HOUSING

THE NEED TO BUILD
The demographic driversof 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 notnecessarily reflect the views of The New Zealand Initiative,
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THE NEED TO BUILD
The demographic driversof 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 theinitiative 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 Initiativeand 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 theInitiative, 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 alsoa 2020 Prime Minister’s Scholar for Latin America, and a YouthCouncillor with the US Embassy.

ACKNOWLEDGEMENTS
My heartfelt thanks go to Dr Bryce Wilkinson for helping me withthe broader report and data analysis, his mentorship and wisdom.
The author acknowledges Mangai Pitchai for her expert editorialassistance 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 andcomments. The author also thanks Dr Oliver Hartwich for his support,
encouragement and feedback, and Linda Heerink, Chelsy Killick andHelene Luey for their support throughout this project. All errors andomission are the sole responsibility of the author.

Contents
Foreword	
Executive Summary	Introduction	

05
07
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	42Conclusion	
Endnotes	Appendix 1: Statistics New Zealand Yearbook data	Appendix 2: Statistics New Zealand Scenario B	Bibliography	

45
48
53
53
55

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03

Figures

TablesFIGURE 1: Permanent and long-term net
migration (Annual–June)	

12

TABLE 1: Projected life expectancy in
New Zealand (2061)	

13

14

TABLE 2: Fertility distribution by age groups(2019)	

13

TABLE 3: Comparison of annual compounded
population growth between SNZ and
Spectrum to 2038	

17

TABLE 4: Median age and population size
under 36 scenarios (2060)	

19

TABLE 5: Median age and population size
under 36 scenarios (2038)	

22

TABLE 6: Projected average household size
under 36 scenarios (2038)	

23

TABLE 7: Projected needed private dwellingsin 2038 and the implied increase from 2019	23

FIGURE 2: Estimated monthly net migration(March 2019 to October 2020)	
FIGURE 3: Average household size vs medianage in all 36 OECD countries (1970s to 2019)

15

FIGURE 4: Average household size vs medianage in New Zealand (1981–2018)	
16
FIGURE 5: Population under medium
life expectancy and zero migration(2019–2060)20
FIGURE 6: Median age under medium life
expectancy and low migration (2019–2060)

21

FIGURE 7: Median age under medium life
expectancy and medium migration(2019–2060)21
FIGURE 8: Gap analysis for B scenario
between projected household numbers(2019 and 2038)

27

FIGURE 9: Gap analysis for B scenario
between projected household numbers(2019 and 2060)

28

FIGURE 10: Average annual increase inhouseholds (2019–2060)	

29

FIGURE 11: Annual increase in the stock ofprivate dwellings (1992–2020)	

TABLE 8: Projected annual increase in private
dwellings (2019–2038)	
24
TABLE 9: Projected annual increase in private
dwellings (2019–2038) (HH size = 2.6)	
25
TABLE 10: Projected average household
size under 36 scenarios (2060)	

25

TABLE 11: Estimated number of private
dwellings needed in 2060 and the implied
increase from 2019	

26

30

TABLE 12: Projected annual increase in
private dwellings (2019–2060)	

26

FIGURE 12: Average household size vsmedian age (Anglosphere nations)

32

TABLE 13: Projected annual increase in
private dwellings (2019–2060) (HH size = 2.6)

27

FIGURE 13: From one home to four homes	33

FIGURE 14: Population by projected living
arrangement type (2013–2038)	

TABLE 14: Distribution of households bytype (1986–2018)	

34

35

TABLE 15: Distribution of households by
number of occupiers (1966–2018) 	

35

TABLE 16: Statistics New Zealand
Historical Data

53

FIGURE 15: Dependency ratio projection
under medium life expectancy (2060)	
FIGURE 16: Proportion of New Zealanders
65 years and over under medium life
expectancy (2060)	

04

THE NEED TO BUILD

43

44

Foreword
Demographic change is a mostpowerful but barely noticeablesocioeconomic process mainly
because it is slow to occur
and is spread over decades, if
not centuries. For instance, if the median age
increases by a month or two, statisticians are
the only ones likely to notice.

Since Germany’s re-unification in 1990,
population has lingered at around 82 million,
but the number of households increased from35 million to just under 42 million in 2020.

Population ageing does not make society look
much different one year to the next. Nor doesit change the look and feel of our towns andcities. However, small changes every year
can have substantial impacts if they keep
happening over long periods.

New Zealand is a much younger country witha much younger population. The last time
Germany was as young as New Zealand istoday was in the mid-1980s.

I have seen this happen in Germany, where I wasborn in 1975. The median age for men that year
was 33.2 years and 37.7 years for women. Today,
it is 44.1 years and 47.6 years, respectively.
A median age roughly a decade higher is detectablewith the naked eye. Germany today has fewer
children and young families but way more elderly
people. Fewer schools but more care homes. Fewer
TV commercials selling sweets and toys and more
peddling prescription-free drugs and stair-lifts.
Demographic ageing also leads to policy
challenges. I stumbled upon one in 2005 while
researching international housing policy for
Policy Exchange in London.
A city planner I interviewed on a field trip toGermany said many cities in his region had tokeep building new homes due to the changing
composition and needs of households even as
population figures stagnated. Demographic
change had reduced household sizes. Only 27.6%
of all German households were single-person in1975 compared with 42.3% in 2020.

These worrying developments in Germany
are New Zealand’s demographic future, as mycolleague Leonard Hong warns in this report.

And it is not just Germany. Similar household
demographic changes are occurring in all thedeveloped economies Leonard has analysed.
He unequivocally shows that New Zealand
will need a lot more dwellings to meet its housing
demand. The only question is the extent of theshortfall if we do not substantially increasebuilding now.
Leonard also reminds us that demographic
changes are usually beyond government control.
Government cannot make us live longer (orotherwise). It cannot make us have more children(though authoritarian regimes have reduced
fertility rates). Government would struggle tofine-tune net migration figures even if it tried.
For these reasons, we would be wise to treat
our challenging demographic future as a given
and use the resources we have to prepare for it.
Tomorrow will be here before we know it.
If so, and if the housing effects of demographic
change internationally are true, then
New Zealand is sitting on a brick-and-mortar
timebomb. Our country’s future housing needs

THE NEW ZEALAND INITIATIVE

05

are set to multiply much faster than the numberof houses we have been building every year in
the past four decades.
If New Zealand politicians thought the housingcrisis in 2020 was bad, they ain’t seen nothingyet. Demographic changes will make it worsein 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
for unaffordable housing by successive
governments in New Zealand has createdextremely expensive housing markets in cities
such as Auckland and Wellington1 – and anational housing crisis. Auckland is the sixth
least affordable city among 92 major global
housing markets, according to the 2020
Demographia housing survey.2 The real priceof housing in New Zealand increased by 171%from 2000 to 2019, compared with just 11% in
Germany in the same period.3 Despite former
Housing Minister Phil Twyford’s reforms,
the government has prioritised supressing
demand and targeting financial speculationfrom overseas. Demand-side solutions are justtinkering at the edges of the problem. Long-term
demographic transformations and changing
household sizes are affecting overall housing
demand. Inflexible housing development is
the core problem, and only freeing up enoughsupply can solve our housing unaffordability
and overcrowding.
The projections in this report show that our
housing problems are set to worsen. From2019 to 2038, the annual average additional
dwellings needed will increase from 26,246(‘low’ migration and ‘low’ fertility) to 34,556(‘medium’ migration and ‘high’ fertility).
From 2019 to 2060, we will need 15,319 (‘low’
migration and ‘low’ fertility) and 29,052(‘medium’ migration and ‘high’ fertility)
additional dwellings annually. These figures do
not take into account the annual demolition
and replacement rate of dwellings and thecurrent undersupply of 40,000. Since 1992,
New Zealand has added only 21,445 net private
dwellings annually to the housing stock. We aresimply not building enough to meet the looming
demographic changes and demands.

Our housing needs are also set to rise much
faster than population growth. The averageannual number of dwellings needed based onjust projected population growth, excluding
the smaller household size, was between 5,452(‘low’ migration and ‘low’ fertility) and 21,543(‘medium’ migration and ‘high’ fertility) to
2060 in our analysis. The difference represents
an annual shortfall of 9,867 dwellings for theformer and 7,509 for the latter (or 64% and26%, respectively). This means housing policy
using only projected population growth will
markedly underestimate future demand.
Covid-19 and the Reserve Bank of
New Zealand’s monetary response to theongoing recession has led to much financial
capital flowing into the housing market.
Consequently, the national house price averagereached $725,000, an increase of 19.8% from
October 2019 to October 2020.4 Low interest
rates created incentives for greater borrowing
and investments in real assets such as financial
stocks and housing. However, if soundinstitutional arrangements were established andgrowing supply could meet growing demand,
there would be far fewer speculative incentives.
Local councils and Statistics New Zealandalready factor demographic changes in theirhousehold and dwelling projections, but theeffect of the average household size on housing
demand is rarely discussed in the publicsphere. The aggregate housing demand is based
not just on population growth, but also thecomposition of each household. With household
sizes shrinking, fewer people living with many
children, and population ageing, we have ‘empty
nests’ and ‘crowded houses’.5

THE NEW ZEALAND INITIATIVE

07

For this report, we calculated long-term
population numbers using the demographic
software Spectrum. Based on three fundamental
factors – net migration, total fertility, and life
expectancy – 36 scenarios were projected to 2060
(and 2038 for dwelling projections). In 33 outof the 36 scenarios, New Zealand’s populationin 2060 will be larger than it is today. Under
all 36 scenarios, the median age will be higher.
The 36 scenarios were further narrowed to thesix most plausible based on New Zealand’s
recent demographic history. Among the six,the variation in median age and population sizeby 2060 was vast – the projected population
ranged between 5.55 million and 7.26 million,
while the median age was between 41.0 and
48.5 years. Even if migration is low (say, 14,000
per annum), New Zealand’s population will stillgrow substantially over the next few decades.
The current housing crisis is just the tip of theiceberg – if the government does not change
course, future generations will face abysmal
housing affordability prospects. Stopping
migration completely would only produce
new problems while doing little to fix the
housing problem.

08

THE NEED TO BUILD

Demographic changes also have long-term
implications for fiscal prudence. Under thesix most plausible Spectrum scenarios, thedependency rate rose with population ageing,
and the number of those over 65 years by atleast 23% by 2060. This will result in fewer
future taxpayers and more demands on workingage New Zealanders to fund public services
such as healthcare and pensions.
Policymakers need to make our economic
institutions more versatile so New Zealand cancope with any combination of demographic orhousehold scenarios in the future. New Zealand
had net zero migration in 2020 due to Covid-19
related border closures but this did not stophousing inflation. Politicians should stop
blaming the housing crisis on migration,
land banking investment, and speculation,and instead find policy solutions to free up
urban development and housing supply. Fasterproductivity growth too would help fundadditional public services in the long term.
Building now and fast is imperative for thenation’s future economic and social wellbeing.

Introduction
Housing policy in New Zealand tends tofocus on the Resource Management Act,high construction costs, foreign investment
regulations, and adverse local government
incentives. At the same time, housing supply
has failed to keep pace with rising demand.
Population growth is a driver of demand, but
not the only one. This report highlights thepotential contribution of population ageing
to housing demand. Across the OECD andthe developed world, the median age has risen
and the number of persons per household has
dropped significantly in the past 50 years.
New Zealand is no exception.
New Zealand’s population is increasing andageing. Our median age increased from 28.2 to37.2 years from 1981 to 2018, while the average
household size dropped from 3.1 to 2.6 during thesame period.6 An ageing population, increasing
life expectancy, rising living standards, andchanging socio-cultural norms have transformed
household compositions and created ‘empty nests
and crowded houses’. ‘Empty nests’ comprise
one to two people, usually older parents withadult children who have left the nest. Withless downsizing by older Kiwis, and with lesshousing available for new arrivals, we are facing
serious overcrowding in cities, especially in
Auckland. With a national median multiple of
7.0 New Zealand’s housing market is well abovethe ‘Severely Unaffordable’ median multiple,
stipulated as 5.1 and over by Demographia.7
Covid-19 and the new global recession shut down
construction and urban development during
the eight-week lockdown in New Zealand in
2020. Despite net migration remaining at nearlyzero (see Figure 2), house prices still rose by
20%. But these short-run housing challenges
are only a prequel to the ongoing shortfall of

40,000 houses – not to mention the annual rateof dwelling demolition, housing replacement,
and the rising housing demand in the longterm. This report uses demographic projections
to estimate housing demand; consider long-run
implications on the housing market; and pointout economic effects – beyond housing – on
healthcare, tax policy, etc. Demographic trends
help project population size and householdcomposition, size and demand in New Zealandin 2038 – and even 2060. The report’s structure
is set out as follows:
Chapter 1 covers the methodology, technicalaspects, and caveats – and also explains how
demographic and dwelling projections were
calculated for Chapters 2 and 3 through fixedassumptions on fertility, migration flows, and life
expectancy. Other sector-specific terminologies
and assumptions such as age-specific fertility
rates and distribution of net migrants are also
explained. Readers may skip this chapter if theywish to go straight to the results.
Chapter 2 illustrates the demographic results
gained from the Spectrum software and projects
New Zealand’s demographic composition(size and median age) for 2038 and 2060
with 36 central projections for both years
based on data analysis. Projections are in theform of ‘low’, ‘medium’ and ‘high’ scenarios
separately for fertility, net annual migration,and life expectancy.8
Chapter 3 covers how demographic ageing
contributes to additional increases in housing
demand on top of population growth. We tested
whether cutting migration substantially – oreven entirely to net zero – would remove theneed to build lots of houses. Demographic datafrom both Spectrum and Statistics New Zealand

THE NEW ZEALAND INITIATIVE

09

(SNZ) was used to estimate household size
and the number of dwellings needed to bebuilt every year by 2038 and 2060 based on
several assumptions; the number of households
was also projected based solely on population
growth trends.
Chapter 4 reviews both the qualitative research
and analysis of demographic implications
on the housing market, and the changes tohousehold size and composition. Internationaland domestic papers exploring the correlation
between unaffordable housing markets and thedeclining fertility rates of the local population
are reviewed, too.
Chapter 5 covers New Zealand’s housing public
policy within the political and economic spheres.
Of significance is how the past few governments
have tried to curb demand growth rather thanallow housing supply to match demand.

10

THE NEED TO BUILD

Chapter 6 explores the long-term implications
for fiscal prudence of the likely demographic
changes such as increased longevity anddemographic ageing. Demographic changes
affect other policy areas besides housing.
Using the six most plausible median life
expectancy scenarios in Spectrum, we projected
the dependency ratios and proportion ofKiwis older than 65 for 2060.
The Conclusion covers the long-run
implications for public policy for both housing
and fiscal prudence.

CHAPTER 1

Data analysis and methodology
Demographic software Spectrum
We used the DemPro (Demographic Projection)
module of demographic modelling software
Spectrum to portray the future population of
New Zealand by size and age. The software ismainly used to project outcomes for epidemics,
demography, family planning, and healthcare,among others. Spectrum was developed by the
Futures Institute with the support of USAID, theBill and Melinda Gates Foundation, the UnitedStates Fund for UNICED, UNAIDS, the World
Health Organization (WHO), and UNICEF.
Methodology
Using Spectrum, we calculated 36 different
scenarios for a range of fertility rates, migration
patterns, and life expectancies for 2060.
Spectrum requires a base population figure
to initiate its projections. We used the total
population of 4,966,580 (2,445,170 males and2,521,410 females) in December 2019 from SNZ.
For 2020 and 2021, the numbers were changed toreflect the effects of Covid-19 (see Box 1).

The 36 scenarios include less plausible
projections. We narrowed the 36 scenarios tothe ‘six most plausible’ based on New Zealand’s
comparable previous net migration flows(see Figure 1), and SNZ’s median life expectancy.
These are the six most plausible projections
referred to throughout the report.
Spectrum projected the median age and total
population for 2060 (Chapter 2) – and 2038;
average household size and total private
dwellings (Chapter 3); the dependency rate;
and the ratio of people over 65 years (Chapter 6).
Further details on the three input factors usedin Spectrum’s projections – total fertility rate,migration patterns, and life expectancy – arein the following sections. The explanations forthe six scenarios culled from the 36 are in thesections below titled “Migration: Four scenarios”
and “Longevity: Three scenarios”.
Fertility: Three scenarios
The total fertility rate in New Zealand was 1.73
in 2019 and 1.63 in 2020.9 Both are far below
the replacement rate of 2.1 needed in developed
economies to keep the population stable without
migration flows.10 For our projections from 2021
to 2060, we used the ‘medium’ fertility of 1.74 –the rate for 2019.

The ‘high’ fertility scenario assumed that fertility
would rise to 2.1. OECD countries, on average,
had a total fertility rate of 1.66 in 2019.11
The ‘low’ fertility scenario assumed 1.5 births per
woman, which is significantly lower than thereplacement rate. This means population will
shrink over time without modest net migration.
This is a common scenario in EU countries such
as Italy (1.4) and East Asian countries such as
Japan (1.3). Although this scenario is unlikely
for New Zealand in the short run, we need to
explore the potential demographic repercussionsof ‘low’ fertility.
Migration: Four scenarios
The annual projections for alternative net
migration scenarios (‘medium’, ‘high’ and ‘low’)
were constant between 2022 and 2060. For theyears 2019, 2020 and 2021, the net migration
numbers reflected Treasury’s changed projections
for PREFU 2020 because of Covid-19’s effects on
New Zealand’s fiscal and economic prospects.12
Treasury expects international travel restrictions
to be lifted around 2022 globally, and projects

THE NEW ZEALAND INITIATIVE

11

Figure 1: Permanent and long-term net migration (Annual–June)
Net migration flow

Average

80,00072,30570,00060,000Net migration flow

50,00042,51740,00030,00029,50620,00720,00010,0000-3,191-10,000-20,000
1992-11,369
1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

Source: Infoshare, “Table: Permanent & long-term migration by city of residence, citizenship and birthplace (Annual-Jun),”Path: Tourism – International Travel and Migration – ITM, Website, http://infoshare.stats.govt.nz/ViewTable.
aspx?pxID=e1a99b00-4483-4c5b-acb6-06b562aaf867.

net migration to gradually increase to 35,000
by June 2024.13
The baseline or ‘medium’ scenario assumed
total net migration of 28,000 people per year.
This was above the average permanent long-term
net migration of 20,007 since 1992 (see Figure 1).
The ‘high’ scenario assumed an annual net
migration of 42,000. This may occur if
New Zealand continues to encourage high-level
immigration after the end of Covid-19.14 Migration
does have short-term shocks on congestion,
housing, infrastructure, healthcare, and otherpublic goods. But as Eric Crampton notes,
appropriate infrastructure pricing, including
congestion charges, can prevent these shocks fromturning into housing and infrastructure shortages.15‘Low’ migration assumed net migration of
14,000, which was slightly lower than what

12

THE NEED TO BUILDLabour campaigned on in 2017.16 Former Deputy
Prime Minister Winston Peters advocated net
migration of 10,000.17
The permanent long-term net migration range
annually was between -11,369 and 72,305
from 1992 to 2018. The average for the past 26
years was 20,007 (see Figure 1). The factorsthat typically determine migration trends
and patterns cannot be ignored. Just after the
global financial crisis, net migration dropped
below 10,000 in 2008 and below zero in 2012(see Figure 1). But when the global economy
began to recover, net migration rose quickly
beginning in 2013 and peaked at 72,305 in 2017.
Net migration flows tend to vary with booms
and recessions.
Finally, ‘zero’ migration assumed no net
migration – the status quo under Covid-19.
Normally, this would be implausible in today’s

globalised world. New Zealand also is different
from most other countries – except for the
open interstates in the United States and the
Schengen Area in the European Union –because of the open Trans-Tasman border with
Australia (under normal circumstances). In
2015, the highest net number of people returnedor moved from Australia to New Zealandafter the global financial crisis.18 The ‘zero’projections let us examine whether populationand housing demand will grow even in theabsence of immigration. Chapter 3 explores
the significance of migration levels forhousehold projections.
Longevity: Three scenarios
Spectrum interpolated annual life expectancies
between 2019 and 2061. It used the 2019 life
expectancy of 80.5 years for males and 83.9 years
for women.19 For 2061, it used SNZ’s estimates(see Table 1).

Life expectancy is expected to increase under all
three scenarios (‘low’, ‘medium’ and ‘high’) basedon SNZ projections (see Table 1).20 ‘Medium’ life
expectancy was chosen as the main scenario forthe six most plausible projections.
Table 1: Projected life expectancy in New Zealand(2061)
Males

FemalesLow

82.6 years

86.2 years

Medium

85.6 years

88.7 years

High

88.6 years

91.2 years

Source: Statistics New Zealand.

These projections do not consider annual
variability and other complexities.
Other assumptions
Age-specific fertility rates, or the ages at which
women give birth, were presumed to remain
constant at 2019 levels (see Table 2). Increasingly,
more women are giving birth at an older age.

Table 2: Fertility distribution by age groups (2019)
Age (years)

Percent

15–19

3.66%

20–24

14.72%

25–29

26.15%

30–34

32.43%

35–39

18.72%

40–44

4.24%

Source: Statistics New Zealand, “Births and deaths: Year ended
December 2019,” Website.

The median age of a mother at the time ofchildbirth increased from 25.7 years in 1980 to30.5 years in 2018.21 This trend will likely continue(there is the biological clock, though). The
effects of the age at which women give birth was
insignificant at best in our modelling.
The sex ratio at birth was assumed to beconstant at 105.5 boys for every 100 girls. This is along-term pattern in New Zealand and there wasno reason to change this statistic.22
The age distribution of net migrants was
assumed to be the same as those of incoming
migrants. Neither SNZ nor Treasury provides
data on the age profiles of net migrants.
The sex ratio of net migrants for 2018 according
to SNZ was 50.37% for males and 49.63% forfemales.23 This remained constant across all
Spectrum scenarios and projections.
Age-specific mortality rates were based on the
Coale-Demeny West life tables, which provide
mortality rates for life expectancies in five-year
periods up to 80 years.

Caveats
Future demographic trends, government policies,
and technological and medical advances are
unknown. Models and projections can givebroad indications but cannot accurately predict

THE NEW ZEALAND INITIATIVE

13

outcomes. Migration trends vary based on
exogenous factors. Migrants could be young
and come from nations with a higher fertility
rate. Fertility itself cannot be controlled
centrally by politicians or bureaucrats unlessthe government is authoritarian, like China
and its one-child policy. Life expectancy islargely outside government control; it is mainly
determined by lifestyle choices and medical
and technological advances.24252627282930

Therefore, each step in using population andmedian age projections to project household
numbers and needed additional dwellings is subject
to some error. The statistical regression used in thisreport to convert median population age projections
to average household size projections is also subject
to considerable error. So are the assumptions thatthe proportions of households to dwellings andof people in households to the total population in
December 2019 will be unchanged to 2060.

Box 1: Incorporating the effects of Covid-19 on our demography
The ongoing economic recession and global
pandemic have increased demographic projection
uncertainty. The closed border reduced monthly
net migration from 11,620 in March 2020 to 88 in
April 2020 (see red bars in Figure 2).24 Immigration
has been constantly below 1,000 since then. The
pandemic stopped international travel completely,
and the increasing net migration that began in 2012
also ceased (see Figure 1).

We fed Treasury’s figures for net migration (79,500
for 2020 and 5,000 for 2021)25 into Spectrum
allowing for the disruption to migration in 202026– and assumed the border would stay closed
until 1 January 202227 unless a vaccine becomes
available,28 Covid-19 is effectively contained, andthe global economy stabilises.29 According toHarvard’s T.H. Chan School of Public Health, theworld will maintain social distancing measures up to2022 until critical healthcare capacity increases.30

Figure 2: Estimated monthly net migration (March 2019 to October 2020)
16,00014,981

14,00011,680Monthly net migration

12,000
10,22410,000

9,073
8,061

8,000

8,413

7,376
6,404

6,000
4,000 3,543
2,000

11,6202,838 3,008
1,857
947

595

884

M

ar
–19
Ap
r–1
9
M
ay
–19
Ju
n–
19
Ju
l–1
9
Au
g–
19
Se
p–
19
Oc
t–1
9
No
v–
19
De
c–
19
Ja
n–
20
Fe
b–
20
M
ar
–2
0
Ap
r–
20
M
ay
–2
0
Ju
n–
20
Ju
l–2
0
Au
g–
20
Se
p–
20
Oc
t–
20

0

482 334
88 406

Source: Statistics New Zealand, “International migration: October 2020,” Website.
Note: The red bars are explained in Box 1.

14

THE NEED TO BUILDDeriving dwelling and householdprojections from Spectrum’s population
projections
SNZ defines ‘dwellings’ as “buildings designed
and intended for private accommodation, such asdetached houses, townhouses, and apartments.”31
It defines ‘households’ as “either one person who
usually resides alone, or two or more people
who usually reside together and share facilities(such as for eating, cooking, or a living area; andbathroom and toilet) in a private dwelling.”32
Non-private dwellings consist of accommodationsuch as motels, hotels, institutions, prisons,student hostels, residential care for old people,
and boarding houses.33

of the population living in households inDecember 2019.34
2. Derived estimates for the average household
size for each of the 36 scenarios fromSpectrum’s median age projections using theregression technique described below.
3. Divided the scaled down population
projections by the estimated average
household size for each of the 36 scenarios.
That gave us projections for household
numbers to 2038 and 2060 for each of the
36 scenarios.

We converted those population projections into
household projections for the 36 scenarios inthree steps.

We also converted household projections into
private dwelling projections by multiplying
each household projection by the ratio (1.073)
of private dwellings (1,911,400) to households(1,781,100) in December 2019.35 The projected
number of households and dwellings varies
considerably across the 36 scenarios.

1. Scaled down population numbers bymultiplying each by the fraction (0.932)

Our regression technique used the inverse
empirical relationship between median age

Figure 3: Average household size vs median age in all 36 OECD countries (1970s to 2019)
6.00

Mexico, 1970

5.50
Chile, 1970

5.00

South Korea, 1980

Average household size

4.50
4.00
3.50

Chile, 2002

Turkey, 2017

Israel, 1983

United Kingdom,
2008

3.00

Japan, 2018

2.50

The Netherlands,
1988

2.00

Norway, 2018

1.00
15.00

Germany, 2018

Sweden, 2018

1.50

20.00

25.00

30.00

35.00

40.00

45.00

50.00

Median age

Source: Various (United Nations, OECD, Eurostat, Statistics New Zealand, The World Bank, etc.).
Note: New Zealand’s trendline compared to other OECD countries is shown by the red dotted line.

THE NEW ZEALAND INITIATIVE

15

for New Zealand for different median ages.36
We used these forecast household series, in
combination with Spectrum’s forecast population
series and median ages, to forecast the number ofhouseholds in each scenario.

and average household size across countries
and over time. Figure 3 shows this non-linear
relationship.
Each dot in Figure 3 represents a country’s
median age and average household size ata particular year. Except for New Zealand,
which has 8 data points, every other country
has between 3 and 6 dots from 1970 to 2019.
Some of the dots are highlighted as examples:“South Korea, 1980” and “United Kingdom,
2008”. All OECD countries, including
New Zealand (highlighted in red), experienced
smaller household sizes as their populations aged.

The household and dwelling projections did notconsider income effects. Average household size
may also be decreasing as people become richer.
Being able to live apart from extended families
may be a luxury, but incomes have increased overtime. Our projections are conditioned only on
median age. If increased income is also driving
some of the demand for smaller household sizes,
it would affect the number of households forecast.
If income growth slows relative to prior trends,
then our figures may overestimate the numberof households in the future. If income growthincreases relative to prior trends, our figures may
underestimate the number of future households.

The median population age ranged from
16.7 years (Mexico, 1970) to 47.3 years(Japan, 2018). New Zealand’s median age in 2019was 37.4 years. The average household size ranged
from 1.8 (Sweden, 2018) to 5.8 (Mexico, 1970).
New Zealand’s average household size in 2019was 2.6.

We fed the median age projections (see Table 2 for2060 and Table 3 for 2038) into Stata’s estimatedequation to derive the likely corresponding
average household size for 2038 and 2060 (seeTables 4 and 6). The total number of households
for each of Spectrum’s 36 scenarios was calculatedby dividing the population of people inhouseholds (93.2% of population projections inTable 2 for 2060 and Table 3 for 2038) by the

Caveats to household and dwelling
projections
We ran a simple pooled cross-sectional regression
in the statistical software Stata with country-level
fixed effects to generate predicted household sizes

Figure 4: Average household size vs median age in New Zealand (1981–2018)
3.20

1981

Average household size

3.10

1986

3.00
1991

2.90

2001

1998

2.80

2013

2006

2.70
2.60

2018

2.50
2.40

26

27

28

29

30

31

32

33
Median age

Source: Statistics New Zealand Yearbooks and Infoshare.

16

THE NEED TO BUILD

34

35

36

37

38

39

40

projected average household size (see Tables
4 and 6). We estimated the total number ofdwellings by multiplying projected people inhouseholds by 1.073 (see Tables 5 and 7).
Figure 4 is a scatter graph only for New Zealand.
It plots the historical median age against average
household size from 1981 to 2018. The declining
average household size and increasing medianage are not just international trends but can also
be seen in New Zealand. See Table 16 for SNZ
historical data (Appendix 1). The linear trendline
was not taken into account for the projection as
the extrapolation of household changes beyond
2018 is not entirely accurate. Instead, the regression
used the 173 OECD data points in Figure 3 with
Stata, which provided data input of countries withhigh median age and low average household size
closer to 50 years and 2.0, respectively.

SNZ’s Living Arrangement B householdprojections for 2038 and 2060
Government agencies already consider
demographic changes to project future
household numbers. SNZ has projected future
population and households to 2038 taking
population ageing into account. Using theseprojections, we quantified the potential excess
housing demand to 2038, compared withhousing shortfall projections based on justpopulation growth (see second half of Chapter 3).
We calculated both 2038 shortfalls with SNZ
data using gap analysis and 2060 data using
extrapolation methods. The comparisons between
household and population projections are basedon SNZ’s Living Arrangement B scenarios (seeAppendix 2).37 We extrapolated SNZ data from
“Projected Households by Household Type from2013–2038” and the “Projected Population by
Living Arrangement Type from 2013–2038” to2060 to calculate the shortfall of households if
the number of dwellings only increased to match
population growth. SNZ’s Case B projections
show forward trend changes in household living
arrangements between 1986 and 2013.
We compared our forecast household numbersfor 2038 in the scenarios that most closely
matched SNZ’s projections and found they
matched reasonably well. We then extended
our forecast to 2060, beyond the range of
SNZ’s projections, and to additional scenarios.
Our purpose was not to provide a more accurate
forecast than SNZ, but rather to extend theforecast to a greater range of scenarios andover a larger period.
SNZ’s ‘low’, ‘medium’ and ‘high’ demographic
projections to 2038 align with Spectrum’s(see Table 3).

Table 3: Comparison of annual compounded population growth between SNZ and Spectrum to 2038
SNZ: Projected population by Living Arrangement B, 2013-Base (Annual June)
Scenarios

Annual growth

Low fertility, high mortality,
low migration, and b living
arrangement type rates

Medium fertility, medium
mortality, medium migration,and b living arrangement
type rates

High fertility, low mortality,
high migration, and b living
arrangement type rates

0.58%

0.82%

1.15%

Spectrum: Projected population
Scenarios

Annual growth

Low migration, medium
fertility, medium life
expectancy

Medium migration, medium
fertility, medium life
expectancy

High migration, medium
fertility, medium life
expectancy

0.63%

0.88%

1.12%

Source: Author’s calculations.

THE NEW ZEALAND INITIATIVE

17• SNZ’s Case B projected a 0.58% perannum average annual compounded
population growth rate to 2038 for its‘low’ scenario, 0.82% for ‘medium’, and1.15% for ‘high’.38• Spectrum’s projected average annualcompounded rate of increase inpopulation to 2038 was 0.63% per annum
for its ‘low’ immigration scenario, 0.88%
for ‘medium’, and 1.12% for ‘high’.
All figures were based on medium fertility
and medium life expectancy assumptions.

18

THE NEED TO BUILD

SNZ’s growth rates of 0.58% to 2038 per annum
and 1.15% per annum (see Table 3) represent the
population growth rates to the top and bottom
ends of its 25% and 75% ranges, respectively, for
population in 2038. Expressed differently, there
is a 50% chance the projected population will
represent an annual average compounded growthrate of between 0.58% and 1.15% per annum from2019 to 2038.

CHAPTER 2

Demographic projections from Spectrum
The median age of New Zealand’s population
was 37.4 years in 2020,39 and the total population
was 5.1 million.40 This is young compared toother developed nations such as Germany(47.1 years) and Japan (47.3 years). Across all
36 scenarios, New Zealand’s population in 2060
would also be older and larger except in three
scenarios (zero migration, low fertility, and all
three life expectancies). The intuitive reason
for the short-run rise in population under zeromigration is that births exceed deaths at theoutset. Eventually, deaths exceed births due tothe lower fertility rates (see Figure 5).
RESULT 1: New Zealand’s population
will be larger and older by 2060 undermost realistic scenarios.

• The ‘high’ migration, ‘high’ fertility,and ‘low’ life expectancy scenario(highlighted in green) resulted in theyoungest projected population with alow median age of 39.9 years and a total
population of 7.84 million by 2060.
• Under ‘zero’ migration, ‘low’ fertility,and ‘high’ life expectancy, New Zealand
will have a high median age of 50.6 years
and a population of 5 million in 2060
(highlighted in red).
• The population drops below 5 million by
2060 with ‘zero’ migration and ‘low’ fertility
for both ‘low’ and ‘medium’ life expectancies– 4.78 million and 4.89 million, respectively.
This will also result in average median agesof 49.0 and 49.8 years, respectively.

Spectrum’s 36 scenarios for the median age andtotal population in 2060 are shown in Table 4.
Table 4: Median age and population size under 36 scenarios (2060)
Low life expectancy
Assumptions
Zeromigration(0)

High life expectancy

Lowfertility

MediumfertilityHigh
fertility

Low
fertility

MediumfertilityHigh
fertility

Low
fertility

MediumfertilityHigh
fertility

49

46.3

41.7

49.8

47.1

42.6

50.6

47.9

43.4

5,703,773

4,891,432

5,249,149

40.9

48.5

45.9

4,777,549 5,134,508

Low
migration

47.7(14,000)

5,427,820

Mediummigration

46.7(28,000)

Medium life expectancy

45.2

5,819,641 4,999,430 5,357,800 5,929,348
41.7

49.2

46.6

42.4

5,810,431 6,419,048 5,547,358 5,930,779 6,540,701 5,660,205 6,044,322 6,655,366
44.3

40.3

6,078,045 6,486,302 7,134,259

High
migration

46

43.7

(42,000)

6,719,309

7,151,745

39.9

47.4

45

6,203,240 6,612,357
46.6

44.3

41

48

45.6

41.7

7,261,697

6,320,935

6,730,791

7,381,322

40.6

47.2

44.9

41.2

7,836,794 6,850,237 7,283,580 7,970,087

6,972,817

7,406,941 8,094,701

Source: Author’s calculations.

THE NEW ZEALAND INITIATIVE

19

Figure 5: Population under medium life expectancy and zero migration (2019–2060)
Low fertility

Medium fertility

High fertility

6,000,000
5,800,000

5,819,641

5,600,000

Population

5,400,000
5,200,000

5,249,149

5,000,000
4,891,432

4,800,000
4,600,000

2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
2050
2051
2052
2053
2054
2055
2056
2057
2058
2059
2060

4,400,000

Source: Author’s calculations.

Assuming the ‘medium’ life expectancy scenario
to be the most realistic, we narrowed the datafrom the 36 scenarios to 12 (highlighted in grey
and yellow, respectively).
Excluding the ‘zero’ and ‘high’ migrations,outlier scenarios gave six more plausible scenarios(highlighted in yellow). SNZ recently released its
own projections for net migration and deemed‘zero’ migration extremely unrealistic.41 These
outlier scenarios are assumed to be below a 25%
weighting in SNZ’s probability distribution for
population size in 2060.
Population grows and then declines under ‘low’
and ‘medium’ fertility (see Figure 5). Under all
scenarios, births exceed deaths initially. But
fertility rates below the replacement rate of 2.1
in conjunction with ‘zero’ migration eventually
see deaths exceeding births. As time passes,
the proportion of women who give birth falls –lowering population growth to 2060.

20

THE NEED TO BUILD

Six most plausible scenarios
The variations between median age and total
population by 2060 are vast even for the six mostplausible scenarios (see Table 4). The projected
population ranges from 5.55 million to 7.26
million, while the median age is between 41.0
and 48.5 years.
If New Zealand’s fertility rate drops to 1.5,
the median age by 2060 would be considerably
higher at 48.5 years at ‘low’ migration of 14,000,
and 47.4 years at ‘medium’ migration of 28,000(see Table 4, Figures 6 and 7). ‘Low’ and‘medium’ migration would still steadily raise
the median age by 2060.
Conversely, a ‘high’ fertility rate of 2.1 – thereplacement rate – would see less ageing, with a
median age between 41.0 years and 41.7 years in
2060, regardless of ‘low’ or ‘medium’ migration.
Fertility has a far more significant impact on the
median age than migration does. Population willgrow and age in the coming decades, but theextent is unknown.

Figure 6: Median age under medium life expectancy and low migration (2019–2060)
Medium fertility

High fertility

48.46
45.92

41.67

2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
2050
2051
2052
2053
2054
2055
2056
2057
2058
2059
2060

Median age

Low fertility
50
49
48
47
46
45
44
43
42
41
40
39
38
37
36

Source: Author’s calculations.

Figure 7: Median age under medium life expectancy and medium migration (2019–2060)
Low fertility

Medium fertility

High fertility

48
47.40

Median age

46

45.02

44
42

41.01

40

36

2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
2050
2051
2052
2053
2054
2055
2056
2057
2058
2059
2060

38

Source: Author’s calculations.

THE NEW ZEALAND INITIATIVE

21

CHAPTER 3

Housing demand based on
demographic projections
The first half of this chapter uses Spectrum’s
demographic projections to estimate 36 scenarios
for dwelling numbers and the average household
size for both 2038 and 2060 for New Zealand.
Average household size falls as the medianage increases, as suggested by the regression
approach explained in the “Spectrum Household
Projection’s Technicalities” section in Chapter 1.
Housing demand may increase faster or slower
than population growth when demographic
composition changes materially. Changes inhousehold composition affect housing demand.
For example, Germany’s population has beenstable at close to 82 million since 1991, but the
number of households rose from 35 million in1990 to 42 million in 2020.42 The potential for
similar trends in New Zealand is explored inthis chapter. These projections are net additions
for the housing stock. ‘Net’ shows there will

always be replacement needs as houses do notlast forever.

Total private dwellings and household size
projections for 2038
For 2038, the projected population ranged
between 5.2 million for the oldest median ageof 44.1 years (‘low’ fertility, ‘zero’ migration,and ‘high’ life expectancy) and 6.3 million
for the youngest median age of 39.6 years(‘high’ fertility, ‘high’ migration, and ‘low’ life
expectancy) (see Table 5). In contrast to 2060,
New Zealand’s population grew under every
scenario, even with net zero migration.
Table 6 shows the projected household size in
New Zealand in 2038 for each of Spectrum’s 36
scenarios. The figures were derived by applying

Table 5: Median age and population size under 36 scenarios (2038)
Low life expectancy

Medium life expectancy

High life expectancy

Assumptions

Low
fertility

MediumfertilityHigh
fertility

Low
fertility

MediumfertilityHigh
fertility

Low
fertility

MediumfertilityHigh
fertility

Zeromigration

43.7

42.7

41.1

43.9

42.9

41.3

44.1

43.1

41.5

5,181,390

5,325,484

5,541,746

5,212,105

43.3

42.2

40.7

43.4

42.4

40.9

5,478,201

5,627,715

5,852,108

42.9

41.9

40.4

5,899,126

6,131,507

41.4

40

0

5,150,516

Low
migration(14,000)

43.1

42.1

40.5

5,415,769 5,565,080 5,789,168 5,447,067 5,596,483 5,820,729

Mediummigration

42.5(28,000)

5,681,013

Highmigration

42(42,000)

5,944,312

Source: Author’s calculations.

22

5,294,509 5,510,618

THE NEED TO BUILD

41.5

40.1

5,835,641 6,067,704
41.1

39.6

42.7
5,712,733
42.2

6,103,953 6,343,536 5,976,461

41.7

40.2

5,867,471 6,099,699 5,744,287
41.2
6,136,216

39.8

42.3

5,356,293 5,572,695

6,375,969 6,008,439 6,168,300 6,408,211

Spectrum’s 2038 median age projection to thefitted regression line based on Figure 3. The
projected household size ranges from 2.41 forthe youngest median age projection to 2.24
for the oldest. This is broadly similar to SNZ’s
medium projection for an average household sizeof 2.4 by 2038.43 SNZ’s “Housing in Aotearoa”
report says the recent ‘crowding’ in major cities
due to unaffordable housing reflects the bigger
household size of 2.6 in 2018. Approximately 1
in 9 (10.8%) people are living in overcrowded
households in New Zealand.44

Table 6: Projected average household size under 36 scenarios (2038)
Low life expectancy

Medium life expectancy

High life expectancy

Assumptions

Low
Medium High
fertility fertility fertility

Low
Medium High
fertility fertility fertility

Low
Medium High
fertility fertility fertility

Zero migration

2.25

2.28

2.34

2.25

2.27

2.33

2.24

2.27

2.32

Low migration

2.27

2.30

2.36

2.26

2.30

2.26

2.26

2.29

2.35

Medium migration

2.29

2.32

2.38

2.28

2.31

2.38

2.27

2.31

2.37

High migration

2.30

2.34

2.41

2.3

2.33

2.4

2.29

2.33

2.39

Source: Author’s calculations.

Table 7: Projected needed private dwellings in 2038 and the implied increase from 2019
Low life expectancy
Assumptions

Medium life expectancy

Low fertility

Med fertility High fertility Low fertility

Med fertility High fertility

Total dwellings

2,290,065

2,323,858

2,358,524

2,309,131

2,343,922

2,380,027

Increase

378,665

412,458

447,124

397,731432,522468,627

Total dwellings

2,390,043

2,421,182

2,451,100

2,410,079

2,438,556

2,473,558

Increase

478,643

509,782539,700

498,679

527,156

562,158

Mediummigration

Total dwellings

2,486,402

2,514,684

2,549,579

2,507,424

2,536,702

2,567,972

Increase

575,002603,284

638,179

596,024625,302656,572High
migration

Total dwellings

2,582,183

2,612,470

2,639,142

2,604,124

2,630,830

2,663,343

Increase

670,783

701,070

727,742

692,724

719,430

751,943

Zero
migrationLow
migration

High life expectancy
Assumptions

Low fertility

Med fertility High fertility

Zeromigration

Total dwellings

2,327,986

2,363,796

2,401,376

Increase

416,586

452,396

489,976Low
migration

Total dwellings

2,426,909

2,459,486

2,495,871

Increase

515,509548,086

584,471

Mediummigration

Total dwellings

2,528,251

2,558,546

2,591,192

Increase

616,851

647,146

679,792High
migration

Total dwellings

2,621,991

2,653,597

2,687,415

Increase

710,591

742,197

776,015

Source: Author’s calculations.

THE NEW ZEALAND INITIATIVE

23

Table 8: Projected annual increase in private dwellings (2019–2038)
Low life expectancy

Medium life expectancy

High life expectancy

Assumptions

Low
fertility

MediumfertilityHigh
fertility

Low
fertility

MediumfertilityHigh
fertility

Low
fertility

MediumfertilityHigh
fertility

Zero migration

19,93021,70823,53320,93322,764

24,66521,926

23,81025,788Low migration

25,192

26,831

28,40526,246

27,74529,587

27,132

28,84730,762

Med migration

30,26331,75233,58831,37032,911

34,55632,466

34,06035,779High migration

35,30436,89838,30236,45937,86539,57637,40039,06340,843

Source: Author’s calculations.

In Table 7, the projected total number ofprivate dwellings in 2038 ranged from 2.29
million to 2.69 million (highlighted in blueand brown, respectively). The top row in Table 7(Total dwellings) shows the overall number ofprivate dwellings based on each scenario; thebottom row (Increase) shows the implied increasein the number of private dwellings (1,911,400) from
SNZ’s number of dwellings in December 2019.
The increase ranged between 378,665 and 776,015(highlighted in blue and brown in Table 7). Table
11 presents the corresponding projections for 2060.
Even if net migration were zero to 2038, theprojected increase in private dwellings ranged
from 378,665 households to 489,976 across nine
scenarios (see Table 7). That is still between
19,930 and 25,788 net dwellings annually from2018 to 2038 (see Table 8). For example, theprojected increase of 378,665 dwellings is for‘zero’ migration, ‘low’ fertility, and ‘low’ life
expectancy. Despite only having a population
growth of 183,936, cutting migration to zero
does little to stop new housing demand.
For the six most plausible scenarios, the increase
ranges from 498,679 for ‘low’ migration and ‘low’
fertility, to 656,572 for ‘medium’ migration and‘high’ fertility from 2018 to 2038. Between 26,246
and 34,556 net dwellings would be needed
annually to accommodate moderate migration,
life expectancy and fertility (see Table 8).45
Even the ‘low’ migration scenario would needmore than the 21,445 average annual dwellingof increase since 1992 (see Figure 11).
24

THE NEED TO BUILDRESULT 2: By 2038, New Zealand would
need between 26,246 (‘low’ migrationand ‘low’ fertility) and 34,556 (‘medium’
migration and ‘high’ fertility) dwellings
annually, excluding housing
replacement rate and the ongoingshortfall.

Total private dwelling projections basedon just population growth by 2038
We used New Zealand’s average household sizeof 2.6 in 2019 and Spectrum’s population growth
figures (excluding all other variables) to estimate
the number of dwellings needed by 2038.46 Acrossall scenarios, the range was between 3,726 and29,201 dwellings. The average annual net addition
to the housing stock for the six most plausible
scenarios was between 9,732 (‘low’ migration and‘low’ fertility) and 22,952 (‘medium’ migrationand ‘high’ fertility), respectively (see Table 9).
These increases are much small than the
projected needed increases of 26,246 and 34,556
net dwellings taking household size into account(see Table 8).
Using population growth alone to project private
dwellings to 2038 would underestimate theneeded increases by 16,514 dwellings annuallyfor the lower scenario and 11,605 for the higher
scenario (annual shortfall percentage of 63%
and 34%, respectively).

Table 9: Projected annual increase in private dwellings (2019–2038) (HH size = 2.6)
Low life expectancy

Medium life expectancy

High life expectancy

Assumptions

Low
fertility

MediumfertilityHigh
fertility

Low
fertility

MediumfertilityHigh
fertility

Low
fertility

MediumfertilityHigh
fertility

Zero migration

3,726

6,642

11,020

4,351

7,270

11,650

4,973

7,894

12,277

Low migration

9,098

12,123

16,662

9,732

12,75917,301

10,363

13,392

17,937

Medium migration

14,471

17,60322,304

15,114

18,24822,952

15,753

18,88923,596

High migration

19,80423,03827,891

20,456

23,691

28,548

21,10324,341

29,201

Source: Author’s calculations.

Total private dwellings and household size
projections for 2060
RESULT 3: By 2060, New Zealandwould need between 15,319 (‘low’
migration and ‘low’ fertility) and 29,052(‘medium’ migration and ‘high’ fertility)
dwellings annually, excluding housing
replacement rate and ongoing shortfall.

For the 36 Spectrum scenarios, the projectedhousehold size in 2060 was between 2.19 and 2.39
(see Table 10). That is a greater range of average,
albeit smaller, household sizes than in 2038.
Lower fertility reduces household size.
The range is narrower for the six most plausible
scenarios: 2.19 to 2.34. This is closer to the low
household sizes (1.9 and 2.4) in OECD countries
such as Sweden, Denmark, Germany, theUnited Kingdom, and South Korea.
For the six most plausible scenarios, the projected
increase in private dwellings between 2019and 2060 ranged from 628,095 to 1,191,140(see Table 11). The annual increase in thestock of dwellings47 ranged from 15,319 for‘low’ migration and ‘low’ fertility, and 29,052
households for ‘medium’ migration and ‘high’fertility (see Table 12).48 The large discrepancy
highlights the significance of fertility on
population and household size projections.
Considering the historic 21,445 net annual
increase in the dwelling stock, the existing
40,000 shortfall49 entails an additional two
full years of building and construction.
RESULT 4: Cutting migration even to zero
does little to stop new housing demand.

Table 11 also shows the need for 275,206 to
715,372 dwellings to 2060 even with ‘zero’
migration. The projected increase of 715,372
dwellings was for the ‘zero’ migration, ‘high’fertility, and ‘high’ life expectancy scenario,
which would still require building 17,448
net dwellings annually by 2060.

Table 10: Projected average household size under 36 scenarios (2060)
Low life expectancy

Medium life expectancy

High life expectancy

Assumptions

Low
fertility

MediumfertilityHigh
fertility

Low
fertility

MediumfertilityHigh
fertility

Low
fertility

MediumfertilityHigh
fertility

Zero migration

2.19

2.20

2.31

2.19

2.19

2.28

2.19

2.19

2.26

Low migration

2.19

2.22

2.35

2.19

2.21

2.31

2.19

2.20

2.29

Medium migration

2.20

2.24

2.37

2.19

2.22

2.34

2.19

2.21

2.31

High migration

2.20

2.25

2.39

2.20

2.24

2.36

2.19

2.22

2.33

Source: Author’s calculations.

THE NEW ZEALAND INITIATIVE

25

Table 11: Estimated number of private dwellings needed in 2060 and the implied increase from 2019
Low life expectancy
Assumptions
Zero migration
Low migration
Mediummigration
High migration

Medium life expectancy

Low fertility

Med fertility High fertility Low fertility

Med fertility High fertility

Total Dwellings

2,186,606

2,335,477

2,465,930

2,235,041

2,396,517

2,550,736

Increase

275,206

424,077554,530

323,641

485,117639,336

Total HH

2,482,432

2,622,755

2,737,666

2,539,495

2,691,076

2,827,762

Increase

571,032

711,355

826,266

628,095

779,676

916,362

Total HH

2,770,343

2,903,281

3,009,263

2,834,907

2,979,647

3,102,540

Increase

858,943991,8811,097,863

923,507

1,068,247

1,191,140

Total HH

3,050,846

3,179,869

3,280,061

3,120,815

3,260,144

3,380,743

Increase

1,139,446

1,268,469

1,368,661

1,209,415

1,348,744

1,469,343

High life expectancy
Assumptions
Zero migration
Low migration
Mediummigration
High migration

Low fertility

Med fertility High fertility

Total Dwellings

2,288,472

2,451,352

2,626,772

Increase

377,072

539,952

715,372

Total HH

2,589,903

2,753,658

2,908,601

Increase

678,503842,258

997,201

Total HH

2,892,464

3,047,701

3,191,190

Increase

981,064

1,136,301

1,279,790

Total HH

3,184,589

3,334,736

3,470,507

Increase

1,273,189

1,423,336

1,559,107

Source: Author’s calculations

Table 12: Projected annual increase in private dwellings (2019–2060)
Low life expectancy

Medium life expectancy

High life expectancy

Assumptions

Low
fertility

MediumfertilityHigh
fertility

Low
fertility

MediumfertilityHigh
fertility

Low
fertility

MediumfertilityHigh
fertility

Zero migration

6,712

10,343

13,525

7,894

11,832

15,594

9,197

13,17017,448Low migration

13,92817,35020,153

15,31919,01622,350

16,54920,54324,322Medium migration

20,95024,192

26,77722,52526,05529,052

23,92827,71531,214High migration

27,79130,93833,38229,49832,89635,83831,05334,71638,027

Source: Author’s calculations.

Total dwelling projections based onjust population growth for 2060
We estimated the annual average number ofdwellings needed based on just population
growth if New Zealand’s average household
size stayed 2.6 from 2019.50 Across all scenarios,

26

THE NEED TO BUILD

the annual range was between -1,774 and29,363 dwellings. Note the significance of the‘low’ fertility, ‘zero’ migration, and ‘low’ life
expectancy figure of -1,774. We need to be
demolishing 1,774 dwellings annually if housing
demand were calculated based on just population
growth, which is not the case.

fertility) and 21,543 (‘medium’ migration and‘high’ fertility), respectively (see Table 13).

The projected average annual net addition to the
housing stock for the six most plausible scenarios
ranged between 5,452 (‘low’ migration and ‘low’

Table 13: Projected annual increase in private dwellings (2019–2060) (HH size = 2.6)
Low life expectancy

Medium life expectancy

High life expectancy

Assumptions

Low
fertility

MediumfertilityHigh
fertility

Low
fertility

MediumfertilityHigh
fertility

Low
fertility

MediumfertilityHigh
fertility

Zero migration-1,774

1,576

6,920

-705

2,652

8,007

308

3,672

9,037

Low migration

4,329

7,921

13,634

5,452

9,051

14,776

6,511

10,11615,852Medium migration

10,433

14,265

20,347

11,60815,44821,543

12,713

16,56022,666

High migration

16,452

20,511

26,942

17,681

21,74928,193

18,832

22,90729,363

Source: Author’s calculations.

For these six scenarios, using only population
growth to project annual additional dwellings
to 2060 produced underestimations of 9,867
dwellings (15,319 to 5,452) for the lowest dwellingscenario, and 7,509 dwellings (29,052 to 21,543)
for the highest (annual shortfall percentage of
64% and 26%, respectively).

Housing shortfall under SNZ’s Living
Arrangement B scenarios
The previous section considered the six plausible
scenarios and other less plausible projections
from Spectrum to estimate the total private
dwellings needed, average household sizes, andadditional dwellings necessary to accommodate
household changes to 2038 and 2060.
This section compares Spectrum’s householdprojections with SNZ’s Living Arrangement
B scenarios (Low B, Medium B, and HighB). It also supplements Spectrum’s householdprojections and uses SNZ’s household projections
from 2013 to 2038. We again test whether
estimating total household numbers based onjust population growth underestimates thenumber dwellings needed.51
Projections to 2038
SNZ projects household numbers to increasemuch faster than population growth to 2038

Figure 8: Gap analysis for B scenario between projected household numbers (2019 and 2038)

Scenarios

High fertility, low mortality
and high migration

35,989Medium fertility,
medium mortality andmedium migration

76,824

Low fertility, high mortality
and low migration

115,458
0

20,00040,00060,00080,000100,000

120,000

140,000

Shortfall of households

Source: Statistics New Zealand: Population and household projections.
Note: The gap shows the degree to which projected households increase faster than population growth.

THE NEW ZEALAND INITIATIVE

27

under the Living arrangement B scenarios(see Appendix 2). The degree to which they doso depends on each scenario. The gap increases
with lower migration, lower fertility, and higher
mortality (see Figure 8). The underestimatedhousehold supply gap to 2038 ranged from 35,989
to 76,824 to 115,458 depending on the scenario.
As a percentage of projected population ineach scenario, the gap was 1.6%, 3.5% and 5.6%,
respectively. The average household size projected
for 2038 was 2.52 for the ‘low’ scenario, 2.57 for‘medium’, and 2.62 for ‘high’.52
Projections to 2060
The difference in the gap between 2019 and 2060
for the ‘low’, ‘medium’ and ‘high’ B scenarios
ranged from 42,068 to 202,575 to 292,136,
respectively (see Figure 9). As a percentage
of projected population in each scenario,
the corresponding gap was 1.4%, 7.8% and12.5%, respectively. With higher fertility, lower
mortality, and higher migration, the shortfall
is far smaller because household size is larger
and median age is lower compared to otheralternatives. The shortfall is relative to native
population. Meanwhile, having lower fertility
and lower migration has significant repercussions
for additional housing demand despite having
a lower population than in the ‘medium’ and‘high’ scenarios. A younger population implies
a smaller shortfall, while an older population

implies underestimating housing by a far larger
scale. The average household size projected for2060 was 2.36 for the ‘low’ scenario, 2.47 for‘medium’, and 2.63 for ‘high’.53

Overall housing indicators
For the six most plausible demographic scenariosin Spectrum (highlighted in yellow), 26,246(‘low’ migration and ‘low’ fertility) to 34,556(‘medium’ migration and ‘high’ fertility)
additional dwellings would be needed annually
to 2038. From 2019 to 2060, New Zealand would
need between 15,319 (‘low’ migration and ‘low’
fertility) and 29,052 (‘medium’ migration and‘high’ fertility) dwellings annually.54 The reason
for the variation between 2038 and 2060 is
explained on p. 20.
For SNZ figures based on the Living
Arrangement B scenarios, Figure 10 shows
two sets of data for the average annual increasein the number of households from 2019 to 2060.
The annual changes for households based onjust population growth is from 12,061 to 18,051
to 25,856 per annum. SNZ’s actual annual
projections were 19,186, 22,992 and 26,882
for ‘low’, ‘medium’ and ‘high’ B scenarios,
respectively. In contrast, the average increasein the number of dwellings was 21,445 annually

Figure 9: Gap analysis for B scenario between projected household numbers (2019 and 2060)

Scenarios

High fertility, low mortality
and high migration

42,068

Medium fertility,
medium mortality andmedium migration

202,575

Low fertility, high mortality
and low migration

292,1360

50,000100,000

150,000

200,000

250,000

300,000

350,000

Shortfall of households

Source: Statistics New Zealand: Population and household projections.
Note: Gap analysis was used to extrapolate 2060 data. The three gaps show the degree to which projected number of households
increases faster than population growth.

28

THE NEED TO BUILD

since 1992 (see Figure 11).55 The number ofhomes currently being built cannot adequately
accommodate projected population growth.
Under SNZ’s projections, the annual household
population gap was 7,125 households for ‘low’,
4,941 for ‘medium’, and 1,026 for ‘high’. The
older the demography, the higher is the range.
SNZ’s projections for both 2038 and 2060 showthat with higher fertility, lower mortality, andhigher migration (High B), the shortfall ofhouseholds compared with housing stock tied topopulation growth will be substantially less thanin the ‘low’ fertility, ‘high’ mortality, and ‘low’
migration scenario (Low B).
These projections show why estimatinghousehold increases using only projected
population growth will underestimate housing
demand. There is a popular perception that
cutting migration will alleviate demand for

housing, but the results here also show otherwise.
Assuming that stopping migration will solve thehousing crisis has no empirical basis. Fortunately,
local councils are using SNZ’s householdprojections to estimate housing demand.56
Even so, the potential gap is more material than
the above calculations indicate. This is because
they implicitly assume the number of houses iscurrently desirable for the size of the population.
That ‘desirable’ assumption is doubtful.
The current high median house prices relative
to incomes mean that crowded households exist
relative to the required households. If public
policies succeed in lowering prices by freeing
up the supply of housing, we should expect
fewer overcrowded households. This is anotherreason for planners to plan for housing stock togrow faster than population, particularly in areas
with higher price pressures.

Figure 10: Average annual increase in households (2019–2060)
Changes based only on population growth rate

35,000

Annual increase in households

7,125*

4,941*SNZ Living Scenario B
1,026*

30,00025,85625,00026,882

22,992
19,18620,00018,051

15,00012,061
10,0005,000
0LowMediumHigh

Different projections for Living Scenario B

Source: Statistics New Zealand and author’s gap analysis calculations.
Note: *Shortage: These numbers show the undersupply shortfall of housing.

THE NEW ZEALAND INITIATIVE

29

Figure 11: Annual increase in the stock of private dwellings (1992–2020)
35,00033,20029,30030,000

Annual increases

25,000Period average
21,44520,00015,00011,90010,00030

THE NEED TO BUILD

2019

2020

2017

2018

2015

2016

2014

2013

2012

2011

2010

2009

2008

2007

2005

2006

2003

2004

2001

Source: Statistics New Zealand (years ended June).

2002

1999

2000

1998

1997

1996

1995

1994

1993

0

1992

5,000

CHAPTER 4

Qualitative research and analysis
Academic literature on the interlinks between
housing and demography finds that housing
construction does not respond immediately
to an unanticipated increase or changes in
population. The inelasticity of supply as shownin the studies tends to be the main factor
for rising house prices.
Multiple studies have covered the economic
consequences of demographic change in the
housing market. Harvard’s Greg Mankiw
and David N. Weil showed how baby boomers
reaching adulthood and their higher fertility
rates increased housing demand and inflated
real house prices beginning in the 1970s in the
United States.57 From the 1970s to 1980s, US
house prices rose between 18% and 32% becauseof demographic ageing with inelastic supply.58
New Zealand’s points-based immigration system
attracts high-skill migrant workers, especiallythose looking for a job or just starting one.
William Cochrane and Jacques Poot foundthat migrants trigger the demand for housing,and that demand can only be met immediatelyby ‘crowding in’, having a vacant dwelling
available, or constructing new housing.59 Andrew
Coleman and John Landon-Lane’s report for the
RBNZ showed that an inward net migration
flow equivalent to 1% of the total population
corresponded to an 8–12% increase in house
prices after one year from 1962 to 2006.60
Poot’s work considered the migration effects ofreturning citizens as well, taking into account
New Zealand’s Trans-Tasman bubble. Therefore,
higher net migration increases house prices inthe short term, especially when housing supply
is unduly inelastic.

‘Empty nests’ and ‘crowded houses’
Apart from migration, changes to fertility in
our population and demography can affect how
much housing supply is needed as householdcomposition shifts. Ageing has created bothhousing and fiscal challenges for policymakers.
Even without migration, as shown in theSpectrum and SNZ datasets, ageing itself
increases housing demand and ‘empty nests’
become more prevalent.61 Natural demographic
increases and migration into New Zealandincrease the demand for houses.
At the end of World War II, the average household
size in New Zealand was 4.42 and the median age
was 29.4 years.62 The spike in fertility rates during
the baby boomer era reduced the median age to28.2 years by 1981. In 2018, the median age hadrisen to 37.2 years while the average household size
dropped to 2.6. SNZ indicates that the average
household size may drop further to 2.4 by 2038
under their median projections.63 As a result of
population changes, property development has
already diversified its new housing stock withmulti-units comprising “40% of all new dwellings
consented since 2019,” including units built as partof retirement complexes.64
Like in other OECD countries (see Figures 3
and 4), the Anglosphere nations of Australia,
Canada, New Zealand, the United Kingdom
and the United States also show decreasing
average household size and increasing medianage (see Figure 12). With rising living standards
and increasing life expectancy, more households
comprise one to two people rather than large
families with two or more children. Of course,
this is also possible because of the income effects
of decreasing household sizes.

THE NEW ZEALAND INITIATIVE

31

Figure 12: Average household size vs median age (Anglosphere nations)
Australia

CanadaUnited Kingdom

United States

Linear (New Zealand)

New Zealand

3.40
New Zealand (1981)

3.20

Average household size

New Zealand (1986)
3.00

New Zealand (1998)

New Zealand (1991)

New Zealand (2001)

2.80
New Zealand (2013)
2.60
New Zealand (2006)
New Zealand (2018)

2.40

2.20
27

28

29

30

31

32

33

34

35

36

37

38

39

40

41

42

43

44

45

Median age

Source: Statistics New Zealand, The World Bank, Eurostats, and the OECD.

Richer societies tend to demand larger andnewer dwellings (see p. 16 on income effects).
The decline in fertility rates indicates a higher
ratio of older Kiwis with adult children in
the long term. Many couples tend to stayin their large nests without downsizing tosmaller dwellings. Simultaneously, cities suchas Auckland and Wellington are becoming
overcrowded and unaffordable (and showing
increasing homelessness).

32

THE NEED TO BUILD

Aggregate housing demand goes up withfewer people in a household (see Figure 12).
Countries need more housing as their population
ages, not just because of net migration.
New Zealand therefore must build more houses
if affordability is a priority. Figure 13 illustrates
these developments in the past few decades
in New Zealand.

Box 2: Ageing population and migration require building more houses
Like in most developed countries, New Zealandmust build more houses to accommodate both
population growth and ageing population –and also to curb rapid housing inflation.
• Our population is growing because of
net migration.
• Our population is ageing.
• Our fertility rate is slowing.
Imagine a nuclear family in New Zealand in 1970
with mum (42), dad (45) and three kids (15, 12 and10). This family lives in one house. The average age
is 24.8, the average household size is 5, and thefertility rate is 3.
In 2000, it’s just mum and dad in the family
home. Each of the kids has moved into their own
home; two have a partner; one has two kids while
the other has three.

There are now four homes. The averageage is 34.75, the average household size is 3,
and the fertility rate is 2. In this example, there
is population growth and demographic change(ageing population and decreasing fertility rate)
despite no migration into or out of New Zealand.
The average household size decreased,
which increased the demand for housing from
one to four.
This example highlights one of the manyreasons New Zealand must build more houses.
Aggregating this hypothetical microeconomic
example to a macroeconomic level illustrates
how demographic changes significantly affectthe overall housing demand. To date, New Zealandis not building enough houses to accommodate
either its ageing population or net migration,
let alone both.

Figure 13: From one home to four homes
1970s New Zealand
Average age: 24.8
Average fertility: 3
House size:
House:

45 42
15
10

12

2000s New Zealand
Average age: 34.75
Average fertility: 2
House size:
House:

75 72

45 46

42
12

40 38
15

10

10

12

THE NEW ZEALAND INITIATIVE

33

Changing housing composition
Demographic composition plays a significant
role in household formation, including thetotal number of people in a house and therelationships with each another (couples,
flatmates, single parents, extended families, etc.).
The average size of households with children,notably families with three or more children,
has sharply declined (see Table 14).
Table 15 shows the total number of households isincreasing, and more households are now single
person or one-family. Households with 1 or 2
people increased from 37.3% in 1966 to 53.9%
in 2018. Between 1966 and 1991, the number ofhouseholds with more than 5 people declined
sharply from 28% to 13%.65 New Zealand still
has the traditional housing model of the Kiwi
Dream: Individuals initially live with theirparents, move out and rent, purchase a first
home, and finally upgrade to larger dwellings
based on employment and wealth.

There has been a steady decrease in householdcomposition and sizes. In 1966, 62.7% ofhouseholds consisted of 3 or more people; in
2018, it was 46.1%. More people are having
fewer children, while more individuals are living
alone in 1 or 2 people households. Although
not conclusive, trends show a shift away fromthe nuclear family towards alternative social
arrangements and circumstances.
There have also been ‘crowding in’ effects
because of unaffordability, especially among
low socioeconomic families in Auckland.
Multi-family households have more than doubled
from 1.5% to 3.4% from 1986 to 2013. This
indicates an overcrowding of families caused by
the unaffordable housing market.66 According
to the 2018 Census, 10.8% of households areliving in a crowded house.67

Table 14: Distribution of households by type (1986–2018)
1986

1991

1996

2001

2006

2013

2018

Single

18.5%

20.2%

20.2%

22.9%

22.6%

23.5%

21.9%

1 Family

73.3%

72.2%

69.6%

67.6%

67.8%

68.3%

65.9%

2–3 Families / 2 or morefamilies

1.5%

1.7%

2.7%

2.1%

2.7%

3.3%

3.4%

Unrelated people / Other
multi-person households

5.9%

5.9%

5.2%

5.2%

5.0%

4.8%

4.9%

1,078,005

1,166,568

1,268,094

1,344,267

1,454,175

1,549,890

1,653,792

Total

Source: Andrew Coleman and Grant M. Scobie, “A Simple Model of Housing Rental and Ownership with Policy
Simulations,” Working Paper 09/05 (Wellington: New Zealand Treasury, 2009), 33; Statistics New Zealand, “Householdcomposition, for households in occupied private dwellings, 2001, 2006, and 2013 Censuses (RC, TA, AU),” Website; Statistics
New Zealand, “Families and households in the 2018 Census: Data sources, family coding, and data quality” (Wellington:
New Zealand Government, 2020), 23.

34

THE NEED TO BUILD

Table 15: Distribution of households by number of occupiers (1966–2018)
1 person

2 people1 or 2 people

3–4 people

5+ people

1966

12.5%

24.8%

37.3%

34.9%

27.8%

1971

14.1%

26.4%

40.5%

34.2%

25.3%

1976

15.6%

27.9%

43.5%

34.6%

21.9%

1981

18.4%

29.2%

47.7%

34.5%

17.8%

1986

19.4%

30.5%

50.0%

34.8%

15.2%

1991

20.2%

32.7%

52.9%

33.9%

13.2%

1996

20.8%

33.1%

54.0%

32.9%

13.1%

2001

22.9%

33.7%

56.6%

31.5%

12.0%

2006

22.6%

34.0%

56.6%

31.8%

11.6%

2013

22.9%

34.0%

57.0%

31.6%

11.4%

2018

21.9%

32.0%

53.9%

30.9%

15.2%

Source: Andrew Coleman and Grant M. Scobie, “A Simple Model of Housing Rental and Ownership with Policy
Simulations,” Working Paper 09/05 (Wellington: New Zealand Treasury, 2009), 33; Statistics New Zealand, “Number of usual
residents in household, for households in occupied private dwellings, 2001, 2006, and 2013 Censuses (RC, TA, AU),” Website.

Figure 14: Population by projected living arrangement type (2013–2038)

Living arrangement type

2013

2038

Partner in couple-withoutchildren-family
Partner/parent in
two-parent familyChild in two-parent family
Parent in one-parent familyChild in one-parent family
Person in one-person household
Other living arrangement types
0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

Millions

Source: Statistics New Zealand, “National family and household projections: 2013(base)–2038 update,” Website.

SNZ has also projected housing composition to2038. The 2013 Census showed the most significant
increase to the total number of couples withoutchildren (see Figure 16) – from 1,184,800 in 2018
to 1,514,300 in 2038 (27.8% increase). This not only
includes young couples without children, but also
couples with adult children who have ‘left thenest’. Another increase is in the number of partner/
parent in two-parent family from 1,079,900 in 2018
to 1,288,600 by 2038 (19.3% increase). The numberof 1-person households also increased from 438,600
to 599,400 (36.7% increase). Our ageing population
has helped increase couple-only and 1-personhouseholds or empty nests.
Young married couples and partners havedifferent needs compared with retired couples.
For younger couples or single people, cities
generally offer better work and lifestyleopportunities. Meanwhile, living in quieter

THE NEW ZEALAND INITIATIVE

35

suburban homes might suit older people.
An elastic housing market could cater to all thesedemographic shifts.
Global decline in fertility rates
Fertility rates have been rapidly declining acrossthe developed world, accelerating population
ageing. According to the OECD, the average
total fertility rate of member countries was 1.66 in
2019, well below the replacement figure of 2.1.68
Globally, fertility rates are going down due tochanging social norms and better health outcomes.
With improvements in quality of life, there is lessneed for parents to have multiple children.

Many countries have tried various policies
to increase fertility rates to improve population
growth.69 Policies range from the baby bonus
in Australia to cash subsidies for parents inSouth Korea, Germany, Japan and Singapore.
Although some OECD studies show family
packages improving fertility rates, the RAND
Corporation finds that government policies
specifically targeting low fertility rates canslow the declining rate, but not reverse them.70
Our projections show that faster ageing could
occur if New Zealand’s fertility rate drops to
1.5, which can be seen in Western Europeanand some East Asian countries.
Housing affordability and declining
fertility rates
Although migration affects median age
projections, changes to total fertility had themost significant impact on the slowing downor speeding up of population ageing across theSpectrum scenarios. Even with lower migration,
the difference between low and high fertility was
between 41.7 years and 48.5 years (see Table 3).

As mentioned before, faster population growthwith an inelastic housing supply means greater
housing and infrastructure demand in the
short run. But it also means a younger medianage. A younger population may mean a fastergrowing economy with more labour. A lower

36

THE NEED TO BUILD

median age may mean a lower dependency rate,
more tax revenue, and potentially fewer negative
consequences on the housing market in the
short run. David E. Bloom, David Canning andGünther Fink suggest economic growth slows
down with population ageing as labour force
participation drops and savings increase.71
With the current inadequate supply, an
unaffordable housing market is likely reducing
fertility rates. Tighter housing means lower fertility,
so getting into the bigger shortage scenarios may
put New Zealand into the lower fertility scenarios
close to 1.5 – seen in Germany and Japan. This
would not only self-limit the extent of housing but
also impose a substantial cost on families and/or
young couples who would have preferred having
children sooner or having more children.
The United Nations is exploring the reasonsfor low fertility across certain developed
nations in the European Union and East
Asia.72 The research so far suggests that
housing unaffordability is partly the cause –the housing squeeze hurts fertility rates.
For instance, in a case study in Denmark,fertility was found to be endogenous to the
housing market. Research from Cornell
University shows that short-run drops in house
prices increase the fertility rate of homeowners.73
Mimi Liu and Jeremy Clark from the Universityof Canterbury found that higher house prices
reduced fertility rates among renters and had
ambiguous effects on homeowners.74 W.A. Clark
correlated living with an unaffordable housing
market in metropolitan areas in the UnitedStates to the deferment of first childbirths by
three to four years.75 Li Pan and Jianguo Xufound strong correlations between urban fertility
rates and house prices in China. Fertility rate washigher in cities where housing was more spacious
and more affordable.76 These international studies
indicate that housing costs can sometimes
prevent couples from having as many children
as they may want to have.

CHAPTER 5

Housing policy and political realities
Political incentives
Successive governments have either denied
the housing problem or failed to deal with it
adequately. Previously, Labour attributed theexcess demand to speculators from China.77
In December 2020, Prime Minister Jacinda
Ardern said home-start grants for first-homebuyers was a potential solution.78 In 2016, thenPrime Minister John Key called excess demanda “housing challenge” and denied there wasa fundamental problem.79 National’s thenHousing Minister Nick Smith largely ignored
the problem, saying “someone has to buy thehouses and so of course they will be affordable
to somebody.”80 Both sides either refused toaccept responsibility or tinkered around theedges of an institutional problem.
Many political science studies suggest thatpoliticians tend to focus on doing what isnecessary to get re-elected – especially in
New Zealand’s short three-year election
cycle. According to Randall G. Holcombe,the ‘median voter theory’ legitimises electoralcompetition towards the centre of politics.81
Political incentives are one of the core reasonsfor the continuing housing crisis. Despite
homeownership being the lowest in 70 years,
65% of Kiwis own properties82 and do not want
prices to fall. Case in point is former AustralianPrime Minister Tony Abbott saying he wanted
to see house prices to increase in Sydney despite
the importance of housing affordability. “Assomeone who, along with the bank, owns ahouse in Sydney I do hope our housing prices
are increasing,” Abbott said in 2015.83

International housing policies
and examples
International cities and financial hubs such as
Hong Kong, Vancouver, Sydney, Melbourne,
Los Angeles, London, Auckland, Singapore andSeoul are now among the most unaffordable
cities for housing.84 Governments around theworld are focusing on curbing excessive demand
instead of scaling up supply.
• In 2013, Australia banned non-residents
from purchasing existing houses
and imposed restrictions on foreign
investment into property markets.85
The government also brought criminal
charges against those who persisted withillegal property investment.86 The housing
market in cities such as Sydney remain
extremely expensive.
• South Korea is suppressing housing
demand to deal with Seoul’s
unaffordability crisis and curbing
domestic and international speculation.
Using these “regulations-driven” policies,
the government has drastically increased
taxes on property owners and imposed a
20% acquisition tax on foreign investors.87
House prices in Seoul still rose by 56.6%
since 2016.88 In 2021, President Moon
Jae-in acknowledged the failure of policies
targeting housing demand: “We thoughtmeasures focused on curbing speculations
would lead to more supply but failed tostabilize the real estate market.”89• Canada is pushing demand-side
policies such as tax on foreign property
speculation, mortgage stress tests, andthe First-Time Home Buyer Incentive.90

THE NEW ZEALAND INITIATIVE

37

Like New Zealand with KiwiBuild,
Canada is pushing for building moresocial housing along with government
programmes to expand supply. Vancouver
and Toronto remain extremely expensive.91

Misunderstanding the supply problem
Despite Covid-19’s dampening effect on our
economy, house prices nationally increased by
19.8% from October 2019 to October 2020, andthe median price rose to $725,000. 92 The current
Labour-led government’s housing policy to datehas aimed at curbing demand through legislativereforms and blaming categories of buyers(KiwiBuild also misdiagnosed the problem).
Simultaneously, the policy stokes demand
via subsidies for first-home buyers. As thePrime Minister acknowledged last year, “We haveto address the supply side issues. We don’t haveenough houses in New Zealand and that is a
key part of our problem.”93
Former Housing Minister Phil Twyford did
introduce positive changes to housing and urban

development (see Box 3), but the government
has so far failed to deal with the housing crisis,
especially KiwiBuild. The ultimate solution is to
free up supply.
Despite what many New Zealanders think,speculation and excess demand are not the main
culprits of our housing crisis. Labour amended
the Overseas Investment Act in 2018 – which
mandates the registration of foreign-owned
land and housing – and banned foreign housing
investment into New Zealand (excluding
Australian and Singaporean). The amendment
also extended the bright-line test to five years,
and initially hoped to legislate a new capitalgains tax.94 In the first three months of 2017,
foreign investment, including Chinese andAustralian, accounted for only 3% of the houses
bought nationally.95 Economist Shamubeel
Eaqub says directing the blame at foreigners
and migrants on the housing crisis is factuallyand empirically wrong.96 979899100
Public housing projects such as KiwiBuilddisplace private supply rather than increase total
supply. One KiwiBuild house built and sold by

Box 3: National policy statement on urban development
Under then Housing Minister Phil Twyford,
some of Labour’s supply-based housing policies
led to positive changes in housing and urban
development, including the National Policy
Statement on Urban Development for 2020.97
The government’s fast track consenting for‘shovel ready’ projects resulted in:• removing minimum parking requirements;• allowing six storeys or higher in buildings
within walkable distance to city centres andmetropolitan areas;• ensuring councils respond quickly todevelopment needs;• making height and density requirements
reflect demand; and38

THE NEED TO BUILD• improving accessibility through better
public transport.
The Initiative’s Chief Economist Eric Crampton
and PwC Chief Economist Geoff Cooper both
welcomed these changes and noted theirsignificance for urban development.98
The government also passed the Infrastructure
Funding and Financing Act in July 2020.99 This is
like Texas’ Municipal Utility Districts, which allow
establishing Special Purpose Vehicles to enableprivate developers to raise debt for infrastructure
and are paid back in up to 50 years of levies on
those properties without adding to the liabilities
of local councils.100

the government without a subsidy is one lessbuyer on the market for houses built privately at
the same cost. KiwiBuild failed dramatically,101
with only 548 houses built in three years,
nowhere near the target of 100,000 in 10 years.102

Up-zoning brownfields for apartments,
townhouses and greater density is critical for
improving affordability. Motu’s Arthur Grimes
recommends expanding density zoning for moreapartments and other dwellings in Auckland.110

Interest groups too have not helped the case forurban development. For example, NIMBY-ism
in infrastructure and dwelling density,103 thecounterproductive nature of the urban planning
profession,104 and ‘cultural heritage’ activists105
have spurred anti-development sentiments.

Restrictions on density and restrictions onland supply have caused artificial land priceinflation – as they have in Auckland. Arthur
Grimes and Yun Liang found that land justinside the Metropolitan Urban Limit (MUL)
is valued around 10 times higher than thatoutside.111 The MUL is a legal restriction onland supply.112 From 1980 to 2010, Auckland has
doubled its regional population with 300,000
more residents but without extending the MUL.
Residential demand has gone up and left supply
far behind. This is the real reason the value ofland quadrupled in many suburbs between 1994
and 2011.113 Twyford concurred in a speech to
The New Zealand Initiative in 2019.

Flaws of restrictive zoning laws
Laws and regulations may aim to improve
market outcomes by correcting externalities.
Poor quality laws and regulations can worsen
outcomes by inhibiting construction flexibility.
This is the case in Los Angeles and New York.
The Brookings Institution’s Jenny Schuetz says
overly restrictive zoning laws inevitably slow
housing construction and development, anddrive up house prices and rent.106 Althoughzoning laws fulfil important social objectives,
excessive regulations typically worsen housing
affordability.107 It is a question of trade-offs forpolicymakers.
Joseph Gyourko from the University ofPennsylvania and Raven Molloy from the US
Federal Reserve studied market effects caused byexcessive regulation and concluded that zoning
laws “raise house prices, reduce construction,
reduce the elasticity of housing supply, and alterurban form.”108 New Zealand’s zoning laws too
have created an artificial scarcity of land andrestrictions for new housing construction. There
have been far too many restrictions on density– although the NPS on Urban Development,
the Auckland Unitary Plan, and the Wellington
Spatial Plan alleviate some of those constrictions.
Zoning against density prevents building andconstruction in places where people want to
live, and makes it expensive and exclusive.109

The unwillingness or inability to invest in theinfrastructure to support development stops
cities growing. When a city cannot grow in
response to demand, a pressure cooker effect iscreated, which is what has given Auckland someof the most expensive urban land and housing
in the world relative to local incomes.114

The Resource Management Act 1991 (RMA)
prevents local authorities from responding tohousing demand, imposes excessive consent
processes based on sustainable development,
and slows development significantly. The Act
exacerbates resource allocation problems as it
undermines private property rights. Council
consent costs have also increased substantially,
creating additional transactional, regulatory andcompliance costs for developers.115 Although the
RMA makes it hard to change plans, it does
not stop local councils from adopting a liberal
district plan, which Christchurch has done.116
Zoning rules preclude developers from building
for the kinds of housing consumers prefer. For

THE NEW ZEALAND INITIATIVE

39

instance, if an older couple want to downsize to a
low maintenance townhouse or apartment, or evenbuild a smaller flat within that particular section sothey can let their adult children raise their kids inthe larger dwelling, enough zoned areas are needed
to allow such construction. But zoning laws makeit basically illegal for such a couple to move intothat new dwelling or a different neighbourhood
if it is zoned against density. This results in worse
outcomes as the couple have fewer incentives tomove out of their five-bedroom empty nest.

of facilitating urban development to local
councils, which see little benefit in growth.
The misalignment of costs, benefits and decisionrights means that urban areas can have incentives
to restrict, rather than promote, growth inhousing to accommodate a changing population.
Restricting councils’ ability to block urban
growth is one potential solution. But measuresthat encourage councils to see growth as abenefit to be welcomed rather than a cost to
be contained may be more sustainable.

Local councils especially have a monopoly onbuilding approvals within zoned areas, making
it harder for developers to start construction
quickly. Burdened by infrastructure financing
costs, councils have little incentive to build.117
The reason is the main tax revenues such as GST
and income taxes go to the central government,
while councils bear all the costs. This makes little
institutional sense. What then Finance Minister
Bill English said in 2013 still holds true.

Germany and Switzerland have shown competentand effective local council responses.119 With
more Germans living longer and having fewer
children, and more single people moving tometropolitan areas, the average household size
has dropped below 2.1. Despite this, house prices
in Germany overall have remained largely stablefor decades.120 However, the recent low-interest
environment has pushed up asset prices andhouse prices as well. Similarly, in Switzerland
cantons and municipal devolutionary governancekeep local government competitive in a highly
autonomous and localised arrangement.121

Housing affordability is complex in thedetail – governments intervene in many
ways – but is conceptually simple. It costs toomuch and takes too long to build a house in
New Zealand. Land has been made artificiallyscarce by regulation that locks up land fordevelopment. This regulation has made land
supply unresponsive to demand.118

The past few governments from both the left andright have failed to address housing affordability.
Faster and more liberal building and resource
consenting processes should allow supply tocatch up. Government needs to offer more‘pro-development’ incentives to councils andstakeholders. Population ageing and demographic
changes make this even more important.

Localism
New Zealand’s centralised system of government
allocates local zoning decisions and costs

40

THE NEED TO BUILD

In Houston, councils respond to unaffordability
by scaling up supply, or risk losing residents andlocal tax revenue.122 Houston incentivises local
authorities to push for pro-development policies,
which lead to more housing near urban areas.
House prices in Houston remain consistently
affordable at a median multiple of around 3(compared to 7.0 in New Zealand) because
local government allows housing and urban
development to meet growing demand.123
These arrangements only work because
infrastructure financing tools match the
incentives for local authorities. Localisingdecision and veto rights without offeringcorresponding benefits of growth incites antidevelopment sentiments as locals bear the costs
without generating the revenue. That is why
Harvard’s Ed Glaeser argued for redirecting
zoning decisions from local councils to a higher

authority like state governments – or in the caseof New Zealand, central government – andbypass the NIMBYs.124
New Zealand could have Community
Development Districts like in the Municipal
Urban Districts in Texas for more efficient
infrastructure financing.125 Although the new
Infrastructure Funding and Financing Act
makes important changes, more could be done.
By making local governments more competitive,
more autonomous, and less monopolistic,
central government can motivate local councils
to scale up urban development and own new
tax revenues.

THE NEW ZEALAND INITIATIVE

41

CHAPTER 6

Demographic projections and seeing
beyond housing
Demographic changes not only affect overall
housing demand, but also cause long-term
problems for public finance and fiscal prudence.
In his paper, “Squeezed In and Squeezed Out”,
Andrew Coleman says increased longevity anddemographic ageing lead to negative financial
implications for home ownership, especiallyamong young people.126 A higher dependency
rate and fewer taxpayers increase the fiscalpressure on those who work. This increases
financial constraints on young people bylowering their disposable income after tax.127
Attaining higher productivity, continuing ourliberal migration system to fill skilled labour
shortages, and lifting per capita income would
improve our public finances.

Working beyond retirement age
Ageing has negative fiscal effects. But
increasingly, more people are working beyond
the retirement age globally. Increasing healthexpectancy rates may offset some of the fiscal
effects of demographic ageing – more people
are working post retirement.128 In 1996, only
14% of Americans foresaw working beyond
the retirement age of 65, unlike 45% in 2019.129
For New Zealanders aged 60–64, labour force
participation increased from 26% in 1990 to 73%
in 2015. The percentage of those working above
65 years went from 6% in 1990 to 22% in 2015,
one of the highest across the OECD.130 Morepeople are getting healthier and willing to work
while receiving superannuation – healthy life
expectancy has increased. With New Zealand’s
participation rate (people between the agesof 15 and 65) at 85.3% in 2019,131 and expected

42

THE NEED TO BUILD

to fall, working beyond 65 will strengthen
New Zealand’s fiscal health.

Increasing dependency ratio
RESULT 5: Population ageing means
proportionally fewer workers andtaxpayers in the future.

The proportion of New Zealanders within
the dependency ratio increases under all
36 scenarios in the Spectrum analysis. According
to the United Nations, the dependency ratio“relates the number of children (0–14 years
old) and older persons (65 years or over)to the working-age population (15–64 yearsold).”132 The ratio expresses the relationshipbetween the working-age and non-working
age populations. Greater ageing means morepressure on the working populace to fund public
services. The World Bank estimates that thedependency ratio in New Zealand was 55.2%
in 2018.133 In other words, there is one Kiwi of
working age for every two children or seniors.
As the country ages, the dependency rate will
increase (though constrained by migration andfertility changes). Out of the six most plausible
scenarios, optimistically, the dependency
ratio will increase to 0.66 while the worst-casescenario would be 0.72 (see Figure 15). A higher
birth rate means short-run increases to thedependency rate, while more births mean more
future taxpayers to support older generations
heading into retirement. A higher dependency
rate could affect the tax revenue available forpublic funding for healthcare, superannuation,and infrastructure development.134

Regardless of life expectancy, migration andfertility, there will be more demand for taxpayers
to fund public services. New Zealand also
needs skilled migrants to fill labour and humancapital deficits.135‘high’ fertility would reduce the proportion of
the elderly, with only 22.68% projected to be 65
and over by 2060. New Zealanders are still likely
to be markedly older across all the six realistic
scenarios.

RESULT 6: The proportion of older
New Zealanders will increase by least
23% by 2060.

Therefore, our dependency rate would likely
increase, and labour participation rates would
likely drop. This is unless more people over
the retirement age decide to work. An ageing
population means more significant fiscal
constraints and demand for public goods.137

New Zealanders will be increasingly older inthe coming decades. Of the six most plausible
Spectrum scenarios, 22.68% to 28.04%
New Zealanders (a difference of 5.36%) will beaged 65 and over by 2060 (see Figure 16). Thisis a sharp increase from 15.21% in 2018.136 As abare minimum, our elderly population may go
up from 7.5% to 12.8%. This reflects the potential
difference between pursuing higher moderatelevels of migration with higher fertility or lower
levels of migration and lower fertility.
Different migration levels either increase or
slow the process of population ageing. ‘High’fertility and ‘medium’ migration resulted in thelowest proportion of New Zealanders over 65
years (see Figure 16). ‘Medium’ migration and

The question is how the government will respondto these fiscal challenges. In the past few decades,
Treasury deemed population ageing as one of
the fundamental challenges to New Zealand’slong-term fiscal health.138 A far older demographymeans fewer people who can pay tax, additional
superannuation, and healthcare costs – andsimultaneously, a far higher dependency rate.
As Treasury noted: “Labour market, tax andretirement age settings, and supportive employers
will play important roles in future economic
growth.”139 A slower ageing population also
could ease these fiscal constraints.

Figure 15: Dependency ratio projection under medium life expectancy (2060)
0.75
0.69

0.70

0.70

0.72
0.66

0.67

0.69

Ratios

0.65
0.60
0.55

0.55

0.50
0.45
0.40

2018

Low Migration, Low Migration, Low Migration,
Low Fertility
Med Fertility
High Fertility

Medium Medium Migration, Medium
Migration,
Med Fertility
Migration,
Low Fertility
High Fertility

Source: Author’s calculations.

THE NEW ZEALAND INITIATIVE

43

Figure 16: Proportion of New Zealanders 65 years and over under medium life expectancy (2060)30

28.04%

28

23.78%

24
Percentage

26.55%

26.22%

26

24.90%
22.68%

22
20
18
16

15.21%

14
12
10

2018

Low Migration, Low Migration, Low Migration,
Low Fertility
Med Fertility
High Fertility

Source: Author’s calculations.

44

THE NEED TO BUILD

Medium Medium Migration, Medium
Migration,
Med Fertility
Migration,
Low Fertility
High Fertility

Conclusion
Housing
Despite common perceptions, population
growth is not the sole driver of housing demand.
Changes in living arrangements and householdcomposition play a role, too. Assessing thenumber of new annual dwellings needed fromjust population changes severely underestimates
the supply needed.
For the six realistic Spectrum scenarios, theaverage annual number of new dwellings neededfrom 2019 to 2038 ranges between 26,246(‘low’ migration and ‘low’ fertility) and 34,556(‘medium’ migration and ‘high’ fertility). From2019 to 2060, the number would be 15,319(‘low’ migration and ‘low’ fertility) and 29,052(‘medium’ migration and ‘high’ fertility),
respectively. The projected demand to 2038 or
2060 does not take into account the existing
shortage of dwellings, or the fact that housing
does not last forever – they need demolition
and replacement. In October 2019, Infometrics
estimated the housing shortage to be 40,000.140
Such a shortfall accentuates the need to urgently
scale up urban development and housing supply.141
Although the number of dwellings consented
reached 38,624 in November 2020, it is imperative
the government frees up development both up
and out to build the dwellings.142 Regarding
housing demand, the public needs to consider
the declining average household sizes. Local
government reforms need to incentivise councils
to ease constraints on houses and infrastructure.143

Beyond housing: Prospects forfiscal prudence
Beyond housing, the Spectrum projections show
fiscal implications. More people are living longer

and becoming heathier. As Steven Pinker said in
Enlightenment Now, longevity and improvements
to healthcare, sustenance and wellbeing havebeen positive trends in human progress.144
However, these trends mean new challenges.
Population ageing means proportionally fewer
future workers and taxpayers. The dependency
rate to 2060 rises from 0.55 to between 0.66
and 0.72 in our six most plausible scenarios.
Simultaneously, the proportion of people over
the age of 65 will go from 15.2% in 2018 to atleast 23% in 2060. An ageing population meansa higher dependency rate and more pressure on
public finance. Increased workforce participation
by older New Zealanders may partly offset thegrowing dependency ratio. Faster productivity
growth would ease the fiscal problem.
Curbing migration to reduce pressure on housing
will not solve our housing shortage, but itwould exacerbate a looming demographic fiscal
problem from a rising dependency ratio. Cutting
migration may also be considered as soundpolicy, but New Zealand would still have hugelabour shortages to fill from skilled foreigners,
mainly in construction, engineering and trade.145

Summary of findings• Housing crisis: The housing market isextremely unaffordable due to supply
not keeping up with growing demand.
Covid-19 and expansionary fiscal andmonetary policies have exacerbated the
problem. But New Zealand’s housingcrisis is not primarily a demand problem.
It is inadequate supply. Instead of directly
tackling supply, the Labour government
distracted itself with KiwiBuild andineffectual demand measures – only to

THE NEW ZEALAND INITIATIVE

45

worsen the crisis. The National Policy
Statement on Urban Development andchanges to infrastructure financing arepromising, though.
• Spectrum results: Under all 36 scenarios
except three, New Zealand’s populationin 2060 will be larger than it is today.
Under all projections, the median age will
be higher. Even if migration is low, total
population will grow substantially. Fertility
rates are more important than migration
for ageing across the modelled scenarios.
• Demographic projections and housing
demand (1): Projections for household
size and total households for 2038
and 2060 were created by combining
Spectrum’s population and median age
projections with a quadratic regression
relationship between median age andhousehold size. For the six most plausible
demographic scenarios to 2060, thenumber of additional annual averagedwellings is between 15,319 (‘low’
migration and ‘low’ fertility) and 29,052(‘medium’ migration and ‘high’ fertility).
Based on just population growth, theprojected annual average number ofdwellings is between 5,452 (‘low’ migrationand ‘low’ fertility) and 21,543 (‘medium’
migration and ‘high’ fertility). That would
be an underestimation of 9,867 dwellings
for the former and 7,509 for the latter (anannual shortfall percentage of 64% and26%, respectively).
• Demographic projections and housing
demand (2): We used SNZ’s Living
arrangement B Low, Medium and Highpopulation and household projectionsfor 2038 to calculate the effect of factors
other than just population growth. As apercentage of projected population in eachscenario, the difference was 5.6%, 3.5% and1.6% for 2038 (and 12.5%, 7.8% and 1.4%
for 2060), respectively.

46

THE NEED TO BUILD• Empty nests and crowded houses:
As societies are getting older with anincreased median age, household size isshrinking. As a result, more additional
houses are demanded on top of housing
demand caused by population growth.
• Flaws of restrictive zoning laws:
Restrictions on both density and land
supply hurt development. Arthur
Grimes said intensification and dense
development could lower dwelling prices.
The Auckland MUL created an artificial
land scarcity which inflated the priceof land and housing within the urban
limit. The US Federal Reserve and The
Brookings Institution have shown that
restrictive zoning laws, raise house prices,
reduce construction, and worsen housing
supply inelasticity.
• Demographic effects beyond housing:
Demographic changes also have fiscal
implications. The dependency rate goes up
with ageing. The proportion of those over
65 years goes up to at least 23% by 2060,
according to Spectrum projections. This
results in fewer future taxpayers. Demands
on working-age New Zealanders tomeet the costs of public services such as
healthcare and pensions will increase.
Faster productivity growth would help
fund the additional public services in
the long term.
• Housing and demographic interactions:Unaffordable housing can depress fertility
rates. Fertility was the most significant
factor in Spectrum projections for the
median age. Research on how housing
affordability affects fertility shows thatshort-run drops in house prices increase
the fertility rate of homeowners.
• Policy implications: It is imperative
for the government to free up property
development. The existing shortage is
set to worsen due to further population
growth and population ageing.

Box 4: Key recommendations
Demographic change will increase demandfor housing and contribute to New Zealand’s
housing shortage in the long term. Ageing
populations involve smaller household
sizes, so more homes are required for anolder population even if population size isheld constant.
Previous reports by the Initiative havemade recommendations that would enable
more building.
This report recommends only that we
recognise the role of changing demographics inincreasing demand for housing, and the needfor urban planning regimes to accommodate it
and the changing nature of housing. It also calls
for aggressive measures to enable more housing
supply in places people want to live.

THE NEW ZEALAND INITIATIVE

47

Endnotes
1Michael Bassett and Luke Malpass, “Priced Out:
How New Zealand Lost Its Housing Affordability”(Wellington: The New Zealand Initiative, 2013).

2

Demographia, “Rating Middle-Income Housing
Affordability Survey: 2019,” 16th Annual
Demographia International Housing Affordability
Survey (2020), 13.

3

The Economist, “Global house-price index: Ourinteractive guide to housing data across the world,”
Website.

4

REINZ, “Residential Property Data” (for November2020), Website.

5

Jenesa Jeram, “Empty Nests, Crowded Houses:
Building for An Ageing Population” (Wellington:
The New Zealand Initiative, 2014).

6

Statistics New Zealand, “Housing in Aotearoa: 2020”(Wellington: New Zealand Government, 2020), 117.

7

Demographia, “Rating Middle-Income Housing
Affordability Survey: 2020,” 16th Annual
Demographia International Housing Affordability
Survey (2020).

8

Statistics New Zealand, “Housing in Aotearoa:
2020,” op. cit. 117.

9

Statistics New Zealand, “Births and deaths: Year
ended September 2020 – Infoshare tables,” Website.

10

Tim Searchinger, et al. “Achieving Replacement
Level Fertility Creating a Sustainable Food Future,
Installment Three” (Washington, DC: World
Resources Institute, 2013).

11

OECD, “Fertility,” Website, www.oecd-ilibrary.org/
sites/b11cb6e7-en/index.html?itemId=/content/
component/b11cb6e7-en.

12

Treasury, “Fiscal Strategy Model – PREFU 2020”(Wellington: New Zealand Government, 2020).

13

Treasury, “Pre-election Economic and Fiscal Update2020” (Wellington: New Zealand Government,2020), 14.

14

Statistics New Zealand, “Net migration high but
down from peak,” Website.

15

Eric Crampton, “Here’s why congestion charging
could be the answer to traffic woes,” Stuff(10 February 2020).

48

THE NEED TO BUILD

16Shane Cowlishaw, “Labour wins on immigration,”
Newsroom (25 October 2017).

17

Ibid.

18

Michael Bassett and Luke Malpass, “Priced Out:
How New Zealand Lost Its Housing Affordability,”
op. cit.

19

We used the default data from New Zealand’s UN
World Population Prospects 2019 to calculate life
expectancy at birth.

20This data was collected from Statistics New Zealandthrough an Official Information Act request.

21

Statistics New Zealand, “Housing in Aotearoa:
2020,” op. cit. 125.

22

Trading Economics, “New Zealand – Sex ratio atbirth (male births per female births),” Website.

23

Statistics New Zealand, “Provisional migration
estimates by age-sex now available,” Website.

24

Statistics New Zealand, “International migration:
September 2020,” Website.

25

Treasury, “Fiscal Strategy Model – PREFU 2020,”
op. cit.

26

The Spectrum software does not distinguish between
different levels of inflow and outflow of migration fornet migration. For instance, if the inflow is 30,000
and outflow 20,000, or if the inflow is 60,000 andoutflow 50,000, net migration is 10,000 in bothcases. Spectrum treats each number neutrally.

27

Treasury, “Pre-election Economic and Fiscal Update
2020,” op. cit. 4.

28

There are many new prototype Covid-19 vaccines being
tested around the world by companies such as Pfizer,
Oxford Uni-AstraZeneca and Moderna. Some havebeen approved by governments and already in use.

29

Richard Harman, “Covid ‘here for some time’ say
Ardern and Collins,” Politik (25 August 2020). This
reflects the government’s efforts to keep the borders
closed to eliminate the virus.

30

Stephen M. Kissler, Christine Tedijanto, Edward
Goldstein, Yonatan H. Grad and Marc Lipsitch,“Projecting the Transmission Dynamics of SARSCoV-2 Through the Postpandemic Period,” Science
368:6493 (2020), 860–868.

31

Statistics New Zealand, “Housing in Aotearoa:
2020,” op. cit. 9.

49

Gareth Kiernan, “NZ short by nearly 40,000 houses,”
Infometrics (22 October 2019).

32

Statistics New Zealand, “2013 Census Definitions
and Forms” (Wellington: New Zealand Government,2013), 29.

50

Statistics New Zealand, “National family andhousehold projections: 2013(base)–2038 update,”
op. cit.

33

Statistics New Zealand, “Housing in Aotearoa:
2020,” op. cit. 9, 34, 58.

51

34

The 0.932 figure was calculated by multiplying the2018 Census figure for households (1,781,100) by
the average person per household (2.6) and dividingthat product by the 2018 Census population figure of
4,966,580.

Alan W. Evans and Oliver Marc Hartwich,“Bigger Better Faster More – Why Some Countries
Plan Better Than Others” (London: Policy Exchange:2005), 22.

52

Calculated by dividing Statistics New Zealand’s
population projections by the household number
projections.

35

We assumed constant scaling up and down ratios forlack of information about the drivers of these ratios.

53

Ibid. The 2060 numbers were estimated using gap
analysis.

36

Stata, “Your data tell a story,” Website.

54

37

Statistics New Zealand’s “Case B” is its
recommended scenario.

38

The base periods were both 2019 for Spectrum andStatistics New Zealand. Statistics New Zealand’s‘low’ scenario was ‘low’ immigration, ‘low’
fertility, and ‘high’ mortality. For Spectrum, it was‘medium’ fertility, ‘low’ migration, and ‘medium’
life expectancy. Statistics New Zealand’s ‘medium’
scenario was medium levels for all three factors.

The higher housing dwelling number for 2038 isbased on the projections: as fertility rate decreases
below replacement (for both ‘low’ and ‘medium’
fertility rates); the proportion of women ofchildbearing age falls. This lowers population growthin the second half of the period. Lower fertility resultsin short run population increase but it flattens out inthe long term when the net reproduction rate is lessthan 1.

55

This was used to compare with the demographic
shortfall data based on Statistics New Zealand’s own
Living Arrangement B scenarios.

56

We have confirmed that Wellington City
Council and Auckland City Council take into
account demographic shifts for estimating future
housing demand.

57

N. Gregory Mankiw and David N. Weil, “The Baby
Boom, the Baby Bust, and the Housing Market,”
Regional Science and Urban Economics 19 (1989),
235–238.

58

John Krainer, “Housing Markets and Demographics”(San Francisco: Federal Reserve Bank of San
Francisco, 2020).

59

Jacques Poot and William Cochrane, “The Effects of
Immigration and Local Housing Markets,” Working
Paper in Economics 7/19 (University of Waikato,2019), 18–23.

60

Andrew Coleman and John Landon-Lane, “Housing
Markets and Migration in New Zealand, 1962–
2006” (Wellington: Reserve Bank of New Zealand,2007).

61

Jenesa Jeram, “Empty Nests, Crowded Houses,”
op. cit.

62

Michael Bassett and Luke Malpass, “Priced Out:
How New Zealand Lost Its Housing Affordability,”
op. cit. 18.

39

Statistics New Zealand, “Subnational population
component changes and median age (RC, TA), at
30 June 2018–20 (2020 boundaries),” Website.

40

Statistics New Zealand, “Estimated population of
NZ,” Website.

41

Statistics New Zealand, “National population
projections: 2020(base)–2073,” Website.

42

Destatis, “Households, by type of household. Longterm series with annual data from 1961,” Website.

43

Statistics New Zealand, “Housing in Aotearoa:
2020,” op. cit. 127.

44

Ibid. 97.

45

We derived the figure (19 years) by dividing the total
number of households by the difference between
2038 and 2019.

46

Statistics New Zealand, “National family andhousehold projections: 2013(base)–2038 update,”
Website.

47

Note the distinction between new builds and theincrease in the stock of dwellings. These projections
are about the latter.

48

We derived the figure (41 years) by dividing the total
number of households by the difference between
2060 and 2019 years.

THE NEW ZEALAND INITIATIVE

49

63

Statistics New Zealand, “Housing in Aotearoa:
2020,” op. cit. 127.

79

Jane Patterson, “Housing ‘challenge’ still not a‘crisis’,” Radio New Zealand (6 July 2016).

64

Ibid. 10.

80

65

Andrew Coleman and Grant M. Scobie, “A Simple
Model of Housing Rental and Ownership with Policy
Simulations,” Working Paper 09/05 (Wellington:
New Zealand Treasury, 2009), 32.

Hamish Rutherford, “Housing Minister Nick Smith:
All houses are affordable to someone,” Stuff(21 May 2015).

81

Randall G. Holcombe, “The Median Voter Model in
Public Choice Theory,” Public Choice 61:2 (1989),
115–125.

82

Statistics New Zealand, “Homeownership rate lowest
in almost 70 years,” Website.

83

Matthew Knott and Gareth Hutchens, “‘I do hope
our housing prices are increasing’: Tony Abbott
quizzed on housing bubble,” The Sydney Morning
Herald (2 January 2015).

84

Demographia, “Rating Middle-Income Housing
Affordability,” 15th Annual Demographia
International Housing Affordability Survey: 2019(2019), 13.

85

Australian Associated Press, “Foreigners buying
Australian real estate to face tougher rules and fees,”
The Guardian (25 February 2015).

86

Jane Norman, “Foreign investors illegally buying
Australian properties to face new penalties of jailterms, fines,” ABC News (2 May 2015).

87

The Hankyoreh, “Democratic Party pursues
regulations to restrict real estate speculation byforeign nationals,” Blog (6 August 2020).

88

Lee Min-hyung, “Korea’s real estate policy fiasco,”
The Korea Times (13 July 2020).

89

EJ Kim, “Moon vows shift in real estate policy
to increase home supply,” Yonhap News Agency(18 January 2021).

90

Erica Alini, “Housing affordability: What has theTrudeau government done for you?” Global News
(5 August 2019).

66

Statistics New Zealand, “Almost 1 in 9 people live
in a crowded house,” Website.

67

Ibid.

68

OECD, “Fertility,” op. cit.

69

Angela Luci and Olivier Thevenon, “The Impact
of Family Policy Packages on Fertility Trends in
Developed Countries” (Institute for Demographic
Studies, 2011), 6–7.

70

71

72

73

74

Jonathan Grant, “Population Implosion? Low
Fertility and Policy Responses in the European
Union” (Santa Monica, California: RAND
Corporation, 2005).
David E. Bloom, David Canning and Günther Fink,“Implications of Population Aging for Economic
Growth” NBER Working Paper 16705 (2011).
Tomáš Sobotka, Anna Matysiak and Zuzanna
Brzozowska, “Policy Responses to Low Fertility:
How Effective Are They?” Working Paper No. 1(United Nations Population Fund (UNFPA), 2019), 19.
N. Meltem Daysal, Michael F. Lovenheim, Nikolaj
Siersbæk and David N. Wasser, “Home Prices,
Fertility, and Early-Life Health Outcomes,” NBER
Working Paper 27469 (2020).
Mimi Liu and Jeremy Clark, “The Effect of
the Price or Rental Cost of Housing on familySize: A Theoretical Analysis with Reference to
New Zealand,” New Zealand Economic Papers 51:3
(2017), 281–301.

75

William A.V. Clark, “Do Women Delay Family
Formation in Expensive Housing Markets?”
Demographic Research 27:1 (2012), 1–24.

91

Robert Hogue, “Toronto housing market became
more expensive, Vancouver more active in
December,” RBC Economics (7 January 2020).

76

Li Pan and Jianguo Xu, “Housing Price and Fertility
Rate,” China Economic Journal 5:2–3 (2013),
97–111.

92

REINZ, “Monthly House Price Index Report”(October 2020).

93

77Radio New Zealand, “Twyford ‘regrets’ Chinese
NZers felt unfairly targeted by 2015 survey”(18 September 2018).

Brent Edwards, “Prime minister focused policies that‘will work’, not big and bold initiatives,” National
Business Review (4 January 2021).

94

78

Jason Walls, “PM Jacinda Ardern hints at lifeline
for first-home buyers getting into recession-proof
market,” The New Zealand Herald (17 November2020).

Zane Small, “How the world reacted to
New Zealand’s foreign buyers’ ban,” Newshub(16 August 2018).

95

Land Information New Zealand (LINZ), “Propertytransfers and tax residency data,” Website.

50

THE NEED TO BUILD

96

Shamubeel Eaqub, “Housing – Tax andforeigners wrong target,” The New Zealand Herald(23 June 2013).

114 Phil Twyford, “Speech to the NZ Initiative Members’
Retreat” (Wellington: New Zealand Government,
22 March 2019).

97

Bernard Hickey, “How Phil Twyford lost housing
and why KiwiBuild failed,” Newsroom (1 July 2019).

115 Michael Hayward, “The rise and rise of council
consent costs,” Stuff (11 August 2018).

98

Thomas Coughlan, “Housing inequality is goingto get a lot worse and the Government doesn’t wantto talk about why,” Stuff (4 September 2020).

116 Bernard Hickey, “NZ can build enoughaffordable homes – Christchurch proves it,” Stuff(26 September 2020).

99

Nicola Martin, “Kiwis and Nimbyism when it comesto living in high-rise, high-density developments,”
Stuff (24 August 2019).

117 Eric Crampton and Khyaati Acharya, “In the
Zone: Creating a Toolbox for Regional Prosperity”(Wellington: The New Zealand Initiative, 2015), 5.

100 Michael Bassett and Luke Malpass, “Priced Out:
How New Zealand Lost Its Housing Affordability,”
op. cit. 20.

118 Demographia, “Rating Middle-Income Housing
Affordability Survey: 2019” op. cit. vi.

101 Rob Mitchell, “The battle of Wellington:
Medium density meets high anxiety,” Stuff(15 December 2020).

119 Michael Bassett and Luke Malpass, “Different
Places, Different Means: Why Some Countries Build
More Than Others” (Wellington: The New ZealandInitiative, 2013), 31.

102 Ministry for the Environment, “About the National
Policy Statement on Urban Development,” Website.

120 Michael Bassett and Luke Malpass, “Different Places,
Different Means,” op. cit. 19.

103 Geoff Cooper, “This could be the housing
affordability solution New Zealand has been looking
for,” Stuff (29 July 2020).

121 Ibid. 4.

104 Infrastructure Funding and Financing Act 2020.
105 Phil Twyford, “Law to help infrastructure financing
passes,” Press release (Wellington: New Zealand
Government, 24 July 2020).
106 Jenny Schuetz, “Is Zoning a Useful Tool or
a Regulatory Barrier?” (Washington, DC:
The Brookings Institution, 2019).
107 Ibid.
108 Joseph Gyourko and Raven Molloy, “Regulationand Housing Supply,” NBER Working Paper 20536(2014).
109 Ed Glaeser, Triumph of the City (Penguin, 2011), 150.
110 Arthur Grimes, “How to fix a broken Auckland? Add
150,000 homes to crash prices by 40%,” The Spinoff(4 July 2016).
111 Arthur Grimes and Yun Liang, “Spatial Determinantsof Land Prices: Does Auckland’s Metropolitan Urban
Limit Have an Effect?” Applied Spatial Analysis andPolicy 2 (2009), 23–45.
112 Guanyu Zheng, “The Effect of Auckland’s
Metropolitan Urban Limit on Land Prices”(Wellington: New Zealand Productivity Commission,2013).
113 Michael Bassett and Luke Malpass, “Priced Out:
How New Zealand Lost Its Housing Affordability,”
op. cit. 24.

122 Ibid. 31.
123 Ibid. 31.
124 Ed Glaeser, Triumph of the City, op. cit. 161.
125 Michael Bassett and Luke Malpass, “Free to Build:
Restoring New Zealand’s Housing Affordability”(Wellington: The New Zealand Initiative, 2013), 13.
126 Andrew Coleman, “Squeezed In and Squeezed Out:The Effects of Population Ageing on the Demand for
Housing,” Economic Record 90:290 (2014), 301–315,
301.
127 Ibid. 301.
128 Ministry of Social Development (MSD), “The Social
Report 2016: Health” (Wellington: New Zealand
Government, 2016).
129 Andy Mukherjee, “To Retire Rich, Don’t Leave Too
Much to Your Kids,” Bloomberg (25 October 2020).
130 Treasury, “2016 Statement on the Long-Term Fiscal
Position” (Wellington: New Zealand Government,
2016), 39.
131 OECD, “Labour force participation rate (indicator),
Website, https://data.oecd.org/emp/labour-forceparticipation-rate.htm.
132 UN Department of Economic and Social Affairs,“Dependency Ratio,” PDF, 104, www.un.org/esa/
sustdev/natlinfo/indicators/methodology_sheets/
demographics/dependency_ratio.pdf.

THE NEW ZEALAND INITIATIVE

51

133 The World Bank, “Age dependency ratio (% ofworking-age population) – New Zealand, Australia,”
Website (2019).
134 Note that there are limits to dependence ratios
on fiscal matters. Dependence ratios do not reallyexplain the differences between a retiree and children.
135 Treasury, “2016 Statement on the Long-Term Fiscal
Position,” op. cit. 38.
136 Environmental Health Indicators New Zealand(EHINZ), “Age profile,” Website, www.ehinz.ac.nz/
indicators/population-vulnerability/age-profile/.
137 Bryce Wilkinson and Khyaati Acharya, “Guarding
the Public Purse: Faster Growth, Greater Fiscal
Discipline” (Wellington: The New Zealand Initiative,2014).
138 Treasury, “2016 Statement on the Long-Term Fiscal
Position,” op. cit. 4.
139 Ibid. 39.
140 Gareth Kiernan, “NZ short by nearly 40,000 houses,”
op. cit.
141 Oliver Hartwich, “Housing needs supply-side fix,”
The Australian Financial Review (1 December 2020).
142 Statistics New Zealand, “New homes consented reachrecord numbers in North Island,” Website.
143 Eric Crampton and Khyaati Acharya, “In the Zone:
Creating a Toolbox for Regional Prosperity,” op. cit.
144 Steven Pinker, Enlightenment Now: The Case for
Reason, Science, Humanism, and Progress (Viking,2018), 84.
145 Immigration New Zealand, “Construction &Infrastructure Skill Shortage List,” Website.

52

THE NEED TO BUILDAPPENDIX 1: STATISTICS NEW ZEALAND YEARBOOK DATA
Table 16: Statistics New Zealand Historical Data
YearMedian age

Average household size

1981

28.20

3.16

1986

30.00

3.09

1991

31.00

2.92

1998

33.50

2.80

2001

34.80

2.78

2006

35.70

2.70

2013

38.00

2.70

2018

37.20

2.60

Source: Statistics New Zealand, “Yearbook collection: 1893–2012,” Website; author’s calculations.

APPENDIX 2: STATISTICS NEW ZEALAND SCENARIO B
The following text on the definitions of Living
Arrangement A and B is directly sourced
from Statistics New Zealand. The report uses
Living Arrangement B for its SNZ householdprojections for both 2038 and 2060.

THE NEW ZEALAND INITIATIVE

53

Living arrangement type rates (LATRs)
There are two alternative LATR variants –designated A and B. Variant A assumes that
LATRs will remain constant at 2013 levels.
Variant B assumes that LATRs will change
linearly between 2013 and 2038, based on anassessment of observed trends between 1986
and 2013 and likely future trends, by sex
and single year of age.

••

Variant B is the preferred variant because
it has been formulated to produce
demographically plausible results. For variant
B, the main changes in LATRs assumed
between 2013 and 2038 are:•

• Partner in couple-without-children
family: Increasing rates for males
aged over 70 years. Increasing rates
for females aged up to 42 years, and63 years and older. This reflects lower
fertility rates with fewer couples having
children, couples having children atolder ages, and a slight convergenceof male life expectancy to female life
expectancy with more couples having
both partners living to older ages.
• Partner/parent in two-parent family:
Increasing rates for females at mostages, especially at ages 30–70 years.
This reflects lower fertility rates
with fewer couples having children
and delayed childbearing.
• Child in two-parent family: Increasing
rates at most ages, especially at ages
0–30 years. This reflects decreased ratesof single parenting from separation,
divorce, and childbearing outside
couple relationships, as well as children
living with parents at older ages.
• Parent in one-parent family: Increasing
rates for males. Decreasing rates for

•

•

•

females, which reflects decreased rates ofsingle parenting and lower fertility rates.
Child in one-parent family: Decreasing
rates at younger ages, especially at ages
0–20 years. This reflects increased rates
of re-partnering of parent.
Person in other multi-person household:Decreasing rates at most ages. This
reflects increasing rates of partnerships.
Person in one-person household:Increasing rates especially at ages 30–70
years for males. The proportion of
female’s years living alone is assumed todrop, given a slight convergence of malelife expectancy to female life expectancy.
Person in non-private dwelling:
Decreasing rates at older ages,
associated with increasing life
expectancy and well-being and declines
in morbidity rates, enabling people tolive independently at home longer.
Average number of families perfamily household is assumed toincrease from 1.050 to 1.075, reflecting
increasing co-residence of multigenerational families.
Average number of people per othermulti-person household is assumed
to increase from 2.637 to 2.773,
reflecting group-living in response to
housing costs.

For variants A and B, the following factors
remain constant at the 2013 levels:• the proportion of two-parent families
with dependent children is assumed toremain constant at 0.817.
• the proportion of one-parent families
with dependent children is assumed toremain constant at 0.720.

Source: Statistics New Zealand, “National family and household projections 2013-base,” Website.

54

THE NEED TO BUILD

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Zheng, Guanyu. “The Effect of Auckland’s Metropolitan
Urban Limit on Land Prices” (Wellington: New Zealand
Productivity Commission, 2013).

58

THE NEED TO BUILDNew Zealand faces a severe housing crisis. House prices nationally have gone up by 37% since2015, and cities such as Auckland and Wellington have become extremely unaffordable formost Kiwis.
Demand-side measures such as foreign ownership bans and bright-line testing are politically
popular but do not directly address the problem. Border restrictions were enforced since Covid-19
began, which cut net migration to zero – and yet rent and housing costs have risen sharply.
Migration is only a part of housing demand. Demographic changes (long-run population
growth, ageing, fertility, household size, etc.) mean that New Zealand will need far more
dwellings, especially when housing supply is unduly inelastic. What is worse is that the effect of
declining average household sizes on housing demand is rarely discussed in the public sphere.
Housing policy using only projected population growth would markedly underestimate
future demand. Projections to 2038 and 2060 show that annually we need to scale up supply
between 26,246 and 34,556 for the former, and 15,319 and 29,052 for the latter. These figures
do not take into account the annual demolition and replacement rate of dwellings and thecurrent undersupply of 40,000. Since 1992, New Zealand has added only 21,445 net private
dwellings annually to the housing stock.
It is imperative to build now and fast.

$25.00
ISBN
978-0-9951311-6-3 (print)
978-0-9951311-7-0 (online)
62

THE NEED TO BUILDThe New Zealand Initiative
PO Box 10147
Wellington 6143