ASB chief economist says the tide is going out on rising house prices

Property

ASB chief economist expects house price growth to be 'dead in the water' next year

12th Sep 21, 5:39pm by Greg Ninness

Photo Colin Smith https://www.geograph.org.uk/photo/2335795

A strong majority of people expect house prices to keep rising even though they also expect interest rates to rise.

ASB's latest Housing Confidence Survey found a net 58% of respondents expect house prices to increase in the next 12 months and nearly as many (54%) expect interest rates to increase.

However ASB's own economists do not share their survey respondents' bullish view on house prices.

They see annual house price inflation dropping to just 2% next year, compared to the double digit growth that has been evident over the last 12 months.

ASB Chief Economist Nick Tuffley said he's not surprised people are doubtful about a slowdown, particularly with housing demand still outstripping supply.

"Given the recent government changes and new regulations have so far only slightly impacted the market, it's understandable that kiwis are sceptical about a slowdown, particularly as annual house price growth has recently hit 30%," Tuffley said.

"For many watching the runaway housing market, it may be hard to imagine ever seeing a decline.

"Despite this, there are a number of factors which are increasingly likely to put the brakes on.

"This year the RBNZ has reintroduced its loan-to-value ratio restrictions, the Government hit [residential] property investors with a tax hammer, and there has been some upward creep in mortgage rates.

"Behind the scenes, inbound migration has ground to a halt and home completions have lifted, which should ease demand slightly, although we now have construction delays due to supply bottlenecks to contend with.

"Despite the high level of confidence, the tide is going out and house price growth is likely to be dead in the water in 2022," he said.

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43 Comments

by Kjeldorian | 13th Sep 21, 7:52am 1631476343

Housing deficit 50,000 houses

Completion rate 1200 per month.

At this rate with 0 net migration supply meets demand in 3.5 years...

by kiwiana02 | 13th Sep 21, 8:19am 1631477947

I think that (at least in Auckland), the housing deficit may well have been overstated, and will be gone soon, if it hasn’t already. As you have noted, the number housing consents has massively increased in recent years while its population hasn’t increased as fast as projected, due to increased internal migration out of Auckland to regions where house prices are more affordable. Who would have thought! Added to that, we cant count on migrants to New Zealand for a while. And, young kiwis who have had to defer their OE may flock out once countries open up. There are labour shortages everywhere.

by swingtrader | 13th Sep 21, 10:37am 1631486262

We have three empty houses on our little street alone. I suspect the minute rampant capital gain becomes elusive they’ll be on the market, adding to the housing stock. plus there’s no way China’s slowdown won’t affect us….

by brisket | 13th Sep 21, 11:36am 1631489764

Yep. Loads of empty houses in my suburb (Mt Roskill), it's pretty obvious if you walk the streets at dusk during lockdown. Maybe one in ten. Who needs tenants when you have capital gains?

by CourtJester | 13th Sep 21, 10:04am 1631484281

Got a source on that housing deficit claim?

by kiwiana02 | 13th Sep 21, 10:27am 1631485628

Source for number of building consents= AK Council & Stats NZ. Source for population projections = Stats NZ. Source for popn growing less than projected and internal migration out of AK = Ian Mitchell report for AK Council (https://knowledgeauckland.org.nz/publications/intermediate-housing-mark…). Source for thinking this means housing undersupply may be ending = my analysis of data, Tony Alexander. It would be great if economists etc would revisit their past estimates of housing undersupply in light of recent data on housing consents/CoC and revised population data.

by CourtJester | 13th Sep 21, 11:34am 1631489661

Sorry, I meant to reply to Kjeldorian's comment. As far as I know the recent census is our most reliable (albeit still somewhat unreliable) data on the number of empty homes - and it doesn't support his claim of a deficit of 50000 houses. For starters, that would mean 100k+ homeless people...

by brisket | 13th Sep 21, 11:40am 1631490048

I don't think 100k homeless is implausible. Most of them won't be living on the street -- they're in vans, garages, sleeping on someone's floor... Drive around South Auckland and see how many vehicles are parked in the driveways, and how many garages are used as housing. I *do* think the undersupply is overstated, but I think the number of empty houses is is understated too. There are a lot empty houses and a lot of homeless people at the same time, because... because market failure happens when policies are contradictory, I guess.

by Kjeldorian | 13th Sep 21, 12:51pm 1631494315

"Kiwibank senior economist Jeremy Couchman says the surplus of 13,000 homes only nibbles around the edges of the huge shortage which the bank estimates to be about 67,000 houses."

https://www.stuff.co.nz/life-style/homed/real-estate/125026169/five-to-…

by HouseMouse | 13th Sep 21, 7:53am 1631476383

Great comedy for a Monday morning.

Such ill informed commentary.

by Pragmatist | 13th Sep 21, 8:41am 1631479318

Your counter arguements are so well stated and convincing, I can't imagine how anyone could disagree with you.....

by HouseMouse | 13th Sep 21, 10:32am 1631485956

Why should I bother? The counter arguments are obvious. As are the consistent errors that bank economists make.

by HouseMouse | 13th Sep 21, 12:13pm 1631491995

Hint - economists and their models don't account for a number of nuances

by Mr Ed | 13th Sep 21, 6:17pm 1631513828

Is that something squeaking ?

by kiwiana02 | 13th Sep 21, 8:00am 1631476858

If capital gains are dead in the water, and holding costs including interest rates start increasing, many investors/ speculators may decide to get out while the going is good. There may be a short lived fillip from FHB rushing to buy before new LVR limits and potential interest rate rises in October. Things could get interesting after that.

by Jamin | 13th Sep 21, 8:08am 1631477292

It will be interesting and very much a maths game. I think any selling thoughts will come down to high the burden is with higher interest costs. If you can say easily still pay your bills with higher interest costs then holding is a much better idea as your real debt gets eaten away by higher inflation. But only if you are not overly leveraged, or have spare income.

by Dongleberry | 13th Sep 21, 8:12am 1631477549

Correction;

Both the public and the ASB expect house prices to keep rising. That’s what the article says, right after it doesn’t.

by chebbo | 13th Sep 21, 8:17am 1631477848

That's like dropping someone's salary from $3,000 a month to $200, and claiming you "kept paying them".

by Brock Landers | 13th Sep 21, 8:55am 1631480139

The whole country is going to be dead in the water.

It's an unproductive, low opportunity, parochial nanny state, obsessed with identity politics and race baiting, encumbered with a horrendous cost of living and held back by vapid and inept leadership with no vision or plan to invest in the future.

by Shoreman | 13th Sep 21, 9:15am 1631481309

BL - Why are you still in NZ ? Your not happy with anything here it would be a blessing for everyone if you tried your luck somewhere else !

by Brock Landers | 13th Sep 21, 11:07am 1631488079

It's "you're".

Jacinda says I can't even leave the house.

by JoolzT | 14th Sep 21, 8:58pm 1631609915

The little old lady across the road from me is flying out to Scotland this weekend. If she can leave, so can you.

by AJ123 | 13th Sep 21, 10:52am 1631487140

Spot on, Nanny state with no business other than housing. Shame

by powerupkiwi | 15th Sep 21, 9:10pm 1631697038

It’s like an Eastern European economy, with Californian prices, and a north Asian fortress mentality. Things are going noticeably downhill.

by Shoreman | 13th Sep 21, 9:18am 1631481495

Dead in the water is not 2% ?? I'm sure the rises will moderate but just like the reserve bank it's wishful thinking.

by Luke83 | 13th Sep 21, 9:37am 1631482660

Hahahaha, good old banks. Bless them. Even a broken clock is right once a day. Idiots. Jan 2022 to Dec 2022 I put a happy 8 to 10% on it.

by Brock Landers | 13th Sep 21, 10:06am 1631484384

Why not 80 to 100% while we are making internet reckons?

by Carlos67 | 13th Sep 21, 5:43pm 1631511830

That's pretty realistic, could still be low. The prediction of only 2% for all of next year is a joke. Could drop to 2% a month more like it.

by brisket | 13th Sep 21, 9:44am 1631483076

In this case, I'll back the public over the economists. It's the public who'll be doing the buying, after all. Housing is a confidence game, and the market has been on such a long and extraordinary run that it will not break until it breaks. The $1m national median is already so insane, so removed from fundamentals, that there's no reason why it shouldn't climb another 40% in a year or similar.

by Dave Moderato | 13th Sep 21, 3:06pm 1631502397

I'm not sure the average prices these days are insane. The cost of new builds is skyrocketing. The value of those new builds spills over onto the existing stock. The existing trend will end one day. But still has a fair way to go, that many will be surprised. I don't think it's good. It's a result of the present extended global circumstances and domestic events. And plain economics, endless media stories on the "property crisis", and the general public narrative.

by brisket | 13th Sep 21, 3:57pm 1631505422

You're right about the rising building costs. But those are more an effect than a cause of rising house prices. The global squeeze on building products and local squeeze on skilled labour have pushed costs up even more, sure, but the demand for land and new builds would have pushed up the base cost of development anyway. Even without the global Covid supply chain disruptions, etc, the cost of new builds would be rising in tandem with the general price of property because a) the biggest input cost is always land, and b) high demand leads to a builder shortage.

by AJ123 | 13th Sep 21, 10:50am 1631487048

Same analyst said 10% to 15% decline last year, they are not credible.

Interest will not rise to the extent it hurt investors, Govt. have no intention to see price fall or stop rising (sustainable growth), means it may plateau for some time (months) & than increase again.

It will only fall if number of people start leaving NZ will be more than migrating to NZ (which will not happen), we have no hope from govt at all in regard to policies as they have not taken any action on increase of 50% than when they act never, there march changes will also have no impact, worthless. Even housing crisis is least of worry for our PM & media is managed, also 41 Billion grant will fuel it in coming summer.

This kind of analyst only spread lie & create false hope for renters, FHB's & average income kiwi's (most of the population), what a shame.

by MisterB | 13th Sep 21, 12:55pm 1631494538

Right, but the analysts largely said that prior to the RBNZ pouring gas on the fire with QE, FLP and removal of speed limits.

With regards to interest rate rises not hurting investors, I guess that depends on when they bought and how leveraged. All the ones that bought last year when the gas pedal was down would surely be exposed....

by nktokyo | 13th Sep 21, 3:43pm 1631504611

Wait for Delta's cousin to arrive.

by Mr Ed | 13th Sep 21, 6:22pm 1631514160

Dawn ?

by HouseMouse | 13th Sep 21, 4:08pm 1631506089

Here's a number of reasons why ASB economists are likely to be wrong, assuming no financial crisis in the next 12 months:

- OCR unlikely to be raised significantly in the next 6 months

- Slowdown in housing completions, reducing supply

- Likely significant slowdown in new housing being delivered at lower quartile price points, due to shrinking first home buyer demand as a result of developers increasingly being unable to deliver new housing within Homestart caps

- major plan changes occurring from the middle of 2022, massively increasing high density zonings and setting off another round of aggressive developer bidding.

If Pragmatist or anyone else would like to challenge these points, feel free to do so. I would welcome the debate.

Note - the impact of my third point will be mitigated if the government increases Homestart caps, which they may well do.

by brisket | 13th Sep 21, 4:41pm 1631508093

Your point about zoning changes is interesting. Crazy prices are being paid for any section in Auckland that's big enough to demo and stick a few units or apartments on. Their must be a big pipeline of those already in the works. At some point supply will intersect demand -- how long will that take?

by HouseMouse | 13th Sep 21, 5:47pm 1631512033

The issue is that for every ten sites that might have a high density zoning, one might be good for redevelopment (for example, I don't know exact ratio). Hence developers intensely bidding for the ones available.

Lots of sites with higher density zoning have reasons why they won't be of interest to developers- too small, wrong kind of dimensions (eg. Too narrow or too shallow), too steep, too much sunk capital, flood hazard, challenges connecting to infrastructure etc.

Unfortunately economists and their models are incredibly limited. I doubt any take this into account. Or how about the growing Homestart issue?

Bob Jones once said that he hired fine arts graduates, not finance graduates, for good reason.

When we have, say, another 10,000 propertiesin Auckland zoned for higher density, we might have 1000, say, that are readily developable, and there will be a feeding frenzy for those which will push median values up over a couple of years.

by HouseMouse | 13th Sep 21, 7:51pm 1631519482

I am awaiting Pragmatist and friends' retorts as to why I am wrong

by MortgageBelt | 13th Sep 21, 7:15pm 1631517340

“house price growth is likely to be dead in the water in 2022”

Does this mean that price growth will stay steady at current rates at 3-5% per quarter and no more?

Or zero house price increases?

From Jan 2022 to Dec?

by FamiliesFirst | 13th Sep 21, 7:43pm 1631519034

Real estate agents unable to list for 4 weeks, maybe 3 more in Auckland.

What the property market does over this summer will tell us what the future of prices will be. The real test will be the country returning to level 1 + increased stock in the market (supply meeting buyer demand). If prices keep going up, we are stuffed.

by Zen20 | 16th Sep 21, 5:25pm 1631769904

They predict the above then out of the blue raise their interest rates significantly ... what more can a poor boy do?

by Somebloke | 17th Sep 21, 11:32am 1631835146

No economic reason counts as evidence when sanity has gone.