Lots of new houses are being consented in Auckland, but supply is still not keeping up with demand. So why is National so keen to talk about supply?

It's a moment to tuck away for the 2017 election campaign.

If there's one thing you can bet the house on, it's that housing will be a major issue again at the next election. Even the Housing Minister says the Auckland property market it "over-heated".

How could he say otherwise when for the past year, house prices in our biggest city have been going up by almost $3000 a week? That means a median Auckland house is earning $150,000 a year, more than the vast majority of home-owners get from their day jobs.

National likes to say the problem is "supply". They say it a lot. And it's true, as far as it goes. What they won't accept is that demand has anything to do with it. They determinedly look at just one side of the coin.

None talk about supply more stubbornly that Housing Minister Nick Smith. Our problem is just that we don't have enough houses in Auckland and more need to be built.

Which is true. Smith also likes to point out that he's created a bunch of special housing areas to speed up construction and the number of consents is on the rise again, after some low years.

Which is also true.

But of course supply is only a problem if demand is strong. Which is why foreign buyers and immigration are vital issues in this debate, whether we're comfortable with that or not. But Smith doesn't like to talk about that.

Supply, as one colleague has said to me, "is his safe place". The problem is, he has no right for it to be. Because the indisputable fact is that even with National's efforts to increase the number of houses being built in Auckland, supply in the city is going backwards. You can only build so many houses so quickly... unless you want to intervene more directly in the market as Labour, New Zealand First and the Greens do and start a government building programme. 

You can put it any way you like: Supply is not keeping up with demand. The Auckland housing shortage is growing. Not enough houses are being built. It's all true.

Smith has spent years justifying his argument that it's "all about supply" by quoting the Productivity Commission report that first made that case. But recently that same Commission delivered another report that's equally clear about his supply failure. The Commissions Murray Sherwin says:

"Auckland has a current shortage of 32,000 dwellings, and that number is going to keep growing".

The Commission predicts it will hit 60,000 by 2020. 

So for all of National's talk about increasing supply, they're not increasing it fast enough. The housing shortage is growing. Which means the house prices will keep growing too, especially as interest rates are cut, foreign buyers face no restrictions and immigration rates stay high.

Those are issues National has painted itself into a corner over, however. It won't touch immigration or foreign bans, and any change would be a humiliating u-turn. So it keeps talking about supply, pointing out that it's growing, but hoping no-one will notice it's not growing enough.

John Armstrong summed it up nicely today in the Herald, writing:

National knows it can never build enough houses this side of the next election to claim credit for tackling the supply problem. The work of the Productivity Commission has said as much. The best that National can hope to do is to provide enough supply of new housing stock to take the steam out of an overheated market without cooling it too much.

But Nick Smith cannot bring himself to admit that. More, he is now on record claiming the opposite. Check out this telling exchange on The Nation this weekend.

Smith says that "absolutely", he can get down Auckland's housing shortage before the election. I suspect that's a commitment that will haunt him; come 2017 opposition parties will be quick to remind him of this moment.

Comments (12)

by Rich on July 18, 2015

I may have said this before, but Auckland house prices have very little to do with demand.

The population of Auckland is only rising at less than 2% a year. In a normal market (like used cars, or out of season fruit, prices rise until they reach an equilibrium of buyers and sellers, then settle).

Auckland prices are going up by about 20% a year. That's not a market, it's a bubble (like Dutch tulips in the 16th century). Just like Dutch tulips, it has zero to do with supply and demand and everything to do with an expectation of future profits as prices continue to rise.

The only way to choke this off would be to set an automatic policy that price rises in Auckland will be pegged, and various forms of intervention used to bring property inflation down to zero (just as happens with general inflation and interest rates).

This starts with LVR restrictions, and ends with a 100% stamp duty on sales more than X% over GV, setting a hard cap on prices. That would work.


by MJ on July 18, 2015

I thought that was the point RIch? Demand is to do with the people who wish to buy in this case, not simply the people who wish to live in them?

by Lee Churchman on July 18, 2015
Lee Churchman

Our problem is just that we don't have enough houses in Auckland and more need to be built.

Well, it's not just that. New Zealanders seem to love sprawl. We could solve the housing crisis easily, if people wanted to live like most of the world's city residents do (full disclosure: I've lived in 3 major world cities myself, and never in a house).

I recall Chris Trotter saying that the council once had a decent development plan back in the 40s, but that a National Government squashed it in favour of Californian sprawl.

by Lee Churchman on July 18, 2015
Lee Churchman

Here it is:


Interesting to see the previous house price bubble mentioned in the paper.

by Alan Johnstone on July 18, 2015
Alan Johnstone

Why do we have this seemingly endless succession of south island ministers messing up Auckland's housing and transport?

by Charlie on July 19, 2015

I'm waiting for one of the esteemed pundits in this place to make a comment on the Labour Party beat-up on the supposedly Chinese house buyers.

Any takers? Or are you so embarrassed you can't put it into words?


by mikesh on July 19, 2015

"I'm waiting for one of the esteemed pundits in this place to make a comment on the Labour Party beat-up on the supposedly Chinese house buyers"

There was no "beat-up" by either Twyford or the Labour Party. It was the figures themselves that were pointing the finger. The only dogwhistlers in evidence were those who, like Nick Smith, were flinging around accusations of racism.




by Charlie on July 20, 2015

Mike, exactly what "figures" are you talking about?

by mikesh on July 20, 2015

"Mike, exactly what "figures" are you talking about?"

Carlie, are you not being just a litrle disingenuous?

by Charlie on July 20, 2015

Not in the slightest - I would like you to explain what these "figures" are.

I'm all ears




by mikesh on July 20, 2015

"I'm all ears"

I doubt that.

by Tim Watkin on July 20, 2015
Tim Watkin

Charlie, I was involved in reporting those figures last Saturday and blogged about them last week. Go check the homepage.

Rich, MJ makes a good point, for one. Second, you say "only", but the city is taking more of the country's record immigration (that was the city of Tauranga fitting into Auckland between 2007 and 2013) and – crucially – at the same time not building many houses. Smith has made some good moves in conjunction with the council, speeding up the consenting process. (We can only hope that doesn't lead to leaky-type issues). But the market still wants to build big houses worth $1m+, which is where the profit margins are but is doing little to meet the demand for affordable housing.

My point remains, it's silly to say it's all about supply and nothing to do with demand. The two are either side of the same coin.

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