch, the high price of Auckland land making new developments less attractive and the difficulty in obtaining resource consent for apartments.
The Auckland housing build of 7700 a year is well short of the 13,000 needed to meet the region’s growing population.
Existing house prices will continue to rise if this 13,000 target is not achieved, particularly as the trading banks are awash in cash and continue to lend aggressively to residential property purchasers.
Constructions companies’ profitability should improve when Auckland building activity picks up because new houses and apartments in the region are larger than those in the rest of the country and therefore need more building materials.
Brian Gaynor is an investment analyst and the Executive Director of Milford Asset Management.