Is The End In Sight For House Price Surges
The housing market has been a great run for property owners with average prices rising more than 650% over the past 30 years, 150% the past decade and 31% the past year. But Tony Alexander believes this may be about to end.
1 October 2021
Independent economist Tony Alexander says the endgame for the converging periods of surging house prices is underway.
He says migration will have a big effect on the housing market. Making a rough calculation that if the borders open in January, Alexander says there will be a backlog of somewhere between 55,000 and 75,000 Kiwis “wanting” to leave New Zealand. If that is offset against a backlog of about 5,000 people wanting to get into the country, he says there is scope for a large outflow of Kiwis overseas when things return to whatever the new global movement “normal” is.
"The net migration flow of Kiwis looks like it will easily turn negative again once the borders open and could comfortably exceed the long-term average of -17,000.”
Alexander says fewer houses will be bought and more will be sold. “The most important impact is likely to come from attitudes regarding New Zealand’s underlying population growth.
“We will likely see the open discussion again of brain drain, especially in the context of huge demand for Kiwi labour out of Australia; strong job markets in other countries such as the UK and United States; extraordinarily high house prices in New Zealand doing what they always do – causing young people to seek their futures elsewhere; above average increases in the cost of living (inflation); and open discussion of the relatively low wages paid in New Zealand.”
At the same time this is happening the Government will be implementing its policy of cutting back on the number of migrants coming into New Zealand. It believes the flood of migrants on working visas in particular since 2015 accounts for low wages growth; low business capital spending; pressure on accommodation supply; and upward pressure on house prices and rents.
Alexander says the change in migration flows and discussion around them will come at the same time that house supply is booming; interest rates rising by perhaps 2.5%; and new restrictions on investor purchasing and holding of rental property being imposed by the Reserve Bank and the Government.
The long-term operators who are well capitalised, are good property managers, who have properties in locations of longterm population growth, and who have seen the up and down cycles, will be fine, he says.
“Many will already have been selling their crap, and they possibly still have some portfolio rationalisation to do. Some of that will involve selling existing stock and buying new builds.”
Most at risk, says Alexander will be the inexperienced, highly indebted recent investors who might sell out of a perfectly good asset, with good long-term income and capital gain potential, because they think the world is ending.
He suggests new buyers join one of the Property Investors’ Associations around the country and spend time talking with those who have experience.
“They’ll be able to give you some perspective you might lack. Also, consider placing your property with a good property manager. They tend to keep rents more up to date with market levels than self-managing investors do.”