David Hargreaves says the interlinked issues of KiwiBuild, immigration and the overall housing market performance in 2019 will together be the key determinant of who forms a Government in 2020

David Hargreaves says the interlinked issues of KiwiBuild, immigration and the overall housing market performance in 2019 will together be the key determinant of who forms a Government in 2020

By David Hargreaves

You can probably argue that any year is a big year for the housing market.

I would contend though that 2019 is pivotal. 

What happens in and around the housing market in the next 12 months will probably decide who wins the election in 2020.

I say that because I think housing REALLY matters to Kiwis,  to a greater degree than is even realised. And I don't mean on a conscious level, I mean on the kind of level that makes you wake up in a good or bad mood in the morning without really knowing why. It's similar with the All Blacks. If the national rugby team is going well the nation is UP, if not, it is not.

But ask someone whether such things are really important to them and they may well say these things are not - because they don't truly realise themselves.

This stuff matters.

So, having said that, we can observe a housing market that is very finely balanced as we head into 2019.

Much will depend on three intertwining issues:

  • The Government's KiwiBuild initiative
  • Immigration
  • Whether house prices go up, down or stay flat

The last of the three points there will of course be influenced by the two points above it.

Immigration has been important because it has been a big factor in the developing and growing housing shortage, particularly in Auckland.

Immigration pressure on the housing market

Generally economists are predicting net immigration will continue to drop (as it has this year) from the very high levels (70,000+) seen in 2016 and 2017. If as expected though net immigration levels out at around 40,000 to 50,000 this will still keep pressure on the housing market.

I've been thinking that perhaps we might see a sharp reversal in net migration figures, with a swift upturn in Kiwis leaving the country. However, the most recent monthly figures from Stats NZ suggest maybe not. Not at the moment anyway.

But these figures will be important to keep an eye on in the coming year as they provide a kind of backdrop and context to the overall housing situation. 

The Coalition Government has backed right off its pre-election posturing (through the Labour Party) of knocking immigration down. So, it seems fair to think that 'the market' will decide what happens with the ebb and flow of the figures this coming year.

KiwiBuild pressure on the Government

Given that the Coalition is not attempting to knock large scale immigration on the head, this puts more pressure on KiwiBuild.

The KiwiBuild policy for me sits very firmly right in the middle of the whole housing issue. It will set the tone for the housing market. If it succeeds then housing shortages are reduced and hopefully more people get into first homes. People will feel good. If it fails then maybe the shortages become more acute, first home buyers miss out (they will not feel good) and maybe house prices go on an upward surge again. And we will know by the end of next year whether KiwiBuild is working or not.

I'm not prepared to start calling it a failure yet - as some already are - but it needs to establish some credibility. And some of the issues it has faced so far (perhaps the most baffling being a lack of interest from buyers) go beyond mere teething problems.

As I said recently, I think the Government needs a regroup and rethink on this policy over the summer period and must come back refreshed and with a clear plan in the New Year.

Losing its nerve?

I do think there's tentative signs already that the Government is losing its nerve and might be preparing the groundwork to start morphing KiwiBuild into a new wave of state housing provision. I really hope not. 

The Government has shown the will and good intention to genuinely do something about the New Zealand housing market imbalances that have existed now for so many years. It would be to everybody's benefit to have an equal balance of supply and demand and wow, wouldn't it be even better if we got our housing stock up to speed and got rid of the damp, cold, places. Okay, now I am dreaming I guess. 

But balancing supply and demand should be a feasible long-term aim. The Government just needs to keep its nerve. And as I've said before, finding some more money - a lot of it - for KiwiBuild would be a splendid idea.

Anyway, how that all goes is going to be an important backdrop to the housing market in total in the coming year.

What will prices do?

As ever, we are vulnerable to global shocks - and the possibility of some sort of GFC-type crisis does unfortunately look very real. That's if we escape the direct draft of the Aussie housing downturn (although I think we should, since the market is very different here).

But anyway, taking away the ever-possible threat of global shocks, there are a number of things to look out for as domestic influences.

It will be very interesting to see what the reaction is to the Reserve Bank's latest loosening of its loan to value ratio (LVR) lending limits as from January 1. And if the housing market behaves itself (IE doesn't take off), will there be further loosening of this policy? The next time the RBNZ is likely to consider the LVRs will be with its next Financial Stability Report in May 2019.

In reality it would probably be too soon for a further loosening of the policy then - unless the housing market starts the year on a bit of a slide. However, I reckon the November 2019 Financial Stability Report could well be a starter for further LVR loosening. That being the case we could enter 2020 with a near-normal lending market.

The big bank push

A caveat to that of course is whether the RBNZ's proposals for banks to carry much more capital than they do now go ahead as proposed. Much has been made about the possibility of higher lending costs under these proposals. Personally I think a more likely outcome would be for loans to simply be harder to get, that is that the banks would 'ration' credit. Let's see what happens though. The big banks tend to be pretty effective at pushing back against things they don't like. I think its almost inevitable the capital proposals will ultimately be at least watered down. We'll see.

Dealing with what we know absolutely though, the environment for borrowing should continue to be pretty good. It's looking less and less likely that interest rates will rise anytime soon (certainly not next year) and so even pretty large loans can be serviced.

Indeed current global conditions and a slowing NZ economy would suggest that the Reserve Bank might consider dropping official interest rates. If economists at the biggest bank, ANZ, are right, we could see an Official Cash Rate of just 1% (versus 1.75% now) by 2020. That would certainly help the borrowers and the housing market. 

Setting the mood

All things being equal then, conditions would seem fairly conducive for the housing market to at least plod on in reasonable fashion next year. In terms of setting the mood for the market then, the key things will be: Whether immigration does remain at high levels (bearing in mind the Government has backed off actively trying to bring migration down) and whether the Government's KiwiBuild strategy does seem to be making progress.

All these things will blend together and leave people either with a positive feeling about the housing market (and the Government) come the end of next year, or a negative feeling.

And its the positive versus the negative that will be crucial in the build up to the 2020 election.

At a superficial level the 2020 election's likely to be staged on tax. At a more fundamental level people are likely to be influenced by how they are feeling about the housing market. And that feeling, that mood, will be established by what happens over the next year, not the following one.

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Both Labour & National are under a mandate to try to bring in as many third world immigrants into NZ as they can. So direct immigration is unlikely to fall by much.
NZ Education administrators are already plotting how to get around the new international student rules (which ended up softer than first pledged) so NZ can expect an increasing number of international students which will also feed into immigration numbers as they pickup their post study visas.
Housing: maybe part of the problem is that the Govt, councils and developers can no longer open up low cost sectionsfor low income people - nobody want to ha e low income suburbs deliberately created.

The market for housing is influenced by wealthy immigrants but not by poor student immigrants.

The diligent pleasant and friendly 3rd world immigrants met at checkouts are unlikely to be able to afford housing or even a rental property of their own for many years. OK some students do bring large amounts of money from their 3rd world country of origin but they are a minority. The number of permanent residents is going down (but is still at world leader levels) but they are being replaced by a growing number of work-visas.

It’s a medium term game: student studies for 1 year, gains work, gets 3 year visa, gets PR, buys house eventually. There are tens of thousands in the pipeline. They are effectively immigrants via a alternative pathway.

In the meantime they buy Maseratis, Ferraris, and Lamborghinis

Exactly. Immigration is dominated by generally low skilled and low paid people. They have limited impact on the housing market, at least in terms of buying

Immigration has a huge impact on the NZ housing market.
If immigrants rent: a landlord needs to supply a house.
By living in NZ they stimulate the local economy.
They are often used as proxies to purchase housing for other foreign wealthy investors living offshore or intermittently living/visiting. It’s a fluid global market.
In the medium term most buy homes. So just because many don’t purchase on day 1 doesn’t mean no effect on the market. E.g. If the birth rate increased that would also impact medium term n the same way.

Combine direct immigration with student pathway immigrants - you have a very high rate overall.

Seems we agree. Short term changes to immigration only afect short term house prices if the immigrant is seriously wealthy.

…."Immigration is dominated by generally low skilled and low paid people. They have limited impact on the housing market" ….

I do not agree, they all need to be housed and they all pay rent. They are the fuel that has driven speculation by investors and banks

There has been wealthy foreign buyers laundering and parking money here, but I think the burgeoning rentier class are a large component of house prices.

I don't think it'll take a year to discover kiwibuild is (in its current form) a complete flop.

Now that the kiwibuild places can go straight onto the KB market without a ballot, and anybody that qualifies can buy we will see how great the demand is. Currently 5 Onehunga apartments(off the plans), 10 Otahuhu apartments(complete/near complete) and 6+ Wanaka houses (complete). plus however many of the new Papakura 4 bedrooms house fail to sell at the ballot (closed Dec 4). Should be easy enough to see how many of these are still on the market at the end of February.

With respect, anyone with any intellect in regards to finance and housing, knew that KiwiBuild was going to be KiwiFlop!

Mr Twyford has no idea on how to run the housing portfolio and what he spurted out continuously about KB has been been rubbish.

Don’t believe that he has been instrumental in getting any extra houses built that weren’t a,ready in the pipeline and this year it is going to be just a joke!

He needs to step down now before he gets demoted but they haven’t really got anyone with any business sense in their ranks as far as I can see!!!

Yes its a good job that the Labour COL government are not actually running the country.

What you mean the country is run by private enterprise, both aided and sabotaged by government? Surely, not?

Exactly how events will unfold, I certainly do not know. However, certain issues throughout the entire 'western' world are becoming very very interesting to say the least. Of course the masses here have nary a clue due to the inadequacies of so called free world journalism, but attitudes here will change. Enjoy your insular world of economics while you still can.

The West was the best. Probably still is when compared to the East, but globalism has shifted many millions of jobs & capital Eastward, to the point where the West's poor (the laggards) are starting to make themselves heard. Look at Italy, northern France, Greece (obviously) & the Iberian peninsular, all struggling with huge unemployment issues, especially among the young. Combine that with a huge surge of people from the old Eastern European countries migrating to Germany, UK & France, running into many millions. These are not refugees, these are Europeans relocating west. To them the West is still best, but to us, we're being drowned with immigrants, even here down under on our fair shores. The people will follow the money, that's a given. The UN thing this week further destabilises those few wealthy nations that can accommodate them to the benefit of the other 6 billion poor people on the planet. We talk about bubbles a lot these days, well NZ is living in a bubble as is the rest of the West (& especially the socially inclined social democrats) who have no idea of the big agendas out there from the thugs who want to run the planet on their terms, not ours. Our own niceties will be our own downfall. That's why I support the Trump policies (rather than the person) because at least he can see that the West is going to hell in a hand-basket, which as the above comment refers to, most Kiwi's do not. As for the msm journo's, they've got what they deserved as they're one of the key drivers for all this social democratic bullshit in the first place. The smart journo's run interest websites.

Well Brexit is coming up in March 2019 and a hard Brexit will be as good as any trigger to start a collapse of a global magnitude. Many markets are already looking weak and it could be a tipping point. They have had two years to sort it out and its a total mess. Nothing like the wrong leadership at the wrong time.

Here's my opinion:
- Immigration will decline some more but still be historically high
- KiwiBuild will find some support but fall short of its original selling target
- House prices in NZ will be flat

Oh, and W Peters will still decide which main party will govern, if he stays for another term

Hi Yvil,

I reckon you're pretty much on the money with those forecasts.

Merry Christmas!


Thanks, merry X-mas to you too TTP

...[the Government] might be preparing the groundwork to start morphing KiwiBuild into a new wave of state housing provision. I really hope not.

I'm in the "I hope so" camp. Thing is, KB properties are not affordable by the standard accepted measures of affordability.

As effort is spent on building them on what little readily available excess capacity land that does exist - the waiting list for state housing just grows and grows, because the cohort who cannot afford either own-your-own private housing or private rents keeps growing. And many of the recent wave of immigrants via the education route, will get PR and add to that "can't afford any sort of housing" cohort (i.e., state housing wait-listers).

The only way to avoid KB morphing into conversion to state housing is to implement some form of equity sharing scheme for KB houses, to my mind.

I hope morphing KiwiBuild into low cost housing is the plan.
The occupancy of 2.7 was someone’s fantasy in my opinion and 4 should have been a recognition of low income and new migrants requirements.
Hopefully they are general purpose terrace homes.


The supply demand argument is irrelevant.

All assets globally are over valued for good reason and not by accident. When Joe Bloggs house doubles in price he's happy...buys a boat, a rental, new weber bbq and laments the reasons why prices are what they are. But when his kids can't afford a house he wonders why the govt doesn't fix his problem for him, claims supply demand as the issue and can't reconcile his kids problem with his newly found status as a paper millionaire. So out roll the classic arm chair economist arguments, they are a confirmed bias to reinforce whatever makes you feel comfortable with the situation.

What ever your fortune on the nz housing market, don't be so naive to think this is a result of supply demand, kiwibuild, land supply, bureaucracy or immigration. NZ houses are an over valued asset, along with many others, that have been pumped up by massive debt, local & foreign.

How this debt is managed will determine whether these asset bubbles burst or remain stable and were about to find out unfortunately.

The kids will inherit the house(s), simple

I will be very disappointed if this govt does not start closing the doors. There is a growing anger in many countries re immigration. The root cause of all our problems is this excessive rate. Get on with it.

What do you mean "will be" disappointed, it's been well over 1 year and the govt has done nothing to curb immigration. I think you can be justifiably disappointed right now

If you double the population you need to double the number of houses, electricity infrastructure and water infrastructure. If you don't do this you have a third world country, people without adequate housing that live in third world conditions, electricity and water shortages. Where are the new Clyde dam, Manapouri, Wairaki power stations?

The population in 1992 was 3.3M and it was 4.8M as of 2018 the increase has been 1.5M and given the base was 3.3M; this represents an increase of around 50%. Given the average fertility of a NZ women has been slightly less than 2 over this period; the 50% increase is due to immigration. In 2017 20% of new immigrants entering NZ were from first world countries while 80% were from third world countries. New Zealand population has been systematically replaced by a population from the third world. Politically there is nothing that can be done as with a 50% immigrant population born and bred New Zealanders do not have the political power to do anything about immigration. This is no longer their country but a country that belongs to those resettling it. New Zealand's culture is no longer that which born and bred New Zealanders fantasize it to be. New Zealand's culture now belongs to Asia, we see this in our work places, in our schools. The population is becoming one of ethnic enclaves, we see more corruption - politician's taking bribes in exchange to give seats in parliament to Asians. We see housing shortages, homeless people, the indigenous European and Maori population begging and sleeping in the streets, a third world infrastructure and a GDP per capita that compares with not first world countries but developing countries as part of our descent into the third world with our third world population. We brought in people from the third world and created a third world population and a third world country and can not do anything about it as we no longer have political power.

Very correct Nig. Look at the last few census. 2001 Asians were 13% in Auckland and 2013 they were 23%. I’d guess the will be close to over over 30% for the next one. This has not taken long at all.

Ikea is setting up shop. Flat pack houses. . Bring them on. ..

Happy thought, but three acronyms should fix That: