One of the world’s least affordable housing markets might finally be slowing, Justin Giovannetti writes in The Bulletin.
New Zealand’s house prices are still climbing rapidly, but there’s growing evidence that the soaring increases of the past year and a half might finally be slowing. There are both short and long-term explanations for what isn’t quite a trend yet.
For starters, property prices nationwide rose by 1.6% in August. While that figure from CoreLogic shows a slower increase than in recent months, it would still indicate a double-digit annual increase. There’s no sign of anything resembling a crash. The market would need to slow to about one-tenth August’s rate to match wage growth.
Prices have soared over the past year. August’s rise in prices follows an overall increase of 27% over the past year, leaving the average house in Auckland, Wellington and Tauranga now valued at well over $1 million. Christchurch remains the country’s most affordable large centre at $654,198. As prices continue to rise, the number of buyers has slowly fallen. The bank of mum and dad can only help so much. It’s possible the lack of affordability might be starting to bite, according to CoreLogic’s research:
“As property values rise faster than incomes, the cost of purchasing a home will simply become out of reach for a growing number of would-be buyers, especially as increasing interest rates start to impact the amount of money people can borrow”.
What happens after lockdown? The number of houses on the market has dropped by 52% in recent weeks and prices could surge after restrictions are relaxed, but the research paper says it would be a short-lived bounce. With the reserve bank all but certain to increase the price of borrowing before the end of the year, mortgage costs are set to start increasing.
Some prices have dropped. Prices fell in both Hamilton and Rotorua over the past month, a possible sign that some moves to cool the market could be working. Both cities have been popular destinations for property investors. Changes to tax deductions as well as new lending restrictions could be making a difference, according to Interest. The Real Estate Institute of New Zealand has gone further in a recent report, saying that real estate agents are reporting more first time home buyers at recent sales while investors pull back.
In the longer-term, these prices are unsustainable. That’s not my analysis, that’s from the reserve bank governor. Two weeks ago, governor Adrian Orr told parliament that prices don’t reflect supply and demand anymore. He said that he expects prices to eventually fall as construction gets underway and demand is reduced. That’s about as loud a warning as is possible from the reserve bank that mortgages will become more expensive in the coming years. Bloomberg labelled New Zealand earlier this year as “among the world’s least affordable property markets”.
Some of that expected construction could slow in the short term. Auckland’s level four lockdown could have an unexpected effect on the country’s builders, with materials jammed into warehouses around the city, unusable. Most building materials have not been granted an exemption to move beyond Auckland’s borders during lockdown, Stuff reports. With some construction materials like gib board and gutters could run out by the weekend, the industry says it’ll be able to muddle along for another two weeks. If Auckland stays locked down any longer, building sites may need to be shut down.
Costs could increase a lot in the longer term. Complicating matters, the price of those materials has increased in recent months as freight costs have soared. The NZ Herald (paywalled) reports that shipping costs are up almost 100% over the past six months. Many of those costs haven’t been passed on to consumers yet, but they will be in the coming weeks through higher prices. Part of the reason for the increase is a global construction boom as countries exit lockdown.
Councils now face building decisions. To help tackle the housing crisis, the government unveiled a $3.8 billion fund in March to help local councils build the infrastructure needed for new developments. A site in Nelson has applied for some of the money, according to Stuff. The Maitahi Bayview proposal could build up to 350 homes, 100 of which would be deemed affordable, but only if the government money is forthcoming. If local consents are rejected in the coming days, the Ngāti Koata-owned development will instead build about 40 houses.
Higher house costs are leading to higher rents. Students are struggling to find flats for next year, the Otago Daily Times reports. The issue is partly due to fast-rising rents, but also because some landlords are selling to first-time buyers. Families who otherwise would have purchased a home are also renting, while looming healthy home standards mean some apartments need to be left unoccupied as they are brought up to code. There’s a sense of desperation, with some parents calling local real estate agents to help their kids.
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