ANALYSIS: Statistics New Zealand have just announced that in the year to July there was a net loss of Kiwis offshore of a near record 39,000. This is more than double the average loss each year since 2001 and probably makes sense to a lot of people in light of the many conversations we seem to be having about leaving the country.
One of the clear themes to come through from my monthly survey of businesses with Mint Design is that the outcome of the October 14 general election will play a big role in whether plans are advanced for expansion and maybe even personal location.
Start your property search
But while some months back these popular discussions about leaving probably dominated people’s thoughts and made them think population growth was still slow and suppressing the housing market, now the conversation has likely changed. This is because the flood coming into New Zealand of Indians, Filipinos, Chinese, and South Africans in particular is so large the net flow across all nationalities is now a gain of over a record 96,000 people.
This is equivalent to a 1.9% boost to our population and all of these extra people need somewhere to live. That is placing pressure on the rental market and in turn placing pressure on young people to consider accelerating their plans for making a home purchase. As yet it is hard to find solid evidence that the new rental sector pressure is causing the rate of growth in rents to accelerate. But competition for accommodation is probably enough to turn many minds towards buying.
Read more:
- Mortgage stress: Kiwis ditch the renos as banks pile on more pressure
- Mystery celebrity shows interest in $1.8m coastal home
- 'Classic' pink bach sells for just over $1m
That buying has in fact already lifted strongly as seen in REINZ sales data released this week. In seasonally adjusted terms over the past three months to August house sales have grown by about 8% after rising nearly 20% in the three months to May.
Prices are also rising and now sit 2.1% above their lows nationwide. Average Auckland prices have so far recovered 3.1%, Wellington prices 3.5%, and Canterbury prices 3.0%. Average prices nationwide are still 1.1% below levels at the end of last year but the way things are progressing my long held view that gains this year will end up near 5% looks to be on track.
Next year gains nearer 10% are likely, especially as falling interest rates will make purchasing possible for many people who currently want to buy but cannot meet debt servicing requirements set by banks. The migration boost next year is likely to still be there, but probably not as large as we have seen in the past year. A gain perhaps near the average from 2014-19 of 55,000 seems reasonable to assume.
Independent economist Tony Alexander: “Competition for accommodation is probably enough to turn many minds towards buying.” Photo / Fiona Goodall
The strong population pressure is an important development for the home building sector. For over a year we have seen liquidations of businesses in the residential construction sector and many more look likely to happen. Costs have soared but ability to recoup these rises from buyers has been difficult. Some people have lost their deposits as projects have collapsed and for now that has caused some buyers to veer away from purchasing a new build towards buying an existing house.
But as house prices climb further, the stock of listings goes down, and worries about finding a property increase, people will turn their attention back towards getting something new built. For builders the message here is, if they have not already done so, to batten down the hatches to get through the period of low demand and be ready for when the buyers come back again.
When might that happen? Probably 2025 and perhaps even towards the end of next year – in the cities at least. In the regions there is going to be suppression of housing turnover, prices, and construction by weak export prices for farmers along with the possibility of a strong El Nino weather pattern bringing drought to many areas - on the east coast in particular.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
