Many standard market measures are having a little holiday. Sales volumes have reached a bit of a floor and values have continued to slow around New Zealand. Meanwhile, each of the different buyer groups that we track has settled into its routine in 2018 with no major regulation changes impacting any one group more than another.
This has given us the opportunity to better understand the bigger picture influences. Essentially, three major factors are at play: construction, interest rates and the economy.
CONSTRUCTION
We’re in the midst of one of our strongest residential building phases on record. Monthly building consent figures remain high, particularly in Auckland and Wellington, so the intention and plan to build is strong.
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But the ability to see this eventuate into a significant increase in stock remains questionable, as the industry is at or near capacity. These questions become louder with major construction firms going into liquidation.
What’s more, we’ve previously analysed the net increase to overall stock, and it generally sits at about 70 per cent of all consents issued.
The difference is mostly due to existing properties needing to be demolished before new properties can be built, not because consents aren’t completed.
We don’t have stacks of free land so, with a major need to intensify and the Auckland Unitary Plan in action, this difference is set to remain.
On a positive note, KiwiBuild is building momentum. The main benefit of Kiwibuild will be reduced property prices, assisting the affordability of homes, not the quantity.
So, constrained supply means a significant reduction in property values is unlikely in the short term. We have to make up for the last decade’s shortfall, off the back of strong population growth.
INTEREST RATES
The outlook is for them to stay low for longer. Some economists are even suggesting the OCR could be reduced rather than increased and I tend to agree.
In last month’s Monetary Policy Statement “continued softness in the housing market” was cited as one of the factors which could contribute to weaker than expected GDP growth, which if combined with weak inflation and/or unemployment could result in a reduction of the OCR.
ECONOMY
Economists think GDP growth is slowing and this, on top of severely low current business confidence, gives reason for caution.
But, until the signalling of weaker intentions from the business confidence surveys flows through to a reduction in investment behaviour, the future is probably not as grim as the surveys indicate.
Combine all this and our projected sales volume model predicts a further gradual drop but it’s not time to panic.
Nick Goodall is head of research at CoreLogic NZ
