The operating environment

About us

Housing contributes to economic and social outcomes. Good quality, suitable and affordable housing is linked to health, educational performance, wealth and personal security.

New Zealand context

Economic conditions are deteriorating

Economic conditions have deteriorated globally and locally. The Treasury forecasts two years of negative economic growth. Weaker exports and domestic demand will result in fewer jobs and higher unemployment.

The New Zealand population is changing

Population growth

Between 2001 and 2006, New Zealand's population grew by about 8 percent. The Auckland region accounted for 47 percent of this growth. The New Zealand population is forecast to reach five million within 20 years.

Higher growth is expected in urban areas. Auckland's population is projected to increase by 53 percent to 2.1 million by 2031, placing increasing pressure on housing¹.

Ageing population

New Zealand's population is ageing. The number of New Zealanders aged 65 and over is projected to increase from 12 percent in 2006, to more than 20 percent by 2026².

An ageing population will increase the demand for health and aged-care services. Appropriate housing is needed to support independence, maintain health and well-being, and prevent early entry into residential care.

Increasing diversity

New Zealand is becoming more ethnically diverse. By 2026, it is forecast that the population will be 15 percent Māori (up from 14 percent in 2006), 9 percent Pacific peoples (up from 7 percent in 2006), 14 percent Asian (up from 9 percent in 2006) and 62 percent European/Pākehā (down from 71 percent in 2006)³.

Increasing diversity results from immigration and the comparatively younger age structure and higher fertility rates of New Zealand's Māori, Asian and Pacific populations. This will result in more varied housing needs, such as a need for more larger houses.

Smaller households

The average number of people per household is projected to decline from 2.6 people in 2006 to 2.4 people in 2031⁴. As a result, the number of households will increase faster than the population with an increasing proportion of

households with one person and couples without children, and a decrease in households with three or more children. Women are having children later, delaying family formation, meaning that more single people and couples in their fifties are raising children.

The housing market

Home ownership rates are declining

In 2006, 67 percent of homes in New Zealand were owneroccupied, down from 71 percent in 1996. Projections suggest that owner-occupied housing will decline to 62 percent by 2016⁶.

Regionally, Auckland has lower home ownership, projected to drop to 58 percent by 2016. Home ownership is lower for Māori (43 percent) and Pacific peoples (34 percent)

Housing affordability is fluctuating

House prices increased up to November 2007. More recently, house prices and interest rates have declined, and houses have become more affordable. House sale prices fell about 9 percent in the year to February 2009⁷. The Treasury predicts house prices will fall further in 2010, reflecting lower demand as a result of tighter lending criteria, investor uncertainty, low net migration and a weakening labour market.

Landlords who may have sold are now more likely to hold property; renters are less likely to be willing or able to buy. This uncertainty is expected to continue for the next 2 years.

The report of the House Price Unit (Department of Prime Minister and Cabinet) described an emerging intermediate housing market: those currently in the private rental market who cannot access state housing and cannot afford to purchase a modestly priced house.

Private rental market will be impacted

Declining home ownership means more renters. Most of the 33 percent of New Zealanders who rent are in the private sector. The remainder rent from the Corporation or other social housing providers, such as community-based organisations and iwi.

The Accommodation Supplement and the Income-Related Rent Subsidy are the two main state interventions that support housing affordability for low- to modest-income households. Without these, housing affordability would burden many households.

Low- to modest-income private renters face challenges such as low security of tenure and discrimination, despite assistance from the Accommodation Supplement.

Landlords in New Zealand have enjoyed tax-free capital gains but, because of falling house prices, capital gains for landlords are unlikely in the medium term. Landlords may try to raise rents to maintain overall returns. However, an excess supply of tenants is needed for rents to rise significantly. At present, it seems that the rental market is in good balance and rents are not rising significantly.

New Zealand's housing is under-maintained

Much of New Zealand's housing stock requires maintenance and does not adequately meet occupants' needs. New Zealand houses compare poorly to houses in countries with similar wealth and income. In 2005, the Building Research Association of New Zealand estimated the cost of more urgent maintenance at $3,700 per house. The average annual expenditure on maintenance is less than $1,300 per house. The Corporation spends, on average, about $2,900 per house a year on responsive and planned maintenance.

Poor quality housing results from poor construction, poor materials, a lack of maintenance or the property being used for a purpose that was not intended (for example, people living in garages). In winter, New Zealand home temperatures average 6°C below World Health Organisation recommendations. Forty-five percent of all New Zealand homes are mouldy - a cause of respiratory illness. Links between poor housing quality and health are clear, as are the benefits of insulation and heating.

Overcrowding may increase

Overcrowding is expected to increase as families face difficult financial times, resulting in higher rates of disease transmission, a more difficult study environment for children and an increase in household stress. Overcrowding has declined nationally but is increasing in South Auckland, where the number of households is growing faster than houses are built.

Building and construction activity is falling

Building activity has fallen to a level last seen in 1993. Employment in building and related industries has fallen, and this will have a flow-on effect on consumer demand.

The Corporation's operating environment

The economic recession and housing market described above will impact on the Corporation as a landlord, its ability to assist people buying their first homes and its ability to help community-based organisations provide social housing.

Impact of a slowing economy

Deteriorating economic conditions and rising unemployment will lead to increased demand for state housing from the worst-off private renters who struggle to find suitable housing in the private sector. The more immediate challenges for the Corporation from a slowing economy are:

an increase in the number of households in high housing need
a decrease in the turnover of Corporation tenancies as lower tenant incomes (including the loss of part-time work) reduce tenants' ability and desire to rent privately
overcrowding in Corporation houses when family or friends experiencing difficulty move in with the tenant household
difficulties in securing development partners owing to problems securing finance. This impacts on the Corporation's ability to both buy and lease more rental housing.

Fluctuating housing affordability

Fewer working households and community-based organisations are able to purchase a modest dwelling without assistance.

Meeting stewardship obligations

Many state houses need significant upgrading to achieve a modest but reasonably current standard. Upgrades relate to the amenity, efficiency and usability of the house. This is distinct from expenditure on maintenance. Maintenance maintains the basic health and safety of the house and fixes parts of the house that are broken or have been damaged. Upgrades may involve activities such as insulation, improved ventilation and heating. The cost of upgrading the housing portfolio is currently estimated at $2 billion.

Meeting longer-term demand changes

Changing household composition challenges the Corporation to provide an appropriate mix of housing. A growing and ageing population, increased ethnic diversity, and changing household types will increase demand for both larger and smaller houses.

The Corporation is already experiencing more demand for smaller homes for single people and couples. There is also more demand for larger homes from quota refugees and other larger families (often Pacific peoples), particularly in Auckland.

Intervening to change communities

While economic issues dominate the short-term outlook, the Corporation must consider longer-term impacts on the community.

Concentrations of low-income households in deprived areas result in more hardship, lower educational attainment, poor health, overcrowding and crime. Addressing this is important because individuals are heavily influenced by the neighbourhoods in which they live.

Impact of the operating environment on the Corporation

The deteriorating economy challenges the Corporation's ability to meet both increased and changing demand for housing and to upgrade existing stock. Changes in tenant demand will occur faster than the asset response, although more effort will be put into forecasting demand. As noted above, buying or leasing new houses is expected to be more difficult, although contractors for upgrades should be more readily available.

Over the same time, the changing needs of current tenants and future applicants will challenge the Corporation to provide a greater variety of housing. The current housing portfolio is not meeting the needs of applicants and tenants. There is a shortage of two-bedroom and four-bedroom houses, and a need to upgrade the current portfolio.

A combined asset response of both upgrades and additional stock in areas of high demand requires careful planning. The Government has provided additional funding for upgrades and new housing in areas of high demand, but also requires the Corporation to sell to tenants able and willing to buy their state house.

The following table shows the expected net impact on the housing portfolio over the next 3 years (subject to annual review). The impact will vary regionally. Regions with lower demand may have a net loss of houses, while areas of high demand (eg South Auckland) will experience an increase in overall housing stock.

1 The Royal Commission on Auckland's Governance, 2008.
2 Statistics New Zealand. National Population Projections: 2006 (base) - 2061 Series 5.
3 Statistics New Zealand. These shares are all based on Series 6 of the national ethnic population projections compared with Series 5 of the national population projections.
4 Statistics New Zealand. National Household and Family Projections: 2006 (base) - 2061.
5 Due to rounding, figures may not add to 100%.
6 Census 2006 and Housing in New Zealand, CHRANZ and Building Research, August 2007.
7 QV New Zealand Ltd.