Analysis of expected future population demographics in New Zealand shows likely strong rises in demand for housing

Here’s a thought exercise, and one we would like readers to contribute to via the comment facility below.

Demographic data is available for all age groups from the Statistics NZ Infoshare data resource.

We can make a proposition that a key house-buying age range is the one for those aged 30-34 years. And with that, we can track how many people were in that range over the past 25 years.

We can then make reasonably informed estimates of the demand for housing. What we’ve found is that demand is set to increase even more in coming years.

We have made a bald assumption that you basically need to be in a partner relationship to afford a house these days (and not the least because two incomes in the early years are likely to be necessary). We have also assumed that 10% of people in this age group don’t figure in the housing market for a whole variety of reasons.

And of course, housing demand is not only driven by buyers, it is increasingly driven by renters, even if they are not renters their whole lives.

What we have found with our calculations is that from 1992, this base of demographic demand has risen from about 65,000 to about 140,000 couples today.

Now, we are not suggesting that this is the only age demographic from which housing demand originates. But it is an easier subset from which to view changes.

And the other interesting thing about this age cohort (apart from being able to go back with consistent data by more than one generation), is that the numbers moving into this age group are essentially all known now.

This is because those who will be 30-34 bracket in 2042 are born and are currently aged 5-9 years – we know the number. To them, we need to add net migration in this age group, and we’ve concluded that to be about 8,000 more per year.

The migration addition is a bold assumption because it assumes the levels of the recent past will continue at the same levels into the future1.

Anyway, with those assumptions, this is what the future suggests. 

So, it is a future in which we have already set in quite sharp rises in household formation levels.

The 2017 level of +140,000 will rise to an average of +168,000 per year in the five years straddling each of 2022 and 2027. That is a +20% boost from current levels over the next decade.

The figures fall away somewhat from then. It is important to note, however, that the following 15 years will still all require provision of housing for new households at a faster rate than we currently have.

The future is set to require housing over the next 25 years at levels more than +25% per year in excess of what we have had in the previous 25 years.

And if retirees are living longer, they will be taking longer to free up homes for replacement demand.

New Zealand’s focus on housing is set to intensify.

Our economy may currently be seen as ‘a housing market with a few cows on the side’. As our analysis shows, however, their is unlikely to be any rebalancing, because increased housing demand is already baked in.

We ask readers for your thoughts and welcome suggestions for areas of focus for future analysis.

1. Perhaps, limiting migrants in this review to 30-34 ages is not correct. Perhaps the migrant need for housing adds to demand in a much wider block of their demographic profile?