High stock levels on Trade Me Property giving buyers plenty of choice as the summer season winds down

I’ll start with the item which I feel overwhelms the others. Increased house supply.  

On average since 1973 the annual number of consents issued for new dwellings to be built has equalled 0.62% of the NZ population. Following periods of high interest rates and recessions the proportion would spend time below that 0.62%. 

For instance, in the 1991 recession the ratio fell to 0.5%, after the 1997/98 recession the ratio fell to 0.54%, and after the GFC it fell to just 0.31% in 2011. That low level explains why house prices surged so much after that event.   Now, following our most recent recession the ratio has fallen to only the long-term average just over 0.6%. Supply growth is remaining good and that reflects changes in rules for land availability and intensification as well as incentives for borrowers to build rather than buy an existing property. 

Good supply won’t cause prices to fall given the high cost of construction. But good supply growth as the cycle turns upward again for this ratio next year will constraint the pace of price increase. 

Second, while there is now a cyclical recovery in bank finance availability underway (easily seen in my surveys), there are more rules than before. These include LVRs (Loan to Value Ratios) and DTIs (Debt to Income rules). The impact of these rules is twofold. They force some people to delay their property purchase and encourage construction for those bumping up against bank lending limits.  

Third, the rise in prices for the next three years will be constrained by the absence of the very low interest rates we saw for much of the post-GFC period.  Now, following our most recent recession the ratio has fallen to only the long-term average just over 0.6%. Supply growth is remaining good and that reflects changes in rules for land availability and intensification as well as incentives for borrowers to build rather than buy an existing property. 

Good supply won’t cause prices to fall given the high cost of construction. But good supply growth as the cycle turns upward again for this ratio next year will constraint the pace of price increase. 

Second, while there is now a cyclical recovery in bank finance availability underway (easily seen in my surveys), there are more rules than before. These include LVRs (Loan to Value Ratios) and DTIs (Debt to Income rules). The impact of these rules is twofold. They force some people to delay their property purchase and encourage construction for those bumping up against bank lending limits.  

 

Fourth, the extra rules imposed on landlords, ring-fencing of cash losses, ban on foreign buying, and natural aging of the population bringing selling by Baby Boomers and Generation X (born 1965-80) will mean less net demand over the cycles from investors.  

My best guess for the next 32 years is that average house prices will rise by 5.5% - 6.0% rather than the previous 7.2%. Give me a call in 2057 to see if I was right. Actually, by then we'll probably have a communication device hardwired in our body and we'll call an incoming call a buzz. So, buzz me.  

ITG, Are you quoting Tony Alexander, the one you and others used to call "The comb" and used to make fun of… when he was writing things you didn't like?  A bit cynical for you to now quote "Tony", because you like what he says.  A bit of integrity would be nice.