The New Zealand property market – is it up, or is it down? Well, according to the recently published ANZ April Property Focus report, indications are that the housing market seems settled for now, with influences that are slowing growth, and contrasting effects that are sustaining historical high demand. It seems, however, that the Auckland housing market is still the biggest loser, with house prices that are largely unaffordable to first-home buyers.

Housing Market Constraints

ANZ’s report discusses the three main constraints on the market currently. From what we can see, these are:

  • New Home Builds

There is an increase in new homes being built country-wide. While Canterbury’s requirements have abated since the strong demand post-earthquakes, the remainder of the country’s main towns and cities are experiencing growth. High house prices are making building an appealing and financially viable option. Due to strong population growth and low interest rates combined with a housing shortfall, there is simply more demand than our building and construction industry can supply.

The building of new homes is not progressing at the rate desired. Rising construction costs mean some banks are less likely to fund projects. This combined with lack of labour is creating decreased supply and constraining future growth considerably.

The building industry needs to look at increasing labour output, productivity, and increased capital investment. While productivity and increased investment are being acted upon, there are shortages in both skilled and unskilled workers. This is a significant problem which has resulted in wage inflation in the industry and increased costs. Migration limits are having a direct effect on the ability to get the job done, with the MBIE estimating the NZ building industry needs 30,000 more workers.

  • Government Changes and Incentives

With a solid set of books, the current government is well placed to deliver a stable year with gentle inflation. Initiatives designed to make housing more affordable will help to increase demand, but still be tempered by the decreased ability to build new housing. For instance, through Kiwibuild, there is an expectation that 100,000 new affordable homes will be built over the next ten years. While this is a positive plan, the government is competing for construction resources with the private sector. These resources are already under pressure, with the industry at capacity. The increased demand may simply result in a matching increase of costs, resulting in very little extra overall increase in our housing stock.

There are more restrictive government policies being rolled out, with an extension from two to five years on the BrightLine Test. This may have an effect on the appetite of property investors.

For the local government, reducing land regulation and costs of developing land are crucial for enabling increased growth. In the Auckland market in particular, 56% of the cost of the average home is estimated to be due to the cost of land supply. This needs to be addressed to keep building affordable.

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  • Mortgage Interest Rates

The current low interest rates are spurring on demand for housing. If interest rates rise, this could affect debt serviceability. While the OCR looks to be stable for a while, NZ’s economy is growing at a rate of 2 to 3%. This indicates that there will be increases in the OCR in the longer term, which will increase interest rates. A savvy homeowner may want to fix their mortgage rates for a period.

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Understanding what it means for you

Understanding market trends can help you better understand your own situation. The team at SurePlan can help you take a more strategic look at your current mortgage rate and repayment schedule. Not only that, we are an independent business with Authorised Financial Advisors and we don’t sell investment plans. We sell tailored advice and strategic planning experience. With the right structures and support, you can become debt free faster in a way that benefits your entire wealth accumulation strategy – get in touch to schedule in a free consultation to get started.