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Six Reasons the NZ Property Market will Continue to Boom

BNZ’s Chief Economist, Tony Alexander, writes a weekly overview on the economy. We pored over the figures for some pointers as to where property prices might be headed, and found six factors that suggest, up, up, up.

#1 THE ECONOMY IS STRONG

New Zealand’s annual growth rate (3.6%) is the highest for nine years and consumer confidence is high, which means buyers are prepared to take on major commitments like mortgages.

#2 IMMIGRATION IS INCREASING

This is a biggie in influencing house prices. Net annual migration gain was over 43,000 for the year ending August 2014. Compare that to last year’s figure of under 13,000 and 2012’s net loss of 4,000. The last time net migration was this high was between 2001 and 2002, and it coincided with the beginning of the last house price boom.

#3 HOMES ARE IN SHORT SUPPLY

Building consents, especially in Auckland, are still well below even average levels and land is not readily available for development. Combined with the rapidly increasing population this is a recipe for price growth.

#4 FIRST-TIME BUYER ASSISTANCE IS ADDING TO THE DEMAND

The new Kiwi Saver HomeStart package is commendable and will assist eligible first-time buyers throughout the country, but it will inevitably add to the general demand, albeit with an accent on newly constructed homes.

#5 THE BUILDING INDUSTRY IS TOO SMALL

Even if large areas of rural land were released for residential development to cope with the increasing population, the building industry would have to expand exponentially to create the necessary number of new homes. There may be solutions to this over time, but in the short-term it will add upwards pressure to house prices.

#6 PROPERTY INVESTMENT REMAINS VERY ATTRACTIVE

Both local and overseas investors are attracted to our property market. To locals, the historically rising values and absence of capital gains tax are irresistible for many. At the same time, overseas investors see the comparatively low capital cost and the promise of long-term value growth as the world wakes up to the attractiveness of New Zealand as a place to live, and attracts further immigrant demand.

Of course, our economy is subject to the vagaries of the world and what goes on in the powerhouse nations of the globe. Undoubtedly there will be blips and corrections along the way, but the major indicators do seem to point fairly conclusively to continued price growth.

By Stephen Hart, Hometopia.co.nz for BNZ Good Home

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