Changes in the Structure of the New Zealand Housing Market Executive Summary

Transcription

1 Changes in the Structure of the New Zealand Housing Market Executive Summary PREPARED BY DTZ New Zealand FOR THE Centre for Housing Research, Aotearoa New Zealand MAY 2004 ISBN X

2 ACKNOWLEDGEMENTS This housing research report was produced for the Centre for Housing Research, Aotearoa New Zealand (CHRANZ). The CHRANZ Board gratefully acknowledges the financial and other support provided by Housing New Zealand Corporation. DISCLAIMER The opinions in this report reflect the view of the authors and do not necessarily reflect those of the CHRANZ Board or its funding organisation. No liability is accepted by the CHRANZ Board or its funder for the accuracy or omission of any statement, advice or information in this research report and for any commercial, investment or other decisions made upon the reliability of this research report.

3 RESEARCH REPORT Changes in the Structure of the New Zealand Housing Market Executive Summary May 2004 DTZ New Zealand Limited, MREINZ, Level 10, State Insurance Tower, 1 Willis Street, PO Box 1545 Wellington Telephone Fax Wellington@dtz.co.nz Website DTZ New Zealand is within the DTZ Debenham Tie Leung group of companies. This group is in an international alliance with the Staubach Company in the USA. Globally DTZ has over 6500 staff in 33 countries and 125 offices.

4 1 EXECUTIVE SUMMARY 1.1 Introduction This report analyses the housing sector in New Zealand and changes in it over the last twenty years. The report includes analysis of empirical data and commentary at both a national and, where appropriate, regional level. It looks at housing stock, housing production, supply and exchange, housing finance market characteristics and trends since 1981, housing access, consumption, needs and demand. It also considers housing policy and the regulatory environment. 1.2 Overview of Key Housing Market Structures The structure of the housing market is made up of a number of components. These include: Institutional structures. Housing market factors. Demographic characteristics. The institutional structures include government policie s and intervention, planning regulation and controls, building regulations and controls, and finance market characteristics. Housing market factors include property value and rental levels, construction costs and activity, and housing affordability. Demographic characteristics of the resident population impact across the full range of the housing market and are an important consideration in developing an understanding of the structure of the housing market. In New Zealand, as in most countries, the market for housing services is a competitive market. Housing production (developers, builders, landlords, homeowners) activities have few barriers to entry or large economies of scale although whether the market of inputs (land, finance, infrastructure, labour, materials) is as competitive is more debatable. In the broadest sense, demographics such as household formation and incomes drive demand for housing, along with price, and the cost and availability of credit. Housing is important to the individual and community well being. Government involvement, across virtually all countries is high when compared with other goods. Intervention generally operates at both a local and central government level and may include taxation, subsidies, rent control, direct provision, capital market intervention, establishment of public institutions, and regulation e.g. zoning and building codes. 1

5 In New Zealand, over the last seventy years, government involvement and intervention has been a key determinant of the structure of New Zealand s housing market. It is not surprising, therefore, that significant changes in government s approach to not only the wider economy, but more specifically, the housing sector, over the last twenty years has played a central role in the way in which the structure of the New Zealand housing market has evolved. 1.3 Housing Policy Historical Overview The main goal of housing policy from the 1930s to the 1970s, under both main political parties, was to improve the supply of housing and supplement the limited supply of mortgage finance. Of greater importance for policy development, however, was the fact that both lending and state house production provided a useful economic lever for government. In order to meet the preceding two goals, two distinct housing policies, or state interventions existed in New Zealand over the period from 1930s to the 1970s: The encouragement of home ownership through housing loans for low-income earners. The construction of state rental housing let at below market rates. Linking both strands together was the overwhelming focus of housing assistance from the state, both for finance to buy houses and rental-housing provision, on two-parent working families. The government s direct involvement in the housing market began to reduce during the 1970s, with state intervention in the housing market increasingly couched in terms of welfare policy. The main goals of housing policy from 1981 to 1989, under both parties to varying degrees, were to: Continue to lessen government s large-scale direct involvement in the housing market - but with continued indirect involvement. To shift housing allocation policy from one founded on provision for two-parent working families, to a policy of provision for those with the greatest need or who were unable via the private sector to provide for themselves. When the new National government took office in 1990, housing benefits were for the most part targeted towards the least well-off members of New Zealand society. The main goal of housing policy during the 1990s was to ensure that the role of government was minimised on the assumption that the housing market left unfettered could best meet the housing needs of New Zealanders. A key cornerstone of government policy was the idea that those in similar financial circumstances should receive similar levels of income assistance to enable them to meet their housing needs. 2

6 The fundamental difference from past housing policies was the shift in government focus from ensuring an adequate supply of affordable housing through the direct provision of rental housing and mortgage finance for low-income households, to addressing problems in the housing market through income support. The main goal of housing policy since late 1999, when Labour, under various arrangements has held power has been to reverse the marketorientated policies of the previous National government and return to the policy framework which prevailed during the 1980s. Consequently, the provision of housing assistance has undergone significant change since It has moved from providing a demand-side subsidy the accommodation supplement and market rents for state housing, to supply-side assistance including income-related rents and a system of housing allocation based on the housing needs of applicants. 1.4 Planning, Building and Finance Regulations The planning, building and finance regulations have all significantly changed over the last twenty years. Changes in these three institutional factors have all impacted on the way in whic h the housing market operates. Consequently, it is important to have an understanding of these factors when analysing the property market. Planning Controls and Regulations Changes in planning occurred during the 1980s/early 1990s in response to two main factors: Economic and social changes. Key amongst these was a growing debate about the role of government and the growth of the environmental movement. Planning regulations were viewed as inefficient, complex, overly prescriptive, restrictive and costly in short, due for an overhaul. The Resource Management Act (RMA) was passed in The key difference between the RMA and the previous resource management regime (Town and Country Planning Act 1977) is the RMA s focus on sustainable management of resources. Under the RMA, the emphasis is on the effects that activities will have on the environment, rather than the activities themselves. 3

7 Building Regulations and Controls Changes in building regulations came about during the 1980s/early 1990s as a result of: A range of macro pressures coupled with specific stresses within the building industry brought about by a reducing government presence and reduced building sector profitability. A raft of building requirements, which the industry argued were unreasonable, costly, out of date, unnecessary and irrational. The Building Act was passed in The key difference between it and the previous building regulation regime is that the Building Act is a performance-based code that focuses on the results desired, rather than a prescriptive, rules based code. The Building Act 1991 is currently (May 2004) under extended review as a consequence of the weather tightness problem commonly known as the leaky building syndrome that emerged during 2001/2002. The aims of the proposed changes to the Building Act 1991 are: To improve control of, and encourage better building and design practices. To give greater assurance to all building owners and users that a building meets the standards set out in the Building Code. Finance Regulations The finance and banking sector has experienced significant change through deregulation since 1980 due to: The removal of interest rate controls in The exchange rate floated in Traditional direct controls placed on financia l institutions were replaced with indirect controls. Framework of monetary policy altered. Since 1987 there has been open entry into the banking system. Reserve Bank Act 1989, which states that the primary function of the Reserve Bank is the achievement and maintenance of a stable general level of prices. The consequences of these changes in terms of residential property include: A significant fall in mortgage interest rates over the last twenty years. An increase in the number of mortgage providers. An increase in the range of mortgage types including significant growth in fixed interest rate mortgages. A change in mortgage lending margins with banks offering loans up to 95% of the value of the property. The development of mortgage insurance. A significant increase in household debt. A significant increase in mortgage lending. 4

8 1.5 Residential Housing Market Trends Residential property has a total market value of between $450 and $500 billion NZD. This makes it by far the largest investment asset class in the country. Over the last twenty years, the type and nature of houses developed and sold has changed. Typically, the size of dwellings and standard of accommodation has increased. The design of dwellings has also changed with an increase in the living area and a decrease in the section size. Typically, New Zealand s housing market demonstrates the following characteristics: The market has strong cycles. Research into the New Zealand housing market has demonstrated that there is a minor cycle every two years and a larger cycle every 7 to 8 years (on average). House prices are more volatile than prices in general. A boom-bust nature - the housing market can jump from boom to bust (and back again) very quickly. Booms and busts have different characteristics; booms tend to be short and sharp with values increasing quickly, whereas a bust tends to be mild and last longer. The housing market is relatively insensitive to price and it takes large swings in prices to have an impact on demand. Over the short term the regional housing markets follow each other. In the longer-term house prices in different regions follow their own individual trends. Real residential property values have appreciated by 2.1% per annum between 1982 and The growth in value has been unevenly distributed around the country. The strongest growth was experienced in the main metropolitan centres and sunny coastal locations. For example, the real annual growth rate was 3.2% per annum in Auckland, 2.2% per annum in Wellington, 1.8% per annum in Nelson and 1.8% per annum in Southland. The growth in values has been as a result of a number of factors. These include increased demand from population growth, changes in the structure of the finance industry, lower interest rates, and economic growth. Typically, periods of strong value growth have been accompanied by increased sales activity. The peaks in the residential property cycle occurred in 1988 /1990, 1997/1998. We are currently (May 2004) approaching the peak of the current cycle. There is limited information available on the private-rented investment market in New Zealand. This market is characterised by numerous small investors owning one or two properties and a total lack of institutional investors. Bond to dwelling ratios suggest the most active rental markets are in Wellington, Auckland, Waikato and Bay of Plenty. Rental yields in the main centres are lower than in the provincial cities. Returns from residential investments were lowest in 1997 and have subsequently improved. Yields achieved from rented property have, however, declined in recent times. 5

9 The number of building consents issued has increased rapidly over the last two years. The number of residential building consents issued in 2003 was the highest for the last twenty years. A key trend is the increase in the proportion of new dwellings in multi unit blocks and apartments. Apartments now make up 23% of all consents issued and are concentrated in Auckland, Wellington, Nelson and Otago. The intensification of development in these residential markets, particularly in the inner city areas, reflects a significant change away from the traditional New Zealand residential property to a higher density more urban lifestyle. The proportion of consents issued in the Auckland region increased from 34.2% in the early 1990s to almost 40% by the late 1990s/early 2000s. Section values increased nationally by 580% between 1982 and 2002 or by 10.1% per annum. In real inflation adjusted terms this represents a total increase of 174%, or 5.2% per annum, over the same time period. The areas with the strongest population growth, or where land supply was restricted, experienced the strongest growth in values. Over the last twenty years, land sub-dividers have become more involved in providing the total package of land and new dwelling rather than just selling sections. Since December 1981, house construction costs have increased by 260% in nominal terms or 24% in real inflation adjusted terms. Between 1990 and 2003 the average cost of building an apartment increased by 72% whereas standalone dwelling costs increased by 99% over the same time period. Households with mortgages have the highest total housing costs of the different tenure types. Households that are owned without a mortgage, tend to have the lowest proportion of their income paid out for housing related expenses. Housing costs have increased faster for renters and households with mortgages than income since Key trends include: Total housing costs for renters have increased by 166% since 1987 whilst their income increased by 59%. The proportion of household income paid out as rent doubled between 1981 and Part of this trend reflects the government s social renting policy during this period and the movement to market-related rents. Mortgage costs for households with mortgages have increased from 14.3% of household income in 1988 to over 20.7% in At the same time, the proportion of income paid as rent for rented-households has also increased from 11.5% in 1988 to 16.8% in The ratio of income to house prices has increased for all regions except Southland in the twenty-year period to

10 Auckland has had consistently the worst regional affordability according to the AMP index over the last fifteen years. Wellington has closely followed the national average, whereas the majority of the other main centre regions have had slightly better affordability than the national average. With the exception of the Nelson / Tasman Regions in recent times, the smaller regions all have better affordability than the national average. 1.6 Stock of Housing The total New Zealand housing stock over the period from 1981 to 2001 increased from million dwellings to million dwellings or by 36.7%. Regiona lly, dwelling growth has been led by regions in the northern half of the North Island (Bay of Plenty, Northland, Auckland and Waikato) and the north of the South Island (Tasman, Marlborough and Nelson). At the other end of the scale, it has been the low population growth regions such as the West Coast, Gisborne and Southland that have recorded the smallest increases in dwelling numbers. Between 1981 and 2001 dwellings owned with a mortgage have declined from 42.4% of all private-occupied dwellings to 34.6%. Unencumbered dwellings have increased over the same period from 28.8% to 32.2%. Private person landlords have increased their ownership of rented dwellings over the period 1981 to 2001 from 60.6% to 78.4%. At the same time, rented dwellings owned by the public sector, Housing New Zealand, other central government and local authorities have declined from 39.4% of rented dwellings to 21.7%. Within this group, rented dwellings owned by other central government owners have fallen from 9.0% to 1.9%, Housing New Zealand from 23.7% to 15.6%, and local authorities from 6.7% to 4.2%. In terms of dwelling age, just under 6% of the stock dates from before 1920, 23.8% from 1920 to the end of the 1950s, 15% from the 1960s, 18.7% from the 1970s, 13% from the 1980s and 13.2% from the 1990s. In terms of dwelling size, the average size of new dwellings has steadily increased from 146 square metres for dwellings built during the 1970s, 149 square metres for those built during the 1980s, 173 square metres for those built in the 1990s, to 194 square metres for those built since the turn of the century. In terms of dwelling condition, the average condition over the 29 components inspected and rated for a survey undertaken by BRANZ in 1999, was 3.6 on the condition scale, or between moderate and good. The composite condition deteriorated with the age of the house from between good and excellent (4.5) for the newest age group, to just over moderate (3.2) for houses built prior to the 1930s. In terms of the regions surveyed, houses in Auckland were generally in the worst condition followed by those in Wellington, with Canterbury houses, on average, in the best condition. This was the same pattern as observed in an earlier survey in

11 The problems highlighted in the 1999 survey remained much the same as those shown up in the 1994 survey. Sub-floor ventilation, ground clearance, and lack of earthquake restraints were still the major areas of concern with very high percentages of houses being rated as poor or serious for these components. In terms of maintenance, the 1999 study concluded, very much as the 1994 study had, that the housing stock was still not being sufficiently maintained. The cost required to repair the more serious defects was estimated at an average of $4,000 per house, while the actual maintenance expenditure by owners of the surveyed houses was estimated at only $1,500 per year. Interestingly, the results of the Home Maintenance survey suggested that most New Zealanders are satisfied with the condition of their houses and this might go some way to explaining the gap between required expenditure and actual. 1.7 Home Ownership Outcomes There has been a moderate decline in the New Zealand-wide home ownership rate between 1981 and 2001 from 71.4% to 68.0%. However, if the first ten years of the period and the second ten years are each looked at separately, some noticeable decade-specific differences are evident. The period 1981 to 1991 saw home ownership rates nationally actually increase by 2.4 percentage points to 73.8%, while the period 1991 to 2001 saw a 5.9 percentage point decline to 68.0%. The early 1990s marks a significant turning point in home ownership trends in New Zealand. There is a general increase in rates of home ownership with the age of the household reference person. These trends include: For the 1981 data, aggregate home ownership rates increase from 23.6% for households in the year cohort, to 78.8% for those in the year cohort, and peaks at 82.9% at the year cohort. This pattern, which sees home ownership rates increase with age, is one that for the most part holds right through the 1981 to 2001 period. All age cohorts have a lower rate of home ownership in 2001 than in 1981, but all, except the year cohort, have higher rates in 1991 than in Home ownership rates for most age cohorts increased slightly over the 1980s, but declined moderately to significantly for all cohorts during the 1990s. The decline in home ownership over the 1991 to 2001 period was significantly greater for younger households than it was for older households. Overall, the home ownership rate in New Zealand declined by 5.9 percentage points between 1991 and The home ownership rate for households in the years, years and years cohorts, however, fell by 12.7, 12.5 and 10.4 percentage points respectively. 8

12 In 1981, the rate of home ownership for couples with children (79.5%) was well ahead of the average for all other household types (71.4%) with the exception of couples-only (77.7%). Only two household types over the 1981 to 2001 period have been able to close the ownership gap on couples with children. One-person households who have had their home ownership rate increase by 2.6 percentage points over the 1981 to 2001 period, have made the greatest gains, albeit off a relatively low base (60.9% to 63.5%). Couple-only households have perhaps made the most meaningful gain; in their case from a relatively high start point, from 77.7% in 1981 to 79.6% in 2001 or a 1.9 percentage point gain. The gap between the home ownership rate of couples with children and other household types has widened over the period since Table 1.1 presents the trend in household structure (key groups) by tenure since Table 1.1: Change in Household Numbers, 1991 to 2001 Household Owner-Occupiers Private-Rented Housing NZ Composition No. % No. % No. % Couple-only 28, % 12, % % Couple-with-children -50,502-16% 23, % -3,084-22% 1 Parent + Children -2,280-4% 24, % -7,668-58% One-person 30, % 20, % -1,095-9% Total 19, % 104, % -11,052-17% Source: Statistics New Zealand At the other end of the scale, three household types have experienced significant falls in home ownership over the 1981 to 2001 period. They are single -parent households, unrelated households (flats) and other households. All three of these household types had their home ownership rates decline during both decades of the period, which was contrary to the overall New Zealand pattern, which saw home ownership increase during the 1980s, then decline during the 1990s. Single-parent households saw their home ownership rate fall from 62.2% in 1981 to 60.8% in 1991 and to 50.5% in Unrelated households, starting from an even lower base, had their home ownership rate fall from 44.0% in 1981 to 35.3% in 1991 and 31.2% in Other households saw their home ownership rate fall from 54.9% in 1981 to 50.9% in 1991 and to 44.6% in In terms of home ownership and ethnicity the most significant observation is the disparity in home ownership rates between different ethnic groups. Table 1.2 presents the trend in household ethnicity by tenure since

13 Table 1.2: Change in Household Numbers by Ethnicity, 1991 to 2001 Household Owner-Occupiers Private-Rented Housing NZ Composition No. % No. % No. % European 1, % 39, % -11,001-30% Maori 3, % 20, % -3, % Asian 18, % 9, % 1, % Pacific peoples % 1, % 2, % Source: Statistics New Zealand The rate of European home ownership (74.2%) at the beginning of the period under review was well ahead of all other ethnic groups (Asian 64.8%, Maori 47.9% and Pacific peoples 38.8%) and indeed the gap between European (71.9%) and other ethnic groups home ownership rates (Asian 58.8%, Maori 44.0% and Pacific peoples 35.5%) has widened over the 1981 to 2001 period. 1.8 Owner-Occupier Tenure There have been a number of significant trends for owner-occupier properties and these include: The number of owner-occupier households has increased from 710,199 in 1981 to 868,656 in 2001 or by 22.3%. The number of all tenure households has increased over the 1981 to 2001 period by 34.3% or from 1,000,263 to 1,344,267. The growth in the number of owner-occupier households over the 1981 to 2001 period was greatest in Auckland, minor urban areas, rural areas, and rural and water areas. The growth in household numbers was, however, very unevenly spread across the period. The 1980s accounted for the bulk of the growth with only Auckland, rural centres and rural and water areas actually increasing their household numbers over the 1990s. The strong population growth areas of Auckland, Waikato, Bay of Plenty, Marlborough and Tasman dominated the growth in owner-occupier households by region. In terms of owner-occupier households, one-person (72.2%) and couple-only (56.2%) experienced the greatest increase in numbers, and couples with children (-16.5%) and unrelated households (-41.4%) experienced the greatest fall in numbers. The couple -only households share of owner-occupier households increased from 23.3% in 1981 to 29.7% in 2001 or by 6.4 percentage points. One-person households increased from 14.9% in 1981 to 21.0% in 2001 or by 6.1 percentage points. Couples with children, however, recorded the most dramatic change. Their share of all owner-occupier households fell from 46.0% in 1981 to 31.4% in 2001 or by 14.6 percentage points. 10

14 Over the 1981 to 2001 period, all ethnic groups except European saw their share of all owneroccupier households increase. The Asian households share of owner-occupier households increased moderately from 0.9% in 1981 to 3.9% in However, this disguises somewhat the very significant increase over the period in the number of Asian owner-occupier households, which rose from 6,075 to 34,545. The Maori households share increased from 5.3% to 6.5%. The Pacific peoples share from 1.0% to 1.7%. The European households share went from 91.6% to 88.3%. The overall increase in European owner-occupier households over the period was from 651,624 to 776,499. Over the 1981 to 2001 period, the age grouping and the age grouping saw their share of owner-occupier households fall. The and age cohorts, both of which fell 2.9 percentage points, experienced the largest falls. All other age cohorts increased their share of owner-occupier households, the largest gains made by the age cohort (2.2 percentage points) and the age cohort (2.3 percentage points). Owner-occupier households for each income quartile, and at each census, recorded the highest incomes. Moreover, owner-occupier households over time and over all income quartiles have gained income when measured against other household tenures. Second quartile and third quartile owner-occupier households achieved the largest gains in absolute terms over the 1986 to 2001 period. In relative terms, however, first quartile owner-occupier households have experienced the strongest growth. For example, owner-occupier households over the 1986 to 2001 period increased their first quartile income by 76.9%. Private-rented households, however, have only increased their first quartile income by 36.9%, Housing New Zealand households by 36.8% and local authority households by 60.8%. The gains by first quartile owner-occupier households have been greatest over the 1996 to 2001 period. 11

15 1.9 Private-Rented Tenure The private rental market in New Zealand is characterised by a large number of small investors each owning a small number of properties. No robust data exists on the characteristics of landlords and what type and how many properties they own. The motivation for people to invest in this sector is varie d. There is no robust information available on the motivation of investors. Anecdotal evidence suggests that the key issues include: The opportunity to invest in a sector, where they have knowledge. The robust tenancy framework governed by the Residential Tenancies Act (1986). The ability to obtain credit to gear the investment. The expectation of ongoing appreciation in values. The acceptability of real estate as a security for loans. The ability to add value by improving the property. The lack of a capital gains tax. The ability to write off other income against any losses. The ability to depreciate the asset over time. New Zealand s loss qualifying company regime. The large pool of tenants available in the market. Disillusion with the performance of fund managers and other asset classes. Perceptions that in the long-term values will continue to increase. The number of private-rented household has increased from 142,068 in 1981 to 264,501 in 2001, or by 86.1%. The increase in private-rented households over the period 1981 to 2001 has been high across all regions. A handful of the regions, however, stand out as having particularly high or low rates of growth in private-rented tenure and these include: Nelson (131.8%). Bay of Plenty (123.5%). Tasman (113.7%). Auckland (107.1%). Southland (39.5%). Taranaki (51.0%). The single-parent households share of private-rented households increased from 6.8% in 1981 to 15.5% in 2001 or by 8.7 percentage points. At the other end of the spectrum, the unrelated households share of all private-rented households fell from 20.4% in 1981 to 11.8% in 2001, or by 8.6 percentage points. All household types experienced increases in private-rented household numbers over the period, all over 60% with the exception of unrelated households that only increased by 7.8% or from 29,013 to 31,

16 Over the 1981 to 2001 period, all ethnic groups except European saw their share of privaterented households increase: Asian households share increased from 1.5% in 1981 to 6.3% in Maori households share increased from 11.9% to 17.0%. Pacific peoples share increased from 3.0% to 4.2%. European households share went from 82.8% to 74.5%. Over the 1981 to 2001 period, both the years (26.7% to 14.7%) and years (19.9% to 17.8%) age cohorts saw their share of private-rented households fall. Both of these cohorts, however, saw their actual household numbers increase, in the case of the years cohort from 37,953 to 38,454, and in the case of the years cohort, from 28,260 to 46,476. All the age cohorts in the year age groupings saw their share of private-rented households increase by between 2.5% and 6.0% over the period. Private-rented accommodation is now dominated by this age grouping and in 2001 accounted for just under half of all private-rented households, versus 31% in The age grouping, which in 1981 accounted for a third of all private-rented households, in 2001 accounted for fewer than 20%. The share of the age grouping over 50 has stayed relatively flat over the period, although in absolute terms, their household numbers have increased from 22,758 to 42,198 or by 85%. Over time, private-rented households, in income terms, have lost ground against owner-occupier households but gained ground against Housing New Zealand and local authority households. 13

17 1.10 Social Housing Housing New Zealand rental stock numbers declined during the first half of the 1980s (59,500 to 56,700), increased during the second half of the 1980s (56,700 to 64,500), was flat during the first half of the 1990s (circa 65,000), fell to 56,000 in 2000, and has since increased to 62,750 as at June Local authority house numbers increased slightly over the first half of the 1980s (16,209 to 16,653), but have since declined at each successive census, to 14,118 in Key trends identified include: Couple-with-children households share of Housing New Zealand rented-households fell from 34.0% in 1981 to 20.3% in 2001, or by 13.7 percentage points. One-person households share of all Housing New Zealand rented-households increased from 17.0% in 1981 to 22.4% in 2001, or by 5.4 percentage points. One-parent households share increased moderately from 22.4% in 1981 to 24.0% in 2001, or by 1.6 percentage points. Asian households share of Housing New Zealand households increased from 0.5% in 1981 to 3.4% in Maori households share increased from 21.9% to 28.2%. Pacific peoples households share increased from 8.4% to 22.9%. European households share decreased from 68.1% to 46.8%. 14

18 When the household ethnicity of Housing New Zealand households is compared with all tenure households in 2001, only European (46.8% versus 80.7%) and Asian (3.4% versus 4.5%) Housing New Zealand households had a lower share than did their all tenure group equivalents. Other trends included: Over the 1981 to 2001 period, both the years (8.8% to 5.6%) and years (12.7% to 8.8%) age cohorts saw their share of Housing New Zealand rented-households fall. Both of these cohorts also saw actual household numbers fall, in the case of the years cohort from 4,998 to 2,886, and in the case of the years cohort, from 7,224 to 4,557. All the age cohorts in the year age groupings saw their share of Housing New Zealand rented-households increase by between 0.5 and 5.5 percentage points over the period. The domination by this age grouping (30-54 years) has increased over time and, in 2001, it accounted for 56% of all Housing New Zealand rented-households, up from 40.6% in The age grouping, which in 1981 accounted for 21.5% of all Housing New Zealand rented-households, by 2001 accounted for 14.4%. The share of the age grouping over 54 years has also fallen, from 36.7% in 1981 to 27.0% in Over time, Housing New Zealand rented-households in income terms have lost ground in relative terms against all other tenure types. This would indicate that Housing New Zealand housing is, to a greater extent now than in the past, being successfully targeted at those most in need. 15

19 1.11 Housing Needs Government housing policy from the mid to late 1970s began to focus increasingly limited resources on those with the greatest need. It was not until 1988 that the government made an explicit measure of housing need the basis for allocating housing resources. However, with the election of the National Party in late 1990, housing need effectively disappeared as a determinant of housing policy for almost the next decade. Housing need returned as a central plank of government housing policy with the Labour Party s re-election in late Social housing allocation under Labour returned to a system based on the housing needs of the applicants. A new Social Allocation System (SAS) was introduced which involved a detailed needs assessment of each household applying for housing assistance. A segmented waiting list is formed on the basis of the need assessed for each eligible applicant. It is based on five criteria: Affordability. Adequacy. Suitability. Accessibility (discrimination). Sustainability. Overcrowding is a key measure of housing need. Crowding is essentially an area-specific issue: Crowding is primarily an urban issue, although some rural areas, particularly in the North Island e.g. Opotiki District, experience problems. Households in the main urban areas are most likely to experience crowding and this is true for all five main ethnic groups. All regions have experienced falls in crowding between 1986 and 2001, but the decline has been much smaller in the Auckland Region. Almost half of all crowded households in 2001 were located in the Auckland Region. 16

20 1.12 Conclusions and Suggested Areas for Further Research In New Zealand, over the last seventy years, government has been involved, to varying degrees and for varying periods of time, in almost all aspects of the housing sector. In DTZ s view government involvement and intervention has been one of the key determinants of the structure of the New Zealand housing market over the last 20 years along with the significant changes in the demographic composition of our society and the increased availability of credit. It is not surprising, therefore, that changes in government s approach to not only the wider economy, but more specifically, the housing sector, have played a central role in the way in which the structure of the New Zealand housing market has evolved since the early 1980s. However, it is important, not to overemphasise the role of government. There have at the same time been important social and demographic changes underway independent of government policy which have at once influenced and been influenced by government policy. Key changes in the structure of the New Zealand housing market since the early 1980s include: A significant reduction in government s direct involvement in the housing market. It is now restricted to: - Being a housing provider of last resort to those most in need. - Creator and manager of the institutional framework within which the housing market operates. Rapid escalation in housing values in the main centres compared to the rest of the country. Escalation of household housing costs as a percentage of income. Decline in home ownership affordability to the extent that some groups have not been able to maintain ownership goals. Increase in the number of private-rented dwellings. Changes in the social housing sector - stock numbers and delivery. Changes in the regulatory framework for planning and building. Financial market deregulation. Intensification of development, particularly in Auckland and Wellington. Changes in household composition, which is likely to impact on the demand for the physical housing stock in the future. In DTZ s view there are a number of areas arising out of this report, which warrant further research: 17

21 Financial Market Considerations Household debt has more than doubled since the beginning of the 1980s, in large part driven by the fall in interest rates over the last ten years. Higher levels of household debt means considerably greater variability in discretionary income as a result of changes in interest rates. We estimate that increases in interest rates will have twice the impact on household disposable incomes that they did twenty years ago. Housing Market Issues Value growth has been unevenly distributed around the country. Some non-metropolitan areas have seen strong growth in values, which have increased at a faster rate than household incomes. Anecdotally, it seems that people relocating from outside the region, or buyers from overseas, are driving the increase in value. This has implications for the ability of first homebuyers who live and work in these areas. Locations experiencing these trends include Nelson and Queenstown. These trends could have a significant impact on the supply of labour. It is important to understand mechanisms involved in these trends and their implications for the wider community. In addition, the impact that the housing market has had on the wider economy is important and should be better understood. The relationship between the inflows of migrants and the residential market is important, particularly in centres likely Auckland. Anecdotal evidence suggests that periods of strong inflows result in significant growth in values and consequent declines in affordability. These trends have significant social and demographic implications for cities such as Auckland. In DTZ s view, more immediate data is needed to enable ongoing monitoring, as well as specific work on the impacts of internal and external migration on the housing market. Such research should examine the nature and cause of migration, distinguish between internal and external sourced migration, the role of student migration and migrations wider links with the economy. 18

22 Private-Rented Market There is limited, robust information available on the private-rented market and the impact of this market on the overall property market. In DTZ s view there is an urgent need for core research, which will develop an information base on the private-rented sector. Issues that need to be addressed include: Is investment by investors in rental housing driving values beyond the reach of first homebuyers in some locations or, are they just responding to the demand from renters? What proportion of sales is associated with residential investment compared to purchase by owner-occupiers? There is no information on the performance of the market in terms of actual returns achieved by investors, arrears, maintenance costs, vacancy rates, and the tenant turnover. Limited information is available on the motivation of investors and the type of household and or person investing in the residential market and their relative level of debt. Is the pattern of residential investment consistent around the country? What are the characteristics of private-rented properties and do they differ from owneroccupier properties? New Zealand is yet to develop a significant renter culture. Over the last seventy years, a majority of households in New Zealand have aspired to home ownership. There seems to be growing numbers who may no longer aspire to home ownership or, at least consciously, delay entry to the market. This delay may be a result of the cost of entry, or it may, in part, be a function of a higher standard of consumption and lifestyle pursued by today s younger people. That is, higher consumption expectations coupled with the need for greater employment mobility, combined with delays in family formation may mean, that regardless of entry level cost, home ownership is pushed out for this younger group. In DTZ s view, there is a need for the housing aspirations and motivations of these younger adult age cohorts to be far better understood. Affordability There is a need to investigate the impact that the decline in housing affordability is having on our society with particular reference to the vulnerable groups within our society. Housing Stock New Zealand has an ageing housing stock. However, there is limited information available about the condition of the stock and the extent that it has been modified since the buildings were originally constructed. In addition, there is no agreed definition around residential building quality. 19

23 Demographic Trends The decline in home ownership has a number of potential implications that provide areas for future research. These include: Investigating the drivers for the change in the homeownership rates. Looking at the social implications of lower home ownership rates on our society. For example, a structural fall in home ownership rates is likely, over time, to lead to higher housing costs for retired people and higher fiscal costs for government through increased expenditure on accommodation supplements. The demographic bubble in our population, typically called the baby boomers, could cause change in demand for different types of housing stock as the population ages. Little is known about how the ageing population will change demand and its implications on the housing market. Housing Needs The rapid appreciation in value of residential properties in some locations is likely to have an impact on household s ability to afford suitable quality housing (rental and owned). These trends may have a significant impact on the level of housing stress in a community. Further investigation into the extent of housing stress within our society and its distribution around the country is another area for potential further research. Implicit in this is the development of appropriate measures of housing stress. These issues need to be examined at a micro rather than regional level due to the nature of housing markets. 20

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