Housing and. Construction. Quarterly. Contents. New Zealand. February Key Issues

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1 New Zealand Housing and Construction Quarterly February 2014 Contents 2 Quarterly Highlights Housing Market 3 House Values by Region 4 Rents by Region 5 and Christchurch Rents 6 Housing and Rents by Bedroom 7 Housing Affordability Construction 8 Construction Sector Performance 9 Residential Construction 10 Non-Residential Construction 11 Building Activity 12 Construction Costs Social Housing 13 Affordability for Low-Income Households 14 Low-Income Housing Costs 15 Government Social Housing The NewZealand Housing and Construction Quarterly provides quarterly data and analysis on the housing market, construction and social housing. This publication is produced by the Ministry of Business, Innovation and Employment. Key Issues Loan-Value Ratios: Early Days Yet:We explore the effects that the recent Loan-Value Ratio restrictions have had since implementation. Pressure on ChristchurchConstruction: Christchurch's construction costs have soared past 's levels a change not seen in the past 10 years. Residential Construction Increases: Residential and non - residentialconstruction of new buildings has increased markedly across all the major regions, with Greater Christchurch's residential construction rivalling levels. House Values and Rents: The dichotomy between 's house values and rents is explored across the housing boom, the recession and more recent times. Rent Patterns: Christchurch City continues to attract larger rental increases (10%+) than other major regions. By contrast, Selwyn and Waimakariri rents have cooled. The report is available at: /sector-information New Zealand Housing and Construction Quarterly February 2014

2 Quarterly Highlights Pressure on Christchurch Construction Christchurch's housing construction costs have broken historical trends and increased 11% over the past year. Data released by the New Zealand Housing Economist shows house construction costs in Christchurch now exceed those in, but remain less than housing construction costs in (see page 12 for this data). Similarly, residential construction activity has increased markedly in the greater Christchurch area, with almost as many new dwellings consented in Christchurch over the past year as in (more details available on page 9). The growth in the number of new dwellings consented in Christchurchhas been driven by the on-going rebuild following the 2010 and 2011 earthquakes. Christchurch's construction costs are increasing faster than the rest of the country. These cost increases are the result of increasing construction volumes in Christchurch and limits in the supply of key building materials such as concrete and timber, and more importantly labour. The short term outlook for construction costs in Christchurch remains uncertain. If the supply of construction remains constrained, and demand continues to increase as the rebuild get into full swing, then we can expect construction costs to continue to increase. In the medium term, any further increases in construction costs in Christchurch are likely to help alleviate any supply shortages by attracting extra labour and materials into Christchurch. If this does occur, the effects of increasing construction costs from the Christchurch rebuild is likely to be evenly felt across the country, with less supply available in, and other regions. The situation in Christchurch is changing rapidly. Construction activity and prices will be monitored with close interest over the next year, and we will share our insights as we obtain more data. Loan-Value Ratios: Early Days Yet Since the Reserve Bank introduced the Loan-Value Ratio (LVR) restrictions in September 2013, there has been a great deal of public interest in how the restrictions will affect the housing market, especially in. The RBNZ introduced the LVR restrictions with the aim of reducing the riskiness of banks' mortgages, as well as reducing pressure on house prices, in order to delay the introduction of OfficialCash Rate (OCR)increases and reduce inflation. Since the LVR restrictions were introduced, the average LVR share has fallen from 25.4% to 4.8%. However there does not yet appear to be an effect on total lending. Looking at data from PropertyIQ to the end of the December quarter, there is yet to be a conclusive shift in the upward trend for house values. Similarly, the Reserve Bank s mortgage origination data shows no break from its historical trend 1. While lending dropped sharply in December, only to rise again in January, this is normal behaviour for mortgage originations at that time of year. It is too early to say what the overall effect the Reserve Bank s LVR policies are for the New Zealand housing market. It may take some time to fully see the impact on the market and there may also be subtler effects of the policy that may not show up in aggregated data. For example, if the type of people buying houses was changing but the price being paid stayed the same, we would not notice this effect by looking at house prices or total lending statistics. We will continue to watch the housing market s behaviour over the next few months with interest, and will report on any interesting developments in a future edition of the New Zealand Housing and Construction Quarterly p2 New Zealand Housing and Construction Quarterly February 2014 `

3 House Values by Region Figure 1: Change in Values for the Three Months Ending December 2013 Source: Property IQ Value Change 10%+ 5%-10% 0%-5% -5%-0% -5%+ No Data Figure 1shows that the biggestchanges in house values occurredin the South Island this quarter, including Christchurch City, Selwyn and Waimate. These areas have seen an increase of 10%+ for the three months ending December Similarly, the other areas around Greater Christchurch have seen a 5-10% change in value, which may indicate that the supply constraints in Christchurch are having flow-on effects on nearby regions. Meanwhile, the and regions have had 0-5% increases in values over the last year. Figure 2 shows 's house values continuing their increase, up 25% from the start of 2012 and increasing by 5% between the September and December quarters. Christchurch has nearly caught up to the national averages and will, if trends continue, exceed the national average in the next few months. Meanwhile, the Consumers Price Index (CPI ) rose 0.1% between the September and December quarters. The below values are from Property IQ, estimating current market valuation of each property at any time. Figure 2: Average House Values $800,000 Table 1: House Values October 2013 to Average December 2013 Value Christchurch * change in trend values Change* $466, % $693, % $455, % $451, % Source: Property IQ $700,000 $600,000 $500,000 $400,000 $300,000,000,000 Christchurch p3 New Zealand Housing and Construction Quarterly February 2014

4 Rents by Region Figure 3: Change in Rents for the Three Months Ending January 2014 Source: MBIE Rental Change 10%+ 5%-10% 0%-5% -5%-0% -5%+ No Data Figure 3 showsnationalrent pattern changes, with Christchurch City continuing to attract large rental increases, as well as the Ashburton area. The areas closer to Christchurch, including Selwyn and Waimakariri, have cooled, relative to last quarter. Between the September and December 2013 quarters, the CPI rose 0.1% and increased 1.6% across the year ending December Meanwhile, rent increased nationally by 1% between the September and December 2013 quarters. Figure 4 shows 's rents progressing at a similar rate to the national average. Between the September and December 2013 quarters, 's rents did not grow while nationally rents increased by 1%. This is compared to the CPI growth of 0.1% between the quarters. Table 2: Rent Profile January 2014 * change in trend values Average Rent Change* $ % $ % $ % $ % Figure 4: Average Weekly Private Rents $500 Source: MBIE $400 $ p4 New Zealand Housing and Construction Quarterly February 2014

5 and Christchurch Rents Figure 5: Change in Christchurch Rents for the Three Months Ending January 2014 Source: MBIE Rental Change 20%+ 10%-20% 0%-10% -10%-0% -10%+ No Data change data for and Christchurch rents are highly variable. Changes should be interpreted with care, especially in Christchurch. Figure 6: Change in Rents for the Three Months Ending January 2014 Source: MBIE Rental Change change data for and Christchurch rents are highly variable. Changes should be interpreted with care. 20%+ 10%-20% 0%-10% -10%-0% -10%+ No Data Table 3: Christchurch Rental Changes Top 10 Increases % change Somerfield 48.6% Cashmere West 43.1% Aorangi 39.1% Barrington South 35.0% Belfast 29.3% St Albans West 27.7% Opawa 27.4% Sockburn 26.1% Avonhead 22.7% Edgeware 21.2% Top 10 Decreases % change Fendalton -15.8% Deans Bush -10.2% Holmwood -8.9% Riccarton West -6.8% North Linwood -5.8% Russley -4.7% Riccarton -4.5% Bryndwr -3.0% Styx -3.0% Wairarapa -1.7% Table 4: Rental Changes Top 10 Increases % change Waiata 26.5% Kohimarama East 25.2% Kohimarama West 24.4% Mt Albert Central 22.5% Freemans Bay 21.0% Onehunga North East 20.3% Westmere 17.7% Sherbourne 17.2% Wakeling 16.8% Surrey Crescent 16.5% Top 10 Decreases % change Grafton East -28.2% Mt St John -16.1% Ponsonby West -15.3% Point Chevalier West -13.2% Herne Bay -11.7% Grafton West -6.7% Grey Lynn East -6.3% St Lukes Orakei North -6.0% -4.8% Akarana -4.7% p5 New Zealand Housing and Construction Quarterly February 2014

6 Housing and Rents by Bedroom Figure 7: House Values vs. Private Weekly Rents January 2004 to December 2013 $500 $450 Housing Boom Recession Recovery Source: MBIE and PropertyIQ $750,000 $675,000 $400 $350 $300 $250 $150 Rents $50 House Values $600,000 $525,000 $450,000 $375,000 $300,000 $225,000 $150,000 $75,000 Figure 7 depicts the relationship between house values and private weekly rents in. The housing boom of 2004 to late 2007 saw houses values growing much faster than rents. When the recession hit in late 2007, house values fell to historical trends, though were still not a complete return to where the price-rent relationship was in Finally, from 2011 and the recovery period, house values began to rise again, with values higher relative to rents than they were at the height of the housing boom. At theend of December 2013, house values in were the highest they had been in more than 10 years and were at unprecedented levels, relative to rents. As depicted by figure 8, rents for properties with five-plus Table 6: Average Rent by Bedrooms bedrooms were 28% higher than four bedrooms properties Average at the end of January 2014.Overall, rents for all properties January 2014 Rent Change* increased by 1% between the September and December 2013 quarters. 1 bedroom 2 bedrooms 3 bedrooms 4 bedrooms 5+ bedrooms $267 $330 $384 $480 $ % 3.3% 4.1% 3.0% 2.2% Figure 8: Average Private Rent by Bedroom * change in trend values Source: MBIE $700 $600 $500 $ bedrooms 4 bedrooms 3 bedrooms 2 bedrooms 1 bedroom $ p6 New Zealand Housing and Construction Quarterly February 2014

7 Housing Affordability Figure 9: Massey University Housing Affordability Index 45 Source: Massey University Canterbury 5 Note: The index gets higher as housing gets less affordable 0 Figure 9 shows that housinggot less affordable over the last quarter across all major regions in the country. The Massey University Home Affordability report attributed this to a combination of increases in the median house price over the last quarter, and smaller increases in incomes. 's affordability has worsened over the last quarter relative to the other major regions. As depicted by figure 10, rental affordability in Canterbury has worsened and is now quickly approaching 's affordability rate. is now only 5% less affordable than Canterbury compared to 13% at the start of Table 7: Housing Affordability Massey Affordability 3-month December 2013 Change* 3.4% 3.5% Canterbury 2.9% 1.2% Rental Affordability December 2013 Canterbury * change in trend values 3-month Change* -0.3% 0.9% 1.2% -2.8% 12-month Change* 2.6% 6.3% 3.3% -5.5% 12-month Change* 1.1% -0.7% 6.8% -1.2% Figure 10: Rental Affordability Index 45 Source: MBIE, MSD (MBIE calculations) Canterbury 5 Note: The index gets higher as housing gets less affordable 0 p7 New Zealand Housing and Construction Quarterly February 2014

8 Construction Sector Performance Figure 11: Change in Real GDP (%) 20% 15% 10% 5% 0% -5% -10% -15% All Industries Construction -20% Due to a data revision in this edition of the quarterly, figure 11 GDP data may look different to the December 2013 edition despite there being no GDP update. GDP September 2013 data showed that the figures had increased in the past quarter by 1.2% and 0.3% respectively. ConstructionGDP figures have now largely recovered from their post-recession slump, and are now in a similar place, relative to total GDP, to what they were at the start of Table 8: Gross Domestic Product Table 9: Employment September 2013 $b Change* December 2013 All Industries $ % All Industries Construction $ % Construction * change in trend values Figure 12: Change in People Employed (%) 20% 15% Figure 12shows that bothconstruction and all-industries employment figures have increased since the same time last year. Construction employment was up 2% from the September quarter, while overall employment showed no movement between quarters. people employed Change* 1,393, % 101, % 10% 5% 0% -5% -10% All Industries Construction -15% p8 New Zealand Housing and Construction Quarterly February 2014

9 Residential Construction Figure 13: Dwellings Consented 4,000 3,500 3,000 2,500 2,000 1,500 1, Figure 13shows that residentialconstruction has increased markedly across all the major regions, with Greater Christchurch's residential construction activity catching up to levels. Residential consents in Christchurch increased 27% since last quarter and 65% from the same time last year. This increase reflects the increased activity due to the post-earthquake rebuild. Similarly, figure 14 shows that residential alterations and additions have increased across all major regions over the last year, with the Greater Christchurch region again leading the increases. Figure 14: Residen al Altera ons and Addi ons ($m) $160 $140 Table 10: Residential Construction Dwellings Consented Dwelling December 2013 Consents Change* Alterations & Additions December 2013 * change in trend values 2, % % % % $m Change* $ % $ % $ % $ % $120 $80 $60 $40 $20 p9 New Zealand Housing and Construction Quarterly February 2014

10 Non-Residential Construction Figure 15: Non-Residen al Consents ($m) $500 $450 $400 $350 $300 $250 $150 $50 Figure 15 shows that non-residential consents significantly increased in Greater Christchurch, growing 2% between the September and December 2013 quarters. This reflects the rebuilding work occurring in the area. Non-residential construction data are, however, highly variable, meaning that recent increases should be interpreted with care. non-residential construction is growing more rapidly at the national level than it is in or, suggesting that there is also a lot more construction activity occurring in regions we do not monitor. In contrast, non-residential alterations and additions, on figure 16, have remained relatively stable across all major regions between the September and December quarters. Figure 16: Non-Residen al Altera ons and Addi ons ($m) $180 Table 11: Non-Residential Construction New Consents December 2013 $m Change* Alterations & Additions December 2013 * change in trend values $ % $37 3.2% $ % $2-6.4% $m Change* $ % $38-6.4% $ % $ % $160 $140 $120 $80 $60 $40 $20 p10 New Zealand Housing and Construction Quarterly February 2014

11 Building Activity Figure 17: Earthquake-Related Building Consents ($m) $70 Residential $60 Non-Residential $50 $40 $30 $20 $ Statistics NZ reported a large rise in the number of consents in December 2013, with $12 billion worth of building work consented across As depicted in Figure 17, earthquake-related building activity has shown a shift from non residential construction to residential over the past three months. Residential construction increased 51% between the September and December 2013 quarters while nonresidential construction fell 54%. Due to a data revision in this edition of the quarterly, figure 18 building work data may look different to the September 2013 edition, despite there being no data update. Figure18 shows that buildingwork for non-residential construction has increased slightly during the September quarter. Meanwhile, the residential building work put in place has decreased slightly over the quarter, although it remains higher than non-residential building. Residential figures continue to increase slowly out of the postrecession slump, but are still to reach similar increases to those seen in 2005 or Table 12: Total Earthquake Consents Table 13: Building Work Completed Since Sep December 2013 $m 2010 September 2013 $m Change* Residential $44.4 $655 Residential $ % Non-Residential $14.1 $750 Non-Residential * change in trend values $ % Figure 18: Building Work Put in Place ($m) $2.5 $2.0 $1.5 $1.0.5 Residential Non-Residential.0 p11 New Zealand Housing and Construction Quarterly February 2014

12 Construction Costs Figure 19: Cost of Building a Standard House ($/m 2 ) $1,600 $1,400 Christchurch $1,200 Source: New Zealand Building Economist $1,000 $800 $600 $400 Figure 19shows that Christchurch construction costs have broken from their historical trend,increasing by 11% over the past year, and are growing faster than any other region. This highlightsthe pressure on the construction industries' supply and volume ratios. Cost increases for the other two regions have been more modest: 4% and 5% for and respectively. This is further explored in our feature story on page 2. Both construction and overall earnings increased slightly (1% each) between the September 2013 and December 2013 quarters, as seen in figure 20. Construction hourly earnings are 8% lower than those for other industries, compared to 10% lower at the start of Table 14: Cost of a Standard House Table 15: Hourly Earnings December 2013 $/m 2 Change December 2013 $/hour Change* $1, % All Industries $28 2.6% Christchurch $1, % Construction $26 4.9% $1, % * change in trend values Figure 20: Hourly Earnings $30 $25 $20 $15 $10 $5 All Industries Construction p12 New Zealand Housing and Construction Quarterly February 2014

13 Affordability for Low Income Households Figure 21: LIHA for Three Months ending December 2013 Source: MSD (MBIE calculations) Social Housing Need per Capita Minimal Low Moderate High Very High The "LIHA" (Low Income Housing Affordability) measure is created using Accommodation Supplement data. The degree of affordability issues are calculated by looking at the proportion of households spending more than 30% of their income on housing, and how much more than 30% those households are spending. Figure 21 has not changed much between the September and December 2013 quarters; Greater Christchurch and again have the highest rate of affordability issues per capita this quarter. Meanwhile, Northland has fewer affordability issues since the last quarter and is now rated as having moderate affordability issues. Christchurch City still has fewer affordability issues than Selwyn or Waimakariri, reflecting the population move towards Greater Christchurch areas. Figure 22 shows January 2014 figures were record numbers for the HNZC A priority waiting list, while there has been a 13% decrease in the B priority list levels since the end of the November Table 16: HNZC Waiting List Waiting January 2014 List Change A Priority B Priority 1,522 2, % 36.9% Figure 22: HNZC Wai ng List 6,000 5,000 Source: HNZC A Priority B Priority 4,000 3,000 2,000 1, p13 New Zealand Housing and Construction Quarterly February 2014

14 Low-Income Housing Costs Figure 23: Synthe c Lower Quar le (SLQ) Private Rents $400 Source: MBIE $ GreaterChristchurch SLQ numbers have increased by 9% since this time last year, as depicted on figure 23. Meanwhile, the CPI rose 0.1% between September and December 2013, and increased 1.6% over The gap between Christchurch and numbers have decreased. 's SLQ rents are now only 18% higher than those of Christchurch, in comparison the gap between and Christchurch was 30% at the end of Figure 24 shows that properties with five or more bedrooms have continued their return to trend after the spike at the end of 2013, while the other properties have remained relatively flat. Properties with five or more bedrooms appear to be growing faster than any other properties at the lower end of the rental spectrum. Figure 24: SLQ Private Rents by Bedrooms $ bedrooms 4 bedrooms 3 bedrooms $400 2 bedrooms 1 bedroom Table 17: Synthetic Lower Quartile Rent SLQ Rent Change* January bedroom 2 bedrooms 3 bedrooms 4 bedrooms 5+ bedrooms * change in trend values $ % $ % $ % $ % $ % $ % $ % $ % $ % Source: MBIE $ p14 New Zealand Housing and Construction Quarterly February 2014

15 Government Social Housing Figure 25: Central Government Housing Spending ($m) $180 Income-Related Rent (IRRS) $160 Accommodation Supplement (AS) Source: MBIE, MSD $140 $120 $80 $60 $40 $20 Government spendingacross the last year has increased slightly for the IRRS and decreased for AS spending, as see on figure 25. Note that the AS is paid out fortnightly, which means that the expenditure will vary from month to month depending on how many payments are being made that month. Government spending grew significantly throughout the period during the recession but flattened off in The AS spending appears to be trending downwards since Figure 26 shows local government rents increased in all major regions between the end of the September 2013 quarter and the end of December 2013 However, Greater Christchurch rents appear to have stabilised and may, in fact, be decreasing after the highs seen at the start of Table 18: Social Housing Spending Table 19: Local Government Rents Monthly Average December 2013 $m Change January 2014 Rent Change* IRRS $ % $ % AS $ % $ % * change in trend values $ % Figure 26: Local Government Housing Rents Source: MBIE $400 $ p15 New Zealand Housing and Construction Quarterly February 2014

16 The Modelling and Sector Trends Team The Modelling and Sector Trends team is part of the Infrastructure and Resource Markets (IRM) group of MBIE. The purpose of the team is to provide data, modelling and analysis services to support the IRM policy development in the areas of: 1 Energy and Resources, 2 Building and Housing, 3 Communications and IT Your feedback is important to us.please let us know what you think by ing HousingInfo@mbie.govt.nz Website The New Zealand Housing Quarterly is available in PDF format through the Ministry's Building and Housing website: For more detailed rental information, please refer to the Open Data Tables: Technical Notes on our definitions and calculations can be found on the above pages. Data Sources Data for this report have been sourced from: Ministry of Social Development (MSD) Housing New Zealand Corporation (HNZC) Statistics New Zealand Property IQ Massey University New Zealand Building Economist The Ministry's internal data have also been used. Next Release The next edition of the New Zealand Housing Quarterly will be released in the first week of June Interpreting Our Graphs In any line graphs with points and lines, the points represent actual data and the lines represent a smoothed trend line estimated by MBIE. Contact Us HousingInfo@mbie.govt.nz This publication is shared under a Creative Commons Attribution licence: You may copy all or part of this publication, as long as you reference the source as the Ministry of Business, Innovation and Employment. ISSN p16 New Zealand Housing and Construction Quarterly February 2014