HOUSING the NEED to BUILD the Demographic Drivers of Housing Demand
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HOUSING THE NEED TO BUILD The demographic drivers of housing demand Leonard Hong © The New Zealand Initiative February 2021 Published by The New Zealand Initiative PO Box 10147 Wellington 6143 New Zealand www.nzinitiative.org.nz Views expressed are those of the author and do not necessarily reflect the views of The New Zealand Initiative, its staff, advisors, members, directors or officers. ISBN 978-0-9951311-6-3 (print) 978-0-9951311-7-0 (online) RR63 Printing arranged by True North New Zealand Ltd Attribution 4.0 International (CC by 4.0) THE NEED TO BUILD The demographic drivers of housing demand Leonard Hong About the New Zealand Initiative The New Zealand Initiative is an independent public policy think tank supported by chief executives of New Zealand businesses. We believe in evidence-based policy and are committed to developing policies that work for all New Zealanders. Our mission is to help build a better, stronger New Zealand. We are taking the initiative to promote a prosperous, free and fair society with a competitive, open and dynamic economy. We are developing and contributing bold ideas that will have a profound, positive and long-term impact. ABOUT THE AUTHOR Leonard Hong is a Research Assistant with The New Zealand Initiative and has written research notes on Covid-19 containment responses in East Asia. In 2019, he completed his BA/BCom conjoint degree at the University of Auckland majoring in Politics & International Relations, History, Economics, and International Business. Before joining the Initiative, he was a research intern at the Centre for Independent Studies in Sydney working on economic, cultural and global affairs. Leonard is a member of the National Unification Advisory Council, a constitutional agency advocating Korean Reunification. He is also a 2020 Prime Minister’s Scholar for Latin America, and a Youth Councillor with the US Embassy. ACKNOWLEDGEMENTS My heartfelt thanks go to Dr Bryce Wilkinson for helping me with the broader report and data analysis, his mentorship and wisdom. The author acknowledges Mangai Pitchai for her expert editorial assistance and Angela Whitney for designing the publication. The author gratefully acknowledges the Futures Institute for giving the Spectrum software to the wider research community free of charge – and making this research possible. The author also thanks Statistics New Zealand for providing the data necessary for preparing this report. Special thanks to Dr Eric Crampton for his assistance on the regression analysis, recommendations, and support on the report; Joel Hernandez for his contributions; and Matt Burgess for his observations and comments. The author also thanks Dr Oliver Hartwich for his support, encouragement and feedback, and Linda Heerink, Chelsy Killick and Helene Luey for their support throughout this project. All errors and omission are the sole responsibility of the author. Contents Foreword 05 Executive Summary 07 Introduction 09 CHAPTER 1 Data analysis and methodology 11 CHAPTER 2 Demographic projections from Spectrum 19 CHAPTER 3 Housing demand based on demographic projections 22 CHAPTER 4 Qualitative research and analysis 31 CHAPTER 5 Housing policy and political realities 37 CHAPTER 6 Demographic projections and seeing beyond housing 42 Conclusion 45 Endnotes 48 Appendix 1: Statistics New Zealand Yearbook data 53 Appendix 2: Statistics New Zealand Scenario B 53 Bibliography 55 THE NEW ZEALAND INITIATIVE 03 Figures Tables FIGURE 1: Permanent and long-term net TABLE 1: Projected life expectancy in migration (Annual–June) 12 New Zealand (2061) 13 FIGURE 2: Estimated monthly net migration TABLE 2: Fertility distribution by age groups (March 2019 to October 2020) 14 (2019) 13 FIGURE 3: Average household size vs median TABLE 3: Comparison of annual compounded age in all 36 OECD countries (1970s to 2019) 15 population growth between SNZ and Spectrum to 2038 17 FIGURE 4: Average household size vs median age in New Zealand (1981–2018) 16 TABLE 4: Median age and population size under 36 scenarios (2060) 19 FIGURE 5: Population under medium life expectancy and zero migration TABLE 5: Median age and population size (2019–2060) 20 under 36 scenarios (2038) 22 FIGURE 6: Median age under medium life TABLE 6: Projected average household size expectancy and low migration (2019–2060) 21 under 36 scenarios (2038) 23 FIGURE 7: Median age under medium life TABLE 7: Projected needed private dwellings expectancy and medium migration in 2038 and the implied increase from 2019 23 (2019–2060) 21 TABLE 8: Projected annual increase in private FIGURE 8: Gap analysis for B scenario dwellings (2019–2038) 24 between projected household numbers TABLE 9: Projected annual increase in private (2019 and 2038) 27 dwellings (2019–2038) (HH size = 2.6) 25 FIGURE 9: Gap analysis for B scenario TABLE 10: Projected average household between projected household numbers size under 36 scenarios (2060) 25 (2019 and 2060) 28 TABLE 11: Estimated number of private FIGURE 10: Average annual increase in dwellings needed in 2060 and the implied households (2019–2060) 29 increase from 2019 26 FIGURE 11: Annual increase in the stock of TABLE 12: Projected annual increase in private dwellings (1992–2020) 30 private dwellings (2019–2060) 26 FIGURE 12: Average household size vs TABLE 13: Projected annual increase in median age (Anglosphere nations) 32 private dwellings (2019–2060) (HH size = 2.6) 27 FIGURE 13: From one home to four homes 33 TABLE 14: Distribution of households by FIGURE 14: Population by projected living type (1986–2018) 34 arrangement type (2013–2038) 35 TABLE 15: Distribution of households by FIGURE 15: Dependency ratio projection number of occupiers (1966–2018) 35 under medium life expectancy (2060) 43 TABLE 16: Statistics New Zealand FIGURE 16: Proportion of New Zealanders Historical Data 53 65 years and over under medium life expectancy (2060) 44 04 THE NEED TO BUILD Foreword Demographic change is a most Since Germany’s re-unification in 1990, powerful but barely noticeable population has lingered at around 82 million, socioeconomic process mainly but the number of households increased from because it is slow to occur 35 million to just under 42 million in 2020. and is spread over decades, if not centuries. For instance, if the median age These worrying developments in Germany increases by a month or two, statisticians are are New Zealand’s demographic future, as my the only ones likely to notice. colleague Leonard Hong warns in this report. Population ageing does not make society look New Zealand is a much younger country with much different one year to the next. Nor does a much younger population. The last time it change the look and feel of our towns and Germany was as young as New Zealand is cities. However, small changes every year today was in the mid-1980s. can have substantial impacts if they keep happening over long periods. And it is not just Germany. Similar household demographic changes are occurring in all the I have seen this happen in Germany, where I was developed economies Leonard has analysed. born in 1975. The median age for men that year was 33.2 years and 37.7 years for women. Today, He unequivocally shows that New Zealand it is 44.1 years and 47.6 years, respectively. will need a lot more dwellings to meet its housing demand. The only question is the extent of the A median age roughly a decade higher is detectable shortfall if we do not substantially increase with the naked eye. Germany today has fewer building now. children and young families but way more elderly people. Fewer schools but more care homes. Fewer Leonard also reminds us that demographic TV commercials selling sweets and toys and more changes are usually beyond government control. peddling prescription-free drugs and stair-lifts. Government cannot make us live longer (or otherwise). It cannot make us have more children Demographic ageing also leads to policy (though authoritarian regimes have reduced challenges. I stumbled upon one in 2005 while fertility rates). Government would struggle to researching international housing policy for fine-tune net migration figures even if it tried. Policy Exchange in London. For these reasons, we would be wise to treat A city planner I interviewed on a field trip to our challenging demographic future as a given Germany said many cities in his region had to and use the resources we have to prepare for it. keep building new homes due to the changing Tomorrow will be here before we know it. composition and needs of households even as population figures stagnated. Demographic If so, and if the housing effects of demographic change had reduced household sizes. Only 27.6% change internationally are true, then of all German households were single-person in New Zealand is sitting on a brick-and-mortar 1975 compared with 42.3% in 2020. timebomb. Our country’s future housing needs THE NEW ZEALAND INITIATIVE 05 are set to multiply much faster than the number of houses we have been building every year in the past four decades. If New Zealand politicians thought the housing crisis in 2020 was bad, they ain’t seen nothing yet. Demographic changes will make it worse in the decades to come. The title of this report is a clarion call to all New Zealanders. We urgently “need to build” starting now. Dr Oliver Hartwich Executive Director The New Zealand Initiative 06 THE NEED TO BUILD Executive Summary The political ‘buck passing’ of the responsibility Our housing needs are also set to rise much for unaffordable housing by successive faster than population growth. The average governments in New Zealand has created annual number of dwellings needed based on extremely expensive housing markets in cities just projected population growth, excluding such as Auckland and Wellington1 – and a the smaller household size, was between 5,452 national housing crisis.