I’ll be honest here, terms like “housing shortage” and “over-supply” annoy me a bit – as what people are trying to say is that there are too many (or too few) houses to support the current price in equilibrium.
Now, at the moment “too few” houses are being built given what people perceive the equilibrium price to be. This price depends on the population inflow, and average number of people per dwelling, and the opportunity cost of the land.
I agree with this statement – house building has fallen way below sustainable rates. We didn’t even have an excessive amount of building going on in the first place in New Zealand, during the housing bubble, and as a result a “housing shortage” is a definite possibility.
However, I don’t think we can say that we will have a housing shortage and that house prices will fall 30% – which would take us back to the historical norm. If there are too few properties out there then we will see prices and rents get supported at some level ABOVE the historical norm – as there is a fundamental factor (the scarcity of housing) which supports these prices.