The residential property market will need $50 billion of new investment during the next 10 years to cope with demand, a report by Centre for Housing Research says.
Significant new public and private investment will be needed to finance the necessary expansion of the owned and rented housing stock as house prices become increasingly out of reach of young people and low-income earners.
Reduced ownership affordability will place an increasing reliance on renting, the report says.
The capital requirement for new housing is based on a building cost of $250,000 for a rental unit. Of the total needed $32.5 billion will have to come from the private sector, assuming the government public housing stock continues to increase by 1000 a year.
'These capital requirements are similar to the levels of investment that have occurred in recent years.'
As a result, the pressure on the building industry is unlikely to exceed that of the past five years.
'The key issue is: will similar amounts of capital be available if the outlook for the residential rental investment market soften?'
Rental values have not kept pace with the increase in property values in recent years, and some recent investors are being hurt by falling rents and higher interest rates.
The total number of households is expected to increase by about 20,500 a year to 1.75 million during the next 10 years.
Of that, 206,490 will be in rented properties and 101,230 owned.
Just under half of that growth will be in the Auckland region and 70 per cent in the upper half of the North Island.
The report shows New Zealanders' dream of owning their own home is not waning, but their ability to achieve the goal is.
The national home ownership rate is forecast to decrease to 61.8 per cent by 2016 from 68 per cent now.
Rapidly rising house prices and the inability to save a deposit and household debt are the biggest hurdle to home ownership, the Centre for Housing Research report says.
While it might be more difficult and take longer for people to get into home ownership compared with 30 to 40 years ago, the desire is still strong.
Most of the participants in a focus group renting in Auckland and Hawke's Bay aspired to own their own home in 10 years.
'The desire for home ownership remains very strong and well ahead of the proportion of households actually currently owning,' the report says.
Moreover, most aged between 18 and 40 want to live in a large house on large sections, but requiring minimal maintenance.
The probability of home ownership has been falling since 1991, when the proportion of ownership peaked at 73.8 per cent, though the number of households actually owning had risen.
'Accompanying the fall in ownership rates has been redistribution of home ownership away from younger to older households,' the report says.
'The fall in ownership has disproportionately affected younger, low-income households.'
Households with people aged 65 years and over are expected to increase by 104,190 during the next five years, compared with just 4740 for younger age groups.
'The current trends in home ownership rates combined with our aging population will have a maximum impact in 2050.'
New Zealand's housing trends are similar to other Western countries.
'We are currently experiencing the downside of policy decisions made in previous decades.
'We need to act now to anticipate the environment in 20 years,' the report says.
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