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23 JUN 2019

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Auckland is finally tackling its chronic housing shortage, but doesn't have enough construction workers to meet the shortfall, says Auckland Council's Chief Economist David Norman.

Like many coastal cities with good climates, relative safety, well-developed service sectors and solid land-ownership rights, Auckland's population has grown rapidly over the last 10 years – by about 20%. This has created huge demand for housing.

The city now needs a new dwelling for every three people. Unfortunately, for several years following the global financial crisis, the rate of housebuilding simply did not keep pace with the growth in population. Despite a massive surge in approvals for new dwellings, we have a long way to go.

We are now approving more than 13,000 dwellings a year in Auckland. Half of those are apartments or terraced houses, which are not typical for New Zealand. As a consequence, there's a shortage of specialist skills for high-rise apartment construction. The situation has been exacerbated by a building boom in commercial property, which competes for these workers. Many developers have resorted to bringing in teams of labourers from overseas, but the real challenge is at the skilled end of the spectrum.

Auckland underwent a rezoning in November 2016 that exponentially increased the development potential of thousands of properties across the city. The new zones have encouraged development in brownfield areas and allow for quadruple the number of dwellings in the city. But we have little influence over immigration and New Zealand's ability to attract skilled people.

Auckland's population boom has been driven by net migration, including from overseas. Another factor is that New Zealanders are not emigrating to Australia in the numbers they once were. These people are staying put, or are coming back mainly for work opportunities. The high level of employment raises overall labour-force participation and reduces the unemployment rate. The phenomenon also increases the supply of workers, resulting in lower wage increases.

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Capacity constraints weigh heavy on the approval of new projects

The construction industry in Auckland has not benefitted from New Zealand's work-visa programme as much as hoped. Only two of the top 12 occupations for new work visas in 2018 were construction related. This means that those already employed in the sector must be more productive, which is a good thing. But it also means that the gap between new projects being approved and completed is widening, due to capacity constraints.

The ban on overseas residents buying existing homes, which came into effect last August, will have a limited impact on the city's housing market. In central Auckland, one dwelling in six goes to a foreign buyer, triple the rate in the rest of the city. The rate of foreign ownership is even higher in the apartment market.

So we may see a little less interest in the apartment market from foreign buyers. A large number of dwellings are still purchased through opaque mechanisms like trusts and corporations, where country of residence is indeterminate. We may see more overseas owners using these types of loopholes if they are strongly motivated to buy in Auckland.

The change in ownership rules has undoubtedly removed some speculation from a hot property market. But it does little to dampen overall demand from New Zealand occupiers, which is still strong, suggesting the skills shortage will persist.

This is an excerpt from Modus Asia-Pacific edition, Q2 2019. Read the full edition online