COMMENT: Once upon a time there were two children, who had a contest to see who could make the most money selling lemonade.
Each day they would make their lemonade – equal quantities so that there could be no suggestion of one having an advantage over the other – then sell it on the street. But they each took very different approaches to the task.
The first spent a lot of time planning every aspect of the lemonade enterprise. Along with his Mum, he developed the tastiest lemonade that he could produce; he wandered the neighbourhood to see what other kids were charging for lemonade to determine the optimum price; and he adorned his trestle table so as not to distract from the perfectly positioned pitcher or the crystal-clean glasses. Yet each day he would come inside after two or three hours, dejected, having only sold about a third of the lemonade that he had made.
The second child, having made no preparation other than making her lemonade, would head outside at the same time each day, only to return twenty minutes later having sold her entire stock.
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The difference? She knew that the Number 823 bus went down her street at precisely 10.15 every morning and that around 15 passengers would disembark at the bus stop right outside her house.
In a crude way, this parable explains why some people can reasonably accurately predict what will happen in the property market, while others are consistently wrong despite taking what appears to be an academic approach to the task.
If you want to understand what the property market will do in the future, you need to have a reasonable knowledge of what it has done in the past. This isn’t an absolute guide, of course, but it explains why my predictions are generally accurate while those of some of the large banks and forecasting companies are consistently wrong. I know the history of the market and I look for patterns that suggest outcomes based on those patterns.
Ashley Church: to predict the future of the property market, I look for patterns of what it has done in the past. Photo / Ted Baghurst
It’s as simple as that. No magic and no particular skill on my part – just a preparedness to learn from history.
With that in mind, here are my predictions for 2022:
1. House prices will keep rising in Auckland – but much more slowly.
The 25% and more increases in house values over the past 20 months were mostly caused by the actions of the Reserve Bank and are unlikely to be repeated anytime soon. But that doesn’t mean that house price increases are over in Auckland, which is now two years into a six- or seven-year up-cycle. Watch for Auckland houses prices to keep rising in 2022, but at a much more moderate level.
2. But regional house prices will flatten off.
If you go back over my commentary prior to 2020 you’ll note that I was predicting a new boom in the Auckland property market and a flattening in most regional markets. This prediction reflects the fact that Auckland is usually about three years ahead of the rest of the country and that the Auckland market had flattened in 2017, meaning the regions were due to follow suit. The prediction proved to be correct, in respect to Auckland, but wrong in respect of the regions which continued to have strong growth in 2020 and 2021 due to unusual Reserve Bank policies. This is now over, and I would expect regional prices to flatten in 2022.
3. Debt-to-income lending restrictions will be introduced.
Debt-to-income restrictions are now all but inevitable and will likely be introduced in late 2022. The Reserve Bank will use the reasons of house price stability and continuing growth in Auckland house prices as its justification for this action. We will see borrowing capped to a multiple of the borrowers income, probably seven times.
4. Rents will keep going up.
There will be no let up for tenants as property investors turn their attention to the return on their investment in the light of the impact of major changes to the tax efficiency of investment property. In particular, property owners will look to recoup lost deductibility on mortgage interest payments which are being phased out over the next four years. Expect to see the Hon Grant Robertson, Finance Minister, threatening to regulate rents if the increases continue , but I’d be very surprised if he actually does it.
5. First home buyers will survive.
Despite the impact of the loan-to-value ratio restrictions, debt-to-income restrictions, and changes to the Credit Contracts and Consumer Finance Act, first home buyers will continue to be active in the market. Under the CCCFA, Banks will relax their draconian rules as the year progresses and/or the Government review of the Act will lead to tweaks which curtail the excesses of current bank lending policy. Either way, first home buyer numbers for 2022 will be down, but not out.
- Ashley Church is a property commentator for OneRoof.co.nz. Email him at [email protected]
