With net migration surging to new highs and the residential construction sector slowing on the back of rising interest rates, new demand for housing is now significantly outstripping new supply, ANZ says in its latest Property Focus report.

“In other words, New Zealand has a widening housing deficit,” says Sharon Zollner, ANZ’s ANZ chief economist.

By ANZ’s estimates the housing deficit had largely been eroded by the third quarter of last year.

However, new demand for housing outstripped new supply in both the fourth quarter of last year and the first quarter of this year.

Together, over these two quarters alone, the shortfall between new housing supply and demand has come in at around 5,500 dwellings, taking the net migration numbers of 72,000 people arriving in NZ on work visas this year at face value.

Plotting the quarterly new supply and demand balance against house price inflation suggests house prices could turn quite quickly from here, especially if there is a slowing fixed mortgage rate headwind, the report says.

However, mortgage rates are still a lot higher than before and that affordability – in terms of serviceability and the price level relative to incomes – is hardly at a level that screams “bargain”, Zollner says. That is, affordability constraints should prevent the market from really taking off.

All up, she says this may be a floor for house prices, but the outlook is no more certain than previously.

A sharp deterioration in household incomes, for example, is a big downside risk that could lead to a sharp rise in forced sales. But there are upside risks too, such as migration.

Then there’s the upcoming election, which adds significant uncertainty around housing policy – interest deductibility being a big one – not to mention the potential implementation of DTI restrictions by the RBNZ from early next year.