Housing market in trouble? Granny flats to the rescue

1. We’re technically out of recession

Last week’s GDP figures showed a 0.2% rise in the first three months of the year, ending another mini-recession for the country. Agriculture was a positive contributor, but manufacturing and construction among other sectors fell backwards. The lift was minor, and even though the recession has finished for now, there’s a decent chance that the Q2 figures could be negative (when we get them in mid-September). Either way, it'll still feel like a recession to those who have lost their job, or are suffering from the cost of living squeeze and higher for longer mortgage rates.

The country is still waiting for inflation to return to the Reserve Bank's target rate, and the first cuts to the official cash rate. Lower mortgage rates are unlikely to arrive until 2025.

2. Housing market has lost momentum

Given that job security is fragile and economic growth is subdued, it should be no surprise that the housing market has gone quiet. Last month, there were around 6800 property transactions, 9% more than in May last year, but roughly 15% fewer sales than the long-term average for the month.

Buyers are taking their time. That’s keeping a lid on sales, and, of course, with supply outweighing demand, prices are under pressure.

3. How confident are you feeling?

ANZ will publish its consumer and business sentiment surveys this Thursday. Confidence levels will probably be low, unfortunately. On the other hand, it would be encouraging if inflation expectations eased.

CoreLogic chief economist Kelvin Davidson: "It'll still feel like a recession to those who have lost their job." Photo / Peter Meecham

4. How much are we borrowing?

Later on Thursday, the Reserve Bank will publish its mortgage lending figures for May. I’m expecting to see a continuation of what has been a slow recovery. It’ll be interesting to see how much interest-only and low-deposit (high LVR) lending has occurred. Arguably, investors have the most to gain from the looser LVRs (July 1, 2024), so keep an eye on those figures in the coming months.

5. Granny flats to the rescue

The Government plans to loosen the planning rules around granny flats, allowing homeowners to add a small dwelling to their property without building consent, although the structure would still be subject to the building code.

It’s hard to know how many people might take up the option, but some CoreLogic research from last year showed that in Australia the potential for granny flats is significant. In Sydney, it was estimated that the number of possible sites could be equivalent to as much as 17.6% of existing dwelling stock, with 13.2% in Melbourne and 23.3% in Brisbane. Watch this space, but ultimately it could be a good way to boost overall housing supply across different types/sizes in New Zealand, and of course an option for existing property owners looking to boost value or generate some extra income.

- Kelvin Davidson is chief economist at property insights firm CoreLogic