Charles Lowndes: Housing crisis lies in lack of supply, not falling prices

New Zealand is facing a housing crisis, but it's not about prices falling ... It's the lack of house supply for a growing population that is approaching crisis point.

Every market moves to the rhythm of supply and demand. When supply exceeds demand, prices will soften because fewer sales occur. Sellers chase a limited number of buyers and must drop prices to sell. This is what we have observed since the market peaked in mid 2007.

It will be many years before land and house supply recovers. Builders responded to market signals, resulting last month in a 17-year low for new house consents.

Developers preparing new sections for builders and developers of new houses have been at a standstill ever since the demise of the finance company industry and remain hamstrung by the credit crunch that followed from overseas. Simply, there is almost no funding for them to access.

Secondly, the fall in the New Zealand dollar has pushed up building material costs as house prices have fallen. That makes new construction uneconomic, at least while existing houses sell below replacement cost.

To read the full NZ Herald article click here

Posted: 16 Mar 2009

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