Former Property Institute chief executive Ashley Church, who now describes himself as a property commentator, issued an 8-point prediction list today headed by 2 points: residential rents will rise, and the Government will have to make changes to KiwiBuild.
If KiwiBuild doesn’t change, it dies. For me, the notion that the Government should set itself up as the nation’s builder demonstrated an excess of enthusiasm over realism. What Labour wanted was more cheap homes. To achieve that it needs to provide incentives to both small builders & larger building companies to move their focus from the bigger returns of expensive houses.
One of those incentives is economic certainty – hard to do, given the amount of international uncertainty, but the Government has triggers it can pull. One of those is to set migration targets. The influx was down 14.7% from the net 72,402 in the year to July 2017 to 61,751 in October 2018, with a new figure due out today. Set a low target, and the Government will stop the housing market in its tracks; set a target that ensures growth but not over-stimulation, and builders will see a steady future.
But I don’t make a habit of setting down predictions – what I want to see is rarely what happens. So, over to Mr Church, and his housing market predictions for 2019:
In 2017, he said, he got his predictions 100% right. In 2018, he scored 6 out of 7.
The full list of predictions:
House prices will continue to stay flat throughout 2019 – but there will be no market crash…..
“Data recently released by Valocity shows that house prices across New Zealand were down 1% in the year to October 2018 (compared to October 2017). This matched our prediction for 2018 and is consistent with what would be expected during the flat period of the property cycle. Overall, the median New Zealand house price in 2019 will continue to ‘see-saw’ between small increases & small decreases as most of those regions which are still seeing growth follow Auckland into a general flattening period – but there will be no nationwide ‘crash’ in house prices.”
…..although there may be some large house price drops in specific locations:
“Despite house prices holding up overall, there may be house price drops in excess of 20% in a handful of locations around the country. These will mostly affect property investors and will generally be highly localised (ie, specific suburbs rather than entire towns or cities). These drops will be the result of a drop in investor confidence and/or will occur where house price increases were driven by speculation rather than real demand – but they won’t take place in sufficient volumes to impact on overall house price statistics.”
…..and it will take longer to sell a house (particularly in Auckland):
“According to recent Real Estate Institute data, it took a median 35 days to sell a house in the year to December 2018 (up from 32 days in the year to December 2017) and a median 39 days to sell a house in Auckland in December 2018 (up from 35 days in December 2017). In Auckland, this represents the highest number of days required to sell since December 2001 – but this number may go even higher in 2019 as Kiwis continue to take advantage of the price certainty, multitude of choice and more settled buying conditions associated with a flattening in the property cycle.”
There will be no further major changes to the loan:value (LVR) rules:
“The Reserve Bank will generally maintain its current LVR settings. The LVR for investors will remain at 30% during 2019 – while the LVR for home buyers will stay at 20%. If there are any further changes to the policy they will be in the form of tweaks to the level of the ‘speed limit’ (the extent to which trading banks can have clients who have less than the required deposit) – and these may be increased in 2019 if the market remains flat.”
The cost of renting will continue to rise in 2019:
“While it’s normal to see rent increases in the period following a property boom, the environment in which they will take place in 2019 will be made worse as a result of the real & imagined impact of Government policies, including the expected announcement of a capital gains tax, ring-fencing of tax losses & significant new compliance costs. As a result, we’re in for another year of bigger than average rent increases which will significantly exceed the average increase of $12/week, which took place in the decade between 2008 & 2017.”
High levels of immigration will continue to put pressure on housing:
“Annual net immigration eased to 65,000 in the year to June 2018 – slightly down on the historic high of 72,400 in the year to July 2017 – but still extremely high by historic standards. This easing will continue downward in 2019 – but (despite a pre-election promise to reduce immigration) immigration levels will remain historically high, putting further pressure on demand for both owner-occupied & rental housing.”
[As noted above, the annual net inflow fell to 61,751 in the year to October 2018. For the year to July 2018 the net inflow was 63,779, down 11.9% in 12 months. Over the 15 months from the peak, the fall was 14.7% (10,651). The recipe to maintain lower but steady immigration from now is not easy: Australia will beckon for many Kiwis, but not yet, because its economy is in worse shape than it ought to be in and it’s overbuilt speculative housing.]
The Government will make more changes to KiwiBuild:
“With KiwiBuild homes selling for not much less than the market price, penalties for early sales of KiwiBuild homes and lack of interest in the eligibility ballots, the Government will be forced to make further changes to its centrepiece housing programme during 2019. This will take the form of changes to eligibility criteria, a co-ordinated Government ‘charm offensive’ to private developers or some form of state subsidisation or delayed payment – or any combination of these.”
Toss a coin on interest rates!!
“Going into 2018, every indicator suggested that interest rates were on their way up – partly because of uncertainty around international events, and partly because NZ banks needed to pay more to attract a diminishing fund of investment from Kiwi depositors. But interest rates didn’t go up – they actually dropped! Going into 2019, the situation looks much the same as it did a year ago – but it would be a brave commentator who would make a call this time around. If you want to know where interest rates are going – toss a coin.”
Attribution: Ashley Church.