House Price Predictions

Plenty of contrasting forces in today’s residential market has led to diverging views on the current state of play in Auckland and the north.

Our positive, but cautious, views on current activity follow hot on the heels of the latest Real Estate Institute of New Zealand (REINZ) data. Relative price stability in Auckland, with the Northland region experiencing solid price growth, up a further 8% p.a. in the latest April statistics.

While it is true that some speculators have left the market, due to tighter lending requirements, for long-term investors property is still an attractive proposition.

In Auckland and the North, owner-occupiers still represent a sizeable proportion of activity. For many of these purchasers, a new home isn’t primarily an economic decision, it is one driven by lifestyle and its myriad of reasons creating change.

This means sales activity will continue. Buyers will continue to buy and sellers will continue to sell. And, as past experience highlights over many decades in New Zealand’s history, prices will rise. That’s not to say it’s not a complex sector and that fluctuations won’t happen along the way. Variations in price trajectory will occur when the position of economic and financial conditions, ferocity of demand and the level of housing supply shift.

And, getting consensus amongst all about these intricacies and how the market is expected to perform in the future is inevitably difficult. This is highlighted by none other than consensus from three of the four Chief Economists who Preview interviewed this month who predict calmer, more balanced, but positive conditions ahead.

Nick Tuffley – ASB Bank Chief Economist

“Auckland has seen the most growth over the last decade, but it’s also the region that has turned down more than most recently. The lending restrictions, introduced late in 2016, requiring a 40% deposit, as well as affordability, have dampened the market.

“But after a period of prices falling last year, they are now growing again and that’s the story we expect going forwards. Auckland’s still chronically underbuilding compared to population growth. You’ve still got low interest rates, strong population growth and a lack of supply, which puts a firm floor under prices.

“In the regions, they’ve been playing catch-up. But growth is slowing, and construction there is better able to meet the requirements of that stronger population. So that will flatten off growth after a while, that is still running modestly in many locations like Northland.

“Nationally, the backdrop of investor caution is going to contribute to price growth moderation. The extension of the bright-line test is underway; there is the likelihood that negative gearing will come to an end soon; and the tax working group is likely to recommend some form of capital gains tax. Also interest rates will, at some stage, go up.

“There are a lot of moving parts, but overall the market is getting more balanced. Nationwide we’re expecting that price growth will level off to positive single-figure price growth for this year: 1-2% overall.”

Sharon Zollner – ANZ Chief Economist

“We’ve got house prices fairly flat. Firstly, the reserve bank is going to be very cautious about easing off the LVR restrictions, which have locked some investors out of the market. And the tax changes are all going in one direction. These measures, as well as the Healthy Homes Bill, reduce the attractiveness of housing as an investment.

“It’s hard to see the market taking off again – but at the same time it’s hard to see a nasty correction, given there are still housing shortages. Indeed, we’ve seen first-home buyers step up somewhat, which is evidence of pent-up demand.

“The best case scenario is that house prices stay flat, giving income a chance to catch up. It’ll be a slow adjustment, so it’s not going to fix the affordability problem fast, but it’s the most painless way of doing it – nobody wants a house-price crash.

Dominick Stephens – Westpac Chief Economist

“Going forwards, the country and, in particular, Auckland will be affected by government policy. If you go through all the positives and negatives for house price growth, it’s stacked up on the negative side.

“The bright-line test means you’ll get hit for capital gain if you flip an investment property after five years, rather than two years. We saw a hefty impact in 2015 when the original test was introduced, so you could start to see the impact of that change soon. I’m also expecting to see a ban on foreign buyers come into force. In the short term, it could cause quite a knock to prices.

“The interest rate outlook – they’re not going to move much, but over two or three years, it’s likely that rates will rise, and that could weigh on the market. So everything is pointing to some weaker housing market data, and I would predict prices to fall over the remainder of this year.”

Tony Alexander – BNZ Chief Economist

“People have over-estimated the impact of investors and taken an overly negative view of their impact on house prices. It’s a popular view that the housing market is driven by investors, but that’s not the case at all.

“Most investors don’t look at property as a short-term flick. It’s too easy for people who don’t understand the key drivers of the housing market to pick on one particular group, whether it’s foreign buyers or speculative flippers.

“People are always looking for a single driver of the housing market, thinking if something affects that one group, then it’s going to radically change the market. But there is a range of factors supporting the price rises that have occurred, and the further price rises to come. Some investors will back away – but it’s not going to be the dominant influence on the housing market this year.

“I point people towards continuing population growth, strong migration numbers, continued low-level interest rates, very strong jobs growth, high job security and the continuing limitations on construction.

“We’ll see a slower pace of price increases in the regions but, I wouldn’t be surprised if we see a slight lift … around 5% is a reasonable expectation.”

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