Dunedin residential construction rate rising

Signs are emerging that Dunedin's residential construction industry has already ramped up sufficiently to rectify the shortage that has built up, Westpac chief economist Dominick Stephens says.

In a report released yesterday, Mr Stephens described Dunedin's residential construction industry as an ''interesting case''.

The people per house (PPH) ratio had been rising in recent years and now stands at the same level as it was in the late 1990s.

That suggested a shortage of housing had built up.

The Dunedin City Council issued 379 consents for new dwellings in 2012, a 60% increase over the number issued in 2011.

The outright number of people per house currently ranged from 2.3 in Otago to three in Auckland, he said.

Urban areas tended to have a higher number of people per house than rural areas.

''It is difficult to draw strong conclusions from regional differences in the level of people per house. These might reflect the regional population's age structure, ethnic composition, level of wealth, or simply the prevalence of holiday homes.''

Mr Stephens preferred to look at the rate of change in the PPH.

In the assessment of the country's housing supply and construction, Auckland was found to have a shortage of housing and was building far too few houses to keep pace with forecast population growth, he said.

''Auckland will experience a strong lift in residential construction activity over coming years - rising house prices, rising building consent numbers, improving economic confidence and anecdotes from industry all suggest this process has already begun.''

The annual rate of new dwelling construction would have to double before it could be said Auckland was building enough houses to keep pace with population growth, Mr Stephens said.

The Auckland City Council issued 4582 consents for new dwellings in 2012. Westpac calculated to keep pace with population growth and get the number of people per house gently trending downwards, the number would have to rise to 9500. Even then, it would take many years to unwind the shortage of houses that had built up, he said.

''A sceptic might argue that Auckland is incapable of doubling the rate of dwelling construction due to the ever-present tangle of red tape and expense associated with property development.''

However, 12,277 consents for new dwellings were issued in Auckland in 2003 and the industry had shown it was capable of such activity levels.

There was little reason to expect much change in building activity elsewhere in New Zealand. There was ''tentative evidence'' to suggest Wellington, Hamilton and Palmerston North might need a modest lift in building activity to keep pace with population growth.

Conversely, evidence suggested Nelson might be building too many houses relative to population growth, he said.

Everywhere else, the current level of building activity was sufficient and there was little reason to expect a change in the rate of construction activity, Mr Stephens said.

Southland was seen as having sufficient residential building work in progress.

The Westpac people per house measure was developed in 2008 to assess housing supply throughout New Zealand. The Canterbury earthquakes complicated the nationwide analysis and the latest assessment was applied on a regional basis.

Canterbury was excluded from the latest assessment because the earthquakes had brought about an obvious shortage of housing, he said.

In ''normal times'' the number of people per house should slowly reduce as families shrank, the population aged and society became wealthier.

Abnormal changes in PPH might indicate the prevailing rate of construction activity was unsustainable.