Concerns are starting to grow among New Zealand homeowners about the impact negative net migration over the last 1-2 years, along with increased interest rates and changing development rules, will have on their property values. In a country where most of us have our wealth bound up in our homes, these are very real concerns.
So will the value of your home move up, move down or remain stable over the next year or two?
And what impact will this have on your thoughts about renovating or extending your home?
So let’s first look at the probable move in value. The question to ask is what was the main contributing factor in property price rises over the last few years and will these continue to drive property values?
Whilst there are a number of factors at play today in my mind the key driver was rampant net migration over the preceding 5 – 10 years that created a significant imbalance between supply and demand – the #1 contributor to 90% of price setting across all industries .
Yes, there have been record low interest rates, some other government stimulus of late and skills and material shortages are what everyone is talking about today but these are largely consequential matters of no bi-party population policy coupled with largely open border policies over a number of years. This has resulted in both a totally unacceptable housing crisis in NZ along with a massive catch up regime causing the aforementioned labor & material shortages. Average house prices now sit around 10 times average income – a far cry from the 3.5 times multiple that existed when I bought my first home.
As we start moving out of a pandemic world government officials are constantly hearing from industry groups about their inability to find suitable employees to meet their needs and unsurprisingly we read this week of net migration in New Zealand looking likely to move into the positive from May.
Why do I say unsurprisingly?
Because history tells us that successive NZ governments are slow to learn from past mistakes (their own and others) but quick to try and solve current problems with poorly thought through policies. Hence the housing crisis of the last few years!
So with the above factors in play, it is reasonable to think that whilst we are seeing a flattening, or small falls, in house prices today we are also starting to see the obstacles to net migration rising being removed. In-depth reading of recent immigration policy statements has led a number of commentators to say the restrictions touted in the headlines are not necessarily backed up in the fine print giving credence to the thought that history will repeat.
And let us not forget that whilst economists may be predicting house price decreases of 10-15% people who bought their homes just a year ago will still be sitting pretty on the capital gain they’ve made in that time – an average in excess of 25% last year.
It is also worth remembering that in the past, a serious housing downturn has come with a recession, but no one is suggesting that and unemployment, a key indicator of homeowners’ ability to pay their mortgages, is at record lows
Given the above it is reasonable to predict that any significant or sustained fall in house prices is unlikely and that with net migration not being tied to our ability to provide infrastructure then in all likelihood another wave of housing shortages is just around the corner.
So then what, if any, impact will this have on the residential alterations and additions market that has boomed over the last two years?
The answer is likely to be very little as whilst the annual capital gains will almost definitely be lower than the 15-30% achieved annually over the last 2-3 property will continue to increase in value and therefore likely cover the costs of any such work .
I ran into a friend last week who is a 40 year veteran of the building game and a long time member, and past Wellington President, of Certified Builders and who operates Pzazz Building in the Wellington/Kapiti Coast region specializing in the home renovation market and I asked him what he was seeing. He told me that he had a few conversations with concerned homeowners but when they looked at the fundamental drivers and history they came to the conclusion that the risk was very low. They also stated that they needed to keep their key asset in good condition and fit not only for their own needs but also to those of potential buyers when time has come to move on. As such many saw renovating or extending their home could be the best way to improve capital value.
In summary it is likely that the biggest impact on house prices would be if the government, hopefully in conjunction with the likes of NZ Business inc., came up with a sensitive population policy that aligned with it’s emissions policies, and a clear and workable strategy to achieve thesis.
Sadly I’d bet my house renovation on this being very unlikely.
Authored by Russell Poole, Managing Director, Nuovo Group Ltd.
© Scoop Media
Support the news you love
Scoop has been a champion of independent journalism and open publishing for over 20 years. It stands for informing New Zealanders through straight-talking independent journalism, and publishing news from politics and a huge range of sectors. Now, more than ever, sustainable financial support will help to keep these vital and participatory media services running.
Find out more and join us:
Become a member Get our free panui