The ongoing construction boom and the net loss of population as borders open will likely mean New Zealand will finally be rid of its long-running housing shortage in about a year, Kiwibank says.
In its annual look at the state of the housing market, Kiwibank senior economist Jeremy Couchman the country will "start accumulating a surplus of housing" over the coming years as projected building activity outstrips rising demand.
"Despite all the disruption from Covid, despite the lack of materials, and despite the difficulty finding staff, StatsNZ estimates a total of over 41,000 homes were built in the year to June 2022," he says.
"That is by far the largest addition to Aotearoa's housing stock in the data going back to 1991."
To put the gain in homes in context, the peak in construction during the mid-2000s only managed to produce a net 30,000 homes, Couchman says.
"Looking at the 2018 census data 41,700 dwellings is roughly the same as the number in the whole Southland region."
At the same time, new housing demand had slowed to a trickle as population growth hit the lowest rate since the 1980s.
"Supply is catching up in part because Covid restrictions at the border has seen population growth slow to a trickle – a rare positive from Covid," he says.
"Net migration, the main swing-factor in population growth, posted a sizable 11,500 outflow of long-term migrants from New Zealand's shores in the year to June 2022."
Overall population growth slowed to just 0.2 per cent the lowest rate since 1986.
"The seismic shifts we've seen in housing supply and demand drove down New Zealand's housing shortage to an estimated 23,000 homes, still large but massively down from a revised 57,000 shortage estimated last year.
"The current yawning gap between supply and demand points to New Zealand's cumulative housing shortage disappearing over the next 12 months.
"Some indicators, such as net new residential electricity connections, point to the potential for downward revisions to already published supply data."
A growing surplus of houses ahead is likely to weigh on New Zealand's housing market and generate a slow recovery in house prices, he says, noting that the housing market is already in retreat.
"Credit conditions have tightened dramatically, in large part due to the RBNZ embarking on aggressive interest rate hiking to tame multi-decade high inflation. And the RBNZ isn't done yet."
Kiwibank sees the official cash rate reaching 4 per cent by year end.
Couchman notes that sales activity this year is down by around a third compared with a year ago.
"House prices have recorded falls in every month in 2022 so far. We have downgraded our house price forecast and now see house prices fall by 13 per cent by the end of the year."
That is broadly in line with the consensus of economists - who have picked falls of between 11 and 15 per cent.
"Our forecast would take house prices back to where they were at the start of 2021. Our projected recovery in house prices is weaker too," Couchman says.
However, he warns that some indicators suggest that the Covid-era trends in housing supply and demand are about to change.
"The outlook for house building has dimmed. And with our border fully reopened, positive net-migration next year should see demand lift off lows.
"There is significant uncertainty around demand and supply analysis at present."