Kiwibank Property Insights: Crystal ball gazing conjures up three P’s of property: Population, Preference, and Policy…
…and we’re Painfully undersupplied.
Key Points
• The largest migration boom ever recorded is receding, slowly. But we will remain attractive to migrants, and our
population won’t peak.
• We have a shortage of over 100,000 homes. Supply has not kept pace with demand. Demand is still growing,
capacity constraints are being hit, and we need more affordable dwellings.
• Policy changes, like capital gains tax, will hinder confidence. But the fundamentals outweigh tweaks to taxes.
We expect property prices to consolidate, before regaining traction into the mid-2020s – aided by income and population
growth.
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Summary
The Kiwi housing market has recovered from the lows in sales recorded last year. National house prices are up 4% yoy.
Although gains are largely being made in the regions, as they play catch-up. Auckland’s market remains muted. Investors are uncertain, and therefore cautious. The Government is gearing up to implement policies targeted at speculators. These policies include tightening the
bright-line capital gains test, removing the negative gearing tax loophole and banning foreign purchases of existing
stock. The policies, and the uncertainty associated with them, may hold back house prices over the next few years. But we don’t expect a major correction in housing. Because the fundamentals are solid, and there are no signs of any
sinkholes.
The housing market is undersupplied and mortgage rates are low. And unemployment is likely to fall, not rise sharply.
Housing corrections are often driven by hemorrhaging households suddenly unemployed or lumped with rampantly rising
interest rates. Neither is expected. The jobs market should remain tight. And the RBNZ will keep interest rates low.
Mortgage rates will rise eventually, however.
When gazing into the property crystal ball, you must conjure up the three Ps: Population, Preference, and Policy. And we see a Kiwi property market far from the precipice. We forecast a period of consolidation due to investor
restraint, rising interest rates, and a lift in supply into the 2020s. Auckland house prices are consolidating; and the
risk is they fall, but not far. A small fall would be a slight correction from past excesses. We forecast a meaningful
lift in prices, nationally, into the mid-2020s.
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