A rapid lift in house prices nationally and Auckland's massive under-supply will drive home building consents to record levels by 2018, Infometrics chief forecaster Gareth Kiernan said yesterday.
Mr Kiernan forecast a 39% rise in the number of new dwelling consents in the two years to June 2018, taking consents to an all-time high of 40,044 a year.
However, he warned such a sharp lift in building activity would not come without side effects, with intense pressures on construction sector resources fuelling increases in building costs.
Residential building cost inflation would average 5.2% a year in the three years to March 2019, well above the Reserve Bank's target of 2% inflation across all types of consumer prices, he said.
"These cost pressures are a necessary evil that will encourage the flow of more resources into the building sector. But even with these additional incentives, we see a risk activity will struggle to expand to the extent we are predicting, further exacerbating cost pressures.''
With the under-supply of housing in Auckland possibly as large as 32,000 dwellings, Infometrics was not suggesting the region's housing shortage would be rectified in the short term, Mr Kiernan said.
If building activity did hit the levels being predicted, there could eventually be some softening in house prices in Auckland and regional property markets in the "halo'' around Auckland.
Infometrics was forecasting an 11% drop in house prices in the period ending September 2019.
The Reserve Bank's moves last week to increase restrictions on lending to investors and low-deposit households were merely a sticking plaster on demand and were likely to have the unintended consequence of shutting some first-home buyers out of the market, he said.
There might be some short-term dampening effects on the housing market from such a policy. But, ultimately, lifting housing supply was the only way to get lasting improvements to home affordability, Mr Kiernan said.
"The construction sector must continue rising to the challenge and build like never before.''
ASB chief economist Nick Tuffley also expected to see a steady increase in building consents over the rest of the year.
Strong housing demand had stimulated increased housing construction across the regions.
"However, the housing supply response in Auckland remains relatively sluggish in comparison. In particular, we are still looking for a stronger trend increase in apartment building consents issued in Auckland.''
Housing credit was expected to have remained strong last month on the back of a strong nationwide housing market. Given the new loan-to-value (LVR) lending restrictions by the Reserve Bank, due to come into effect on September 1, housing credit growth should moderate towards the end of the year.
ASB still expected the Reserve Bank to cut the official cash rate to 1.75% with 0.25% cuts in August and November, he said.
The main difference between the forecast now and last week was that the second rate cut was more likely. Markets were giving an 87% chance of a rate of 1.75% by the end of the year.
