Auckland's housing shortage is smaller than officials think and if the Housing Accord reaches its target over the next three years there could be an oversupply of 10,000 homes, says the Institute of Economic Research.
The institute argued this year that the Auckland Council's estimate of a shortage of 20,000 to 30,000 homes is too high, because it is not convinced the average number of people per household will continue to fall at the rate it has in the past and because the upsurge in net immigration represents fewer people leaving the country rather than an upsurge in immigration - a pattern that tends to support population levels in the provinces rather than swell the number of Aucklanders.
Since then the Census recorded slower population growth in Auckland than previously estimated, NZIER says in its latest quarterly predictions. At 1.2 per cent a year between 2006 and 2013 it was 0.4 percentage points weaker than expected.
NZIER estimates the shortage of housing at around 5000 homes.
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"If the Housing Accord is successful in delivering 39,000 homes and sections, we estimate it will result in an oversupply of 10,000 homes. A significant increase in the housing supply, alongside the Reserve Bank's efforts to cool highly geared credit growth, is a significant risk for house prices in Auckland," NZIER principal economist Shamubeel Eaqub said.
A sharp pick-up in building activity, not only in Canterbury but in Auckland, is a key factor underpinning NZIER's forecast of 3 per cent economic growth next year - the strongest since 2007.
While that is in line with the consensus among other forecasters, NZIER is taking a contrarian view on the outlook for interest rates.
Eaqub said the Reserve Bank would be loath to raise interest rates until the economy was on a stronger footing, jobs were more plentiful and inflation was picking up. He expects those conditions to be met by March next year. However, they are necessary conditions but not sufficient.
Interest rate hikes would also be contingent on the success of the Reserve Bank's curbs on low deposit mortgage lending, he said, which by March next year would have been in place for six months, long enough to assess their efficacy.
If successful, the Reserve Bank would hold the official cash rate steady at 2.5 per cent until the end of next year. If not it would raise interest rates quickly from next March.
"We reckon the first will be a 50 basis points hike, to send a warning shot," Eaqub said. The Reserve Bank has been coy about saying what would constitute success.