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Is there enough construction for a healthy North Shore property market?

By Craig Catley

Supply and demand should ideally always be in balance. If supply completely overwhelms demand, the real estate prices are likely to drop, resulting in losses for vendors. If the market shifts the other way around, prices can rise too quickly, resulting in a market where many buyers simply can't afford to purchase property. That's a concern for many North Shore buyers given recent price hikes.

As the Beehive reports that construction activity in 2016 rose by 10.5 per cent, it seems we're continuing to see a recalibration of this balance for local real estate. But are Auckland and the North Shore's construction levels on the right track to keep both buyers and sellers in a good place?

Auckland improves on historic track record

As far back as 2006, the Reserve Bank has identified Auckland (and the North Shore in particular) as an area where housing supply does traditionally not respond well to demand. This means that when demand surges, there often isn't enough new housing built to accommodate it.

Is residential construction on the North Shore enough to cover demand?

While this is good for a quick price rise, it can prove unsustainable in the long term. Fortunately, recent figures from Statistics NZ indicate that things are changing. In the final quarter of 2016, residential construction increased by 4.5 per cent – nearly three times the national average. This brings us to five years of growth in residential construction, suggesting that the powers-that-be are putting in plenty of work to ensure we have a balanced market.

This pipeline is set to continue as well – more research from Statistics NZ shows that Auckland has reached a 12-year high for new dwelling consents, pushing 10,000 every year. So overall, it's a slow and steady response to the high levels of demand for real estate, which could sustain reasonable value growth for some time yet.

Construction levels on the North Shore

Statistics NZ data for January 2016 to January this year shows a lot of positives for construction on the North Shore. A total of 468 new dwellings were consented – far from a significant figure (especially compared to the volumes of growth in the Albany ward), but still a positive amidst concerns about supply and demand. This has peaks and troughs as well, with as many as 110 consents per month (in September 2016) down to 13 (January 2016).

It is difficult to say if this is enough, or even what "enough" really is. You have to take into account migration flows, available land and council regulations. Remember, the Unitary Plan is still in process too, which could impact the volume (and type) of residential development that can occur down the line.

The construction industry itself also has to meet demand for these new dwellings. However, QV's James Steele has indicated that this is a sector under pressure to deliver. 

"Building costs are also reported to be rising due to high demand leading to an increase in the price of some materials including timber framing, roofing, and steel. High demand for builders and trades people is also leading to lack of availability which is also slowing build time process and leading to higher costs."

With all of these variables factored in, it is understandable why supply for residential can take a while to get going – low levels aren't necessarily a sign of a bad market. But what's the takeaway if you're looking to sell on the North Shore?"

The verdict for vendors

While supply and demand are still in imbalance, the much-prophesised housing bubble hasn't come about. QV reports that North Shore prices are down 2.2 per cent in the last quarter, and up by more than 11 per cent year on year.

This suggests that while there is some moderation in the housing market, growth will continue. With demand remaining high, properties will essentially continue to sell themselves. To make sure it's a process done right, speak to a local real estate agent.

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