ANALYSIS: Most people should now be aware of a couple of things to do with the housing market. The first is that prices have stopped falling and are now rising in most places, including Auckland where they are 1.9% above their lows while the rest of the country is up 0.5%. The second is the boom in net migration.
Having said that, I know from experience that many people take their view on migration flows not from the data provided by Statistics NZ but what the people they know are discussing regarding their kids, friends, and relatives going or not going to Australia.
In that regard people are right to express the view that screeds of Kiwis are leaving. The gross outflow to all countries was 61,000 in the year to June and the net flow 35,000, which is the biggest net loss since 2013. Back then the annual net loss peaked at 44,000 and we are probably headed to exceed that given the widespread nature of discussion about going to Australia, especially among young people.
But I suspect what most people are missing is the huge flow of foreigners coming in. The gross inflow of non-Kiwis was 169,000 in the year to June and the net flow 122,000. Put all these numbers together and we get a net boost to our population this past year from migration of 87,000. This is a record excluding the first few months of the pandemic in 2020.
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There are two main effects coming from this large inflow of predominantly Chinese and Indian people. First, the labour market is easing up with a now above average proportion of businesses saying that it is easy to find unskilled labour. Things are of average difficulty when it comes to hiring skilled people. This is good for the country’s growth and implies an easing of inflation from wages growth.
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Second, the large influx of people is placing pressure on the rental market. I can see evidence of this from the monthly survey of residential property investors which I run with Crockers Property Management.
At the end of last year a net 8% of these investors said that it was hard to find good tenants. Come March a net 6% said they were finding it easy, July 17%, and this month a record net 22% are finding good tenants easy to secure. The rental market has turned firmly this year and while some of this will reflect properties going back to servicing students and tourists, the main reason will be the 2.1% NZ population surge this past year.
Independent economist Tony Alexander: “The rental market has turned firmly this year.” Photo / Fiona Goodall
What will decreasing rental property availability and eventually more firmly rising rents do to house prices? Push them higher. In fact, this effect will be magnified by the extra increase in rents coming from rising costs such as for insurance and rates. Note that I have not found any correlation over the years between changes in interest rates and changes in rents.
There are of course many other factors in play for the housing market which help explain the shift in popular picks for price rises next year towards the 10% mark. One important one now in play is the increasing probability of a change in government come October 14 and therefore the return to investors of the ability to deduct interest expenses from their rental incomes for tax purposes.
My surveys show a very strong detrimental impact on investor property demand from late-March 2021 when the rules were announced. Therefore, while we cannot make a reliable estimate into how much of a demand boost will come from investors if National wins the general election, it seems reasonable to expect some extra price pressure at the low to middle end of the price range around the country.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
