House building: NZ needs 125,000 homes in 5 years to meet high migration – Westpac

New Zealand will need 25,000 homes a year over the next half-decade to meet rising demand, Westpac senior economist Satish Ranchhod says. / Getty Images

Westpac Bank says New Zealand will need to ramp up its house-building machine to about 125,000 homes over the next five years if it hopes to keep up with rampant migration and mitigate the post-pandemic slowdown.

Westpac senior economist Satish Ranchhod said while some parts of the country were catching up with longer-term underbuilding of homes, the pressure wouldn’t go away in the wake of increasing population growth.

In the bank’s latest economic bulletin, Ranchhod suggests New Zealand will require 25,000 homes per year over the next half-decade to keep up with the ramped-up demand as a direct spillover from population growth and on the assumption net migration slows from its current highs.

Record post-pandemic migration

Data released by Stats NZ on Thursday showed migrant arrivals of 257,200 during the January 2024 year, a whopping 91 per cent up on the previous year, reflecting a net migration gain of 133,800, the highest on record for any year.

Ranchhod said the population growth of 145,000 people last year had effectively reversed the progress made in catching up with housing backlogs.

The 30,000 homes built didn’t match the immediate need for about 55,000 homes, he said.

That scenario was more acute in Auckland, which has had much bigger swings in population growth than other regions, given about half of all migrants tended to settle in the city.

And while pandemic-related border closures and the resultant decline of nearly 22,000 people allowed the city to play catch-up with its housing backlog, housing availability again “remains tight”.

High density but higher costs

In fact, according to Westpac, for every 1000 people there are about 50 fewer homes in Auckland than elsewhere, a trend similar to major metropolitan areas in Australia, which have higher housing density and costs.

But, with more than $80 billion in housing completed since 2020, the residential sector “has proven” it can ramp up building when economic conditions support that, he said.

Those “supportive conditions” include an easier borrowing environment and a higher level of buyer activity.

“Until interest rates decline and house price growth picks up again, developers will remain cautious about bringing new projects to market. In addition, with large-scale home-building needed, adequate infrastructure and a supportive planning environment will be necessary to encourage development activity,” he said.

Despite increases in the population over the past year, the market has remained relatively subdued, an anomaly Ranchhod attributed to high interest rates and economic weakness.

He expects the market to pick up through the back part of this year with the prospect of interest rates being eased.

Westpac’s forecast is for the Reserve Bank to start making cuts from early next year.