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Budget 2017 Home Page Fiscal Strategy Report - Budget 2017

New Zealand's Housing Market

A well-functioning housing market is important for New Zealand's social and economic wellbeing. Housing market trends, especially those relating to housing costs and affordability, are therefore a major focus for the Government.

The strong pace of recent house price growth has been partially the result of strong demand-side pressures, such as households taking advantage of historically low interest rates, and strong economic growth driving population growth and rising incomes. In a well-functioning housing market, these demand pressures and rising prices would encourage an expansion in the housing supply and limit overall price gains.

Figure B1 - Mortgage rates and Auckland housing prices
Figure B1 - Mortgage rates and Auckland housing prices   .
Sources: RBNZ, REINZ, Haver Analytics, the Treasury

However, the supply-side response in New Zealand's housing market has been relatively weak over a long period as a result of restrictions on land availability. The number of consents issued for new houses in Auckland declined steeply from 2003 until 2009. They have recovered strongly again since then but further response is needed.

Figure B2 - Building consents
Figure B2 - Building consents.
Sources: StatsNZ, the Treasury

Availability of land for development is critical to how the housing market responds to stronger demand. Restrictions on urban development created by excessively restrictive zoning and slow responsiveness in the provision of new infrastructure are contributing to limited competition among landowners.

Figure B3 - Section, construction and housing price indices
Figure B3 - Section, construction and housing price indices.
Sources: REINZ, RBNZ, QV, StatsNZ, Haver Analytics

The Government has a number of policies to reduce barriers and create incentives to increase the supply of land available for housing. These include legislating to create Special Housing Areas, accelerating the adoption of Auckland's new unitary plan and making amendments to the Resource Management Act. The Government has created the National Policy Statement on Urban Development Capacity, to ensure growth in the supply of urban land for development by councils, and developed the Housing Infrastructure Fund to accelerate the provision of infrastructure for housing in fast-growing areas.

The Government has also freed up significant Crown-owned land for residential development and has developed the Auckland Crown Building Project with Housing New Zealand and others, to build 34,000 new homes in Auckland over the next decade, including replacing 8,300 old rundown houses.

The Government is currently considering whether to adopt the recommendations from the Productivity Commission's Better Urban Planning report, to create a better functioning housing market for all New Zealanders.

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