'Slight' oversupply of houses will help keep prices down

A new study shows that supply of houses in New Zealand is roughly in balance with the demand. This indicates that supply and demand factors are unlikely to be a major driver, but more importantly that New Zealand is not likely to see the sort of housing crisis unfolding in the United States.

Tuesday, April 29th 2008, 12:00AM

by The Landlord

Westpac says the motivation behind the research was the US housing situation, "where high house prices and low interest rates encouraged house-building on an epic scale, far in excess of what was needed.

"The result was a glut of houses, which created dramatic falls in house prices."

The bank says there is no glut of houses in this country but a small oversupply may be developing.

It says strong house -building this decade has merely been catch-up, after a huge migration boom left the country very short of houses in 2003.

"The housing shortage has since been rectified, leaving housing supply roughly in balance with demand.

"A moderate situation of excess supply is developing, but it will be due to low population growth
rather than a wild increase in house -building."

Westpac expects that residential construction will go through a marked slowdown over the course of this year, with 2009 activity around 11% lower than 2007.

"Even so, we still expect the excess supply of houses to reach 5,000 by mid-2009. That will add
even more weakness to house prices for some time to come."

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