Unfortunately, crystal balls are a scarce commodity and moving into the second decade of the 21st century it’s difficult to say what the economy — and in particular the housing market, is going to do next.
After a year in which the country faced its biggest health crisis in 100 years, eventually eliminating — at least for now — the virus that is currently ravaging the globe, the economic meltdown, job losses and company failures that New Zealanders were primed to expect, have largely failed to materialise.
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At the height of the emergency, such doomsday scenarios were predicted to result in a cooling effect on the property market, however, a year after the protracted lockdown of March and April 2020, it’s more buoyant than ever — underpinned by seemingly insatiable demand, limited supply, returning expats and record-low rates.
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Here are a number of key areas to watch as the industry navigates through unprecedented and uncertain times.
LVR (loan to value ratio) limits have worked to temper the investment property market in the past, and the Reserve Bank of New Zealand plans to reinstate them just before the second quarter of 2021. While they’re designed to slow the market and increase affordability levels, I suspect we’re going to see an uplift in the immediate future as potential buyers race to purchase before the new rules.
The issue of supply will continue being a challenge to address, given that New Zealand needs an estimated additional 100,000 residential properties. As a country, we haven’t made significant headway in terms of constructing new homes in the required volumes.
Building consents are currently at their highest point since 1974, but those dwellings still have to be built and demand is not being met in almost all of the provinces. Working remotely has become easy and acceptable in many sectors fuelling movement between regions.
Naturally, lack of supply leads to affordability issues and unmet demand is still pushing up prices. Of course, it needs to be noted that on the other hand, this situation brings a sense of wealth to those with significant equity in their properties and no intention to sell, which ultimately benefits the economy as these homeowners spend their cash.
Even when the new LVR rules are in place, I don’t envisage the affordability issue being resolved in the short to medium term.
The supply issue and lack of listings is a vicious cycle.
Ironically, despite the current low interest rates, first-home buyers are still finding themselves continually frustrated, with multiple offers on the sorts of residential properties that used to be a beginner’s domain — and this is happening countrywide.
Here is where the return of LVRs is supposed to help these people out by slowing down property investment but, even if it does, banks are still being very conservative when it comes to lending.
Given that most first-home buyers are now in their mid-30s, they could potentially still be paying off their mortgage after retirement. In other words, the banks see it as their responsibility to take a long-term view — and of course it’s in their own best interests to do so.
However, it’s not all doom and gloom for first-home buyers if they’re prepared to be flexible.
Banks are increasingly open to creative approaches to getting on to the property ladder. First-home buyers can often get significant help from their parents whose own properties have risen in value, so that’s one possibility.
Lateral thinking can help potential buyers come up with other potential schemes.
Co-ownership with friends and family is often feasible, rent-to-buy schemes are increasingly common, and we’re even seeing two couples joining forces and collaborating on a do-up, doing the work themselves to help build equity.
Government regulations are also set to change property trends in 2021.
Labour made a number of pertinent promises as part of its housing manifesto and we’re watching with interest to see how they play out. Simple changes to unitary titles should provide scope for new building although that brings its own issues with densification, which have to be worked through.
The imminent disassembly, then a rebuild of the current Resource Management Act — with three new specific entities, will ultimately lead to an easing of pressures on the property market by concentrating on natural values — rather than amenity values, taking various stakeholders’ considerations into account, in order to free up more land for development. However, it may take years before we see a tangible difference from these changes.
The problems we have are well documented and clear cut, so with government, property industry and developers’ commitment, these various initiatives could really challenge the status quo. With considerable focus on addressing housing affordability and being bold and open to new innovative ways to build at scale, we have an opportunity to address this fundamental issue as a country.
- Bindi Norwell is chief executive of the Real Estate Institute of New Zealand
