The undersupply of Auckland housing will likely get worse before it gets better, despite a jump in the value of residential building work in the city at the end of 2016 versus a year ago, several economists said on Friday.

Auckland had $1.3 billion of residential building work put in place at current prices during the December 2016 quarter, up 30% from the same period a year ago, figures released by Statistics New Zealand showed.

However, the growth was “not fast enough,” Infometrics economists said. It was a slowdown from previous quarters and suggests even softer growth in building [price-adjusted] volumes, they said. It was possible that higher building costs in the city – up 8.2% over 2016 – deterred or delayed some building projects “as the strain to obtain the labour leads developers to push out their timelines.”

There was still a long way to go before the significant under-build of homes in Auckland was addressed, Westpac economists said. Auckland currently needs to be building upwards of around 11,000 homes a year but only 10,000 new homes were consented in 2016, with even fewer completed, they said.

“We do expect that building levels will rise over the coming years, especially as many of the teething issues around the Unitary Plan have been resolved. However, undersupply of housing in Auckland will likely get worse before it gets better,” Westpac economists said.

The value of work on new dwellings in Auckland reached $1 billion for the first time during the quarter, Stats NZ said. Labour Party housing spokesperson Phil Twyford said this implied about 2,500 houses being built given each new dwelling consent being valued at an average of $400,000 ex-land.

“That’s well short of the 4,000 a quarter needed to keep up with the burgeoning population,” Twyford said. “At this rate, Auckland’s massive housing shortage is growing, not shrinking. The city is already around 35,000 houses short and that’s growing by 500 a month.”

Nationally, the actual value of residential building work in place during the December quarter was up 22% to $3.4 billion. The 30% rise in Auckland was mitigated by a 6.2% fall in Canterbury, the Stats NZ figures show.

Price-adjusted figures (volume) showed residential building activity nationwide rose 1.1% in the December quarter, down from a 2.2% rise in the September quarter. Stats NZ does not provide regional volume, or price-adjusted, figures.

“The volume trend for residential building work has been generally rising for five years, and the level is now double the most-recent low point in the September 2011 quarter,” Stats NZ said. “The new series 4 peak in the latest quarter is 12 percent higher than the earlier peak, which was just over 12 years ago in the June 2004 quarter.”

Wellington strength

The Westpac economists also noted particularly strong gains in residential construction in Wellington, up 10% in December, coming on top of a 13% increase in September. “That leaves residential construction levels up nearly 32% over the past year,” they said.

“Wellington hasn’t seen the same significant under building of homes that Auckland has. Nevertheless, the Capital has seen pressures emerging in its housing market, which is spilling over into increased pressure on prices and rents. Consequently, these increases in building levels are a welcome development,” Westpac economists said.

Construction boom

Meanwhile, the volume of non-residential building work nationwide rose 3% in the December quarter, on top of a 0.2% rise in September. “The volume trend for non-residential building work is now 16 percent higher than the earlier high in the March 2006 quarter,” Stats NZ said.

The actual value of non-residential work in current prices was $1.9 billion, figures showed. This was up 20% from December 2015.

The volume trend for all building work has grown 73% since the most recent low point in the September 2011 quarter. It is also 19% higher than the series high in the June 2005 quarter, Stats NZ said.