Article: Our House = Our Home

Why Have Properties In NZ Become So Expensive? with Carie Townley

Despite a slow start to the year, REINZ’s House Price Index report shows New Zealand’s property market to be picking up speed, with property prices set to continue their uphill ascent.

Released last month, the report shows the national median property price has increased to $546,000 - a 10% growth from March 2016 and a new record median for the country. Twelve of the country’s regions have also broken current pricing records, with Auckland’s median sale price now sitting at $890,000. At almost 10 times the average national wage, the city is now considered one of the most expensive markets in the world.

There are a number of factors fuelling house price inflation, but the fundamental issue lies in the mismatch between supply and demand. New Zealand is an attractive market to local and overseas investors thanks to its consistent economic growth, stable government, and population growth is predicted to remain strong over the coming years. Coupled with the high rate of inward migration, demand for property is continuously increasing, thus driving up costs. Some reports suggest Auckland alone has a shortage of up to 35,000 homes.

Additionally, low interest rates have also driven up the demand for property, allowing homeowners to take out mortgages they otherwise wouldn’t have been able to afford, and resulting in an increase in household debt.

Although some efforts are being made to create new homes, the process is both slow and expensive. With less land on offer, it can be hard to find areas suitable for large-scale developments. Many available sites are more difficult (and as a result, more expensive) to build on, and liability rules for the industry as well as council involvement means the process can be thwarted with issues. New developments also require complex and expensive infrastructure (water, transport, etc.), which can be problematic to finance.

Higher mortgage rates, LVR restrictions and tighter controls have been introduced as a means to ease the growth of the market, however, the mismatch between supply and demand is likely to support a continuous increase in property prices for the foreseeable future.

Market Update

Having dropped to an historic low of 1.75 per cent in November 2016, the Official Cash Rate continues to remain unchanged. With inflation still low, Reserve Bank governor Graeme Wheeler has stated he is in no rush to move this, although heightened geopolitical risks could lead to a change sooner than planned.

Overall, New Zealand’s property market is still experiencing growth, even though housing price inflation has moderated, in part due to tighter restrictions on loan-to-value ratio lending. Long-term mortgage rates are set to rise with the lift in global interest rates and the increase in term deposit competition amongst lenders. However, aside from the 0.08%pt rise in the average floating rate, local mortgage rates remain the same as they were a month ago for most terms.

In other news, the Reserve Bank announced earlier this month that they would now publish new monthly statistics to provide greater transparency into the banking sector, including information covering the breakdown of loans, securities, deposits and borrowing. There has been an increased demand from both the public and the media for increased access to this information since the global financial crisis.

“Users will be able to see the banks’ mortgage lending portfolio broken down by payment type, such as interest-only, revolving credit and principal and interest,” says Reserve Bank Statistics Manager Steffi Schuster. “Residential investor mortgage lending will also now be separately identified.”

Business sector statistics have also been extended to include further data on agriculture, commercial property and other business lending activity. The Reserve Bank plans to publish even more data later in the year, providing further detail on bank deposits, as well as information regarding lending to the business sector and commercial property sector. Key statistics such as credit have been backdated to December 2016 to provide comparable historical data.

For a personal mortgage reduction analysis to identify the strategies that are in your best interest, contact Carie today on 0275 228 940, email .(JavaScript must be enabled to view this email address).

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