What now with house prices?
Malcolm Cox email@example.com
Over the ten-year period starting 2011, average house prices in Napier increased by about 136%. According to independent economist, Tony Alexander, Auckland prices rose 160% while the rest of New Zealand rose 140%. Here is a summary of three key factors Tony Alexander has identified which explain this surge in house prices. 1. Weak house production Following the bleak predictions associated with the 2008 – 09 Global Financial Crisis the number of building consents in NewZealand fell to the lowest level since the 1960’s. Since then, there have been insufficient homes built each year, and naturally this shortage of supply has pushed prices higher. 2. Population boom As “house production” declined sharply, population growth accelerated following a net migration boom. Between 2014 and 2017 population growth averaged 2% per annum, and when combined with a decline in the supply of new houses, this resulted in an increasing property shortfall. 3. Interest rate falls Since 2008 the Reserve Bank has been progressively cutting interest rates to combat recessionary tenancies. The official cash rates fell intermittently from 8.25% to just 0.25% last year. The reduced cost of borrowing bought a wave of people into the housingmarket – both owner occupiers and investors. Investors were encouraged by reductions in bank deposit rates. Each of these factors are now reversing, which means over the next ten years, house prices are not expected to increase at the same rate – Tony Alexander predicts at best, half the past rate might be possible. Here’s why: 1. House supply is now booming Construction rates have sky-rocketed, and this is reflected in record levels of building consents being issued by district councils. Although an oversupply is some way off, the increasing number of new homes available is likely to constrain house prices. 2. Population growth has slowed Population growth is slowing reflecting a higher death rate (as the population ages) and a reduced fertility rate. When borders eventually open-up-migration flows are expected to be “messy” for some time, however many young Kiwis are expected to shift aboard. 3. Interest Rates are rising Although interest rates are now rising, we can only guess at what pace that will be. No one is able to predict where house prices will go, however these recent changes suggest that expectations that prices will continue to increase at recent rates are unlikely. For more information, call us on (06) 835-4321.