Figures from Statistics New Zealand have revealed the total floor area of consented new homes was just over 4.7 million square metres, which marks a 7.2% decrease compared to the year ended January 2024. It’s the lowest for a January year since 2015, says Stats NZ economic indicators spokesperson Michael Heslop.
Shrinking Homes and Changing Trends in Floor Areas
New Zealand homes have been shrinking for a while now. In February 2023, Stats NZ reported the median floor area of new homes had decreased by 10%; in 2022, it was 126 square metres, and in 2021, it was 140 square metres.
Michael Heslop says it’s due to an increase in the number of multi-unit homes consented to. Apartments, townhouses, flats, and retirement village units tend to be smaller than stand-alone homes.
But stand-alone homes are getting smaller, too. “Ten years ago, more homes were being consented with a floor area above 200 square metres than below. This has shifted in recent years, with more homes being consented with a floor area below 200 square metres,” he said in 2023.
The Impact of Building Design on Floor Area
Average floor areas are influenced by garages in houses and townhouses and shared spaces in apartment buildings, such as corridors and basement car parking.
Denser cities and neighbourhoods, so homes with smaller floor areas, are New Zealand’s response to the housing crisis. Smaller homes and more multi-unit developments make sense as demand increases, yet these sacrifices generally haven’t translated to more affordable housing.
Housing Policies and Affordability Challenges
Take the Auckland Unitary Plan, implemented in 2016. Though it facilitated the construction of approximately 22,000 additional homes between 2016 and 2021, leading to a 50% increase in consents, housing affordability challenges persist.
In 2019, the annual Demographia International Housing Affordability study deemed all major housing markets in New Zealand “severely unaffordable,” with median house prices exceeding six times the median annual household income.
High-Density Housing and Long-Term Benefits
High-density housing does lead to lower house prices, reduced traffic, and lower infrastructure costs in the long run. It also creates better job markets, fosters innovation, and allows businesses to specialise. Studies suggest increasing housing density in cities like Auckland could significantly boost productivity and wages.
Still, New Zealand’s current housing policies force people into less productive areas, which lowers our GDP and living standards. Minimum lot sizes, height restrictions, and limits on apartment construction reduce housing supply, driving up prices and pushing people to less productive regions. Infrastructure funding that prioritises sprawl over urban intensification also contributes to the problem.
The Outlook for Housing Prices and Affordability
House prices are forecast to rise modestly this year and next, following a decline in 2024, per a Reuters poll of housing experts. They cite lower interest rates as the key driver. The Reserve Bank of New Zealand has cut interest rates to support house price recovery, which fell nearly 20% from a late 2021 peak.
That decline is only about half of a more than 40% surge during the pandemic, pricing many first-time home buyers out of the market. “We see a bit more potential upside in the market this year given mortgage rates are falling faster and probably by more than we had been anticipating three to six months ago, but not by a great deal,” said Infometrics’ chief forecaster Gareth Kiernan.
“Given that housing still looks relatively unaffordable, we expect that through the course of this year, interest rates will still be a reasonably important driver.”
The Need for Broader Policy Changes
Without broader policy changes to increase supply and improve affordability, the housing crisis will likely persist despite the shift to smaller, denser homes. While lower interest rates may provide some relief, they alone cannot address the structural issues driving high housing costs.
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