Tauranga's housing shortage could drive property prices up by $702,000 in 10 years without intervention, according to new projections.
And the flow-on effects of the shortage could cost our economy $2.5 billion.
The new research comes as developers say a long-predicted land supply deficit in the city is starting tobite, with local builders looking elsewhere for sections and first-home buyers forced to settle for less.
A report on the economic impact of the housing shortage was commissioned by economic development agency Priority One and presented to Tauranga City Council on Tuesday.
The new New Zealand Institute of Economic Research projections were based on a report by Veros Property Services in May last year that found Tauranga had 18 months of developable land left, and predicted the city would be short more than 5700 dwellings within a decade.
New Census figures released late last year, however, revealed an unexpected trend towards packing more people into the city's houses and fewer properties being listed as unoccupied - likely a response to the already tight property market.
If that trend continued, the projecting housing shortfall would drop to 4100.
The institute modelled the economic impact of that scenario, assuming an unconstrained market - how the shortage would track without intervention.
It found that in the next decade, some 8436 people who wanted to live in the city would be unable to.
The constraint on growth could cost the city $180 million in foregone GDP over the next three years, and $2.547b in the decade - representing about 6.3 per cent of GDP by year 10.
With demand outweighing supply, house prices would soar, with the median up by $40,119 in the first year and $702,082 in 10 years, based on past price trends.
The institute estimated that rents, in turn, would increase by about $500 in the decade.
The institute noted the price projections represented an "extreme view" of the likely trends "should there be no supply (through residential construction) and demand (thought an easing in the number of people moving to Tauranga) response."
Past examples of tight markets showed such strong growth plateauing out after four or five years.
"By year five we estimate that the median Tauranga house price would be around $966,564."
The institute also estimated the local construction industry - which accounted for 9.1 per cent of Tauranga's GDP in 2019 according to Infometrics - would be hard hit.
The industry would require up to 1679 fewer workers and produce up to $174m less GDP than expected over 10 years.
Priority One chief executive Nigel Tutt said although the GDP reduction was "very likely to happen", the effect on house prices may be "lower in reality" after five years.
"The GDP downside is bad, but the worst part will be the effect on renters or first-home buyers."
Morgan Jones, managing director Veros, which produced the original housing shortage figures, said the housing market would likely make some adjustments.
For example, some people wanting to move to Tauranga may just give up and go elsewhere - Rotorua, Whakatāne, Cambridge, Matamata - or delay their plans, lessening demand.
More infill housing, smaller houses and higher-density housing and social housing developments would help, as well as land previously thought to be unviable becoming developable.
He also expected some regulatory response - fast-tracked releasing of greenfield land, other funding mechanisms for infrastructure and resolved regulation issues.
Meanwhile, impacts of the shortage forecast in May were now starting to be felt, he said.
House prices had continued to rise and the company had seen increased interest in off-the-plans packages, with a recent 47-lot development being almost sold out in a few months.
Builders were starting to look outside the city to secure work down the pipeline.
"The message from all of them is they are okay for 2020 but they can't find sections from 2021 onwards. They are seeking sections outside the region."
First-home buyers looking in the $550,000 to $650,000 range were more likely to end up in an attached house or duplex on a smaller section than just a few years ago.
While low real estate turnover would usually indicate low demand, in Tauranga it represented low stock volumes.
"Agents are screaming out for more stock," Jones said.
"It's a perfect storm."
Two developers who have led the warning calls about Tauranga's land supply crisis - Peter Cooney of Classic Group and Scott Adams of Carrus - said they were also seeing their predictions come true.
Cooney said Classic, a major player in Tauranga, was "starting to focus on other regions" that could meet the demand for available land.
"I've been telling it from the rooftops for years and now the chickens are coming home to roost. We will really start feeling it in the next 12 months."
There would be flow-on effects for local sub-trades, he said: builders, plumbers, electricians.
Adams said the building community did not believe him when he said a few years ago the city was out of land.
"At the time, every day there were front-page articles of builders and tradies saying we've never had it so good, heaps of building and so on.
"As land developers, we're the pioneers 'up in the crow's nest', so we can see what's happening before everyone else."
The two biggest urban land development areas in Tauranga are years behind schedule - Te Tumu (7000 houses) is before the Māori Appellate Court and Tauriko (3000 houses) required State Highway 29 improvements.
Those alone would not solve the long-term problem, Adams said, with the city needing to build 10,000 a decade to keep up with current demand.
Tauranga City Council is working to free up land for housing in several ways, according to information presented on Wednesday with the initiative's report.
It is about six months away from notifying a city-wide plan change that will enable significant intensification between the CBD and Greerton.
It expected to be able to notify plan changes for Te Tumu and Tauriko West in about a year, and hoped to use a streamlined process to see housing development start in four or five years. Other rezoning projects were also in the works.
It has been working to resolve infrastructure funding issues, with Wednesday's decision to draft a 12.6 per cent rates increase part of its response, and other funding mechanisms being investigated.
Housing shortage economic impact
Foregone population Medium term: 8436
Foregone GDP Short term (3 years): $179.8m By year 10: $2.547b
Construction workers needed Short term (3 years): -196 to -288 Medium term (10 years) -1141 to –1679
Construction industry impact Short term: $20m–$30m Medium term: $118m–$174m
Housing market tightness Short term (1 year): $40,119 Medium term (10 years): $702,082