House prices to peak next year on new supply

Monday 25 July 2016 02:13 PM

House prices to peak next year on new supply, lower migration: Infometrics

By Paul McBeth

July 25 (BusinessDesk) - New Zealand house prices will rise another 17 percent before peaking late next year as accelerating building activity takes time to meet the imbalance between a lack of housing stock and growing demand, says economic consultancy Infometrics.

The Wellington-based firm sees 2017 as a peak for the market. It forecasts a fall-off in demand as the rapid inflow of new migrants and Kiwis staying at home starts to ease, while new building eats into the supply shortage. From that peak, Infometrics predicts a national decline in house prices of 14 percent in real terms by mid-2020. That would leave house prices 11 percent above the high they reached in 2007 after the last property boom and immediately before the global financial crisis.

"Such a sharp lift in building activity will not come without side-effects, with intense pressures on construction sector resources fuelling increases to building costs," Infometrics chief forecaster Gareth Kiernan said in a statement. "If building activity hits the levels we are predicting then there could eventually be some softening to house prices in Auckland and regional property markets in the 'halo' around Auckland."

The rapid gain in house prices has been a contentious issue for policymakers who have seen a shortage of new housing in Auckland coincide with record levels of inbound migration, stretching the ability of low-income families to buy property despite low interest rates making it easier to repay debt. To try and keep those low rates from pushing up prices further, the Reserve Bank has introduced a series of mortgage lending restrictions in recent years and has signalled more are to come.

Infometrics' Kiernan said the RBNZ's macro-prudential tools may slow the market in the short-term, but aren't a long-term solution.

"The Reserve Bank’s moves last week to increase restrictions on lending to investors and low-deposit households were merely a sticking plaster on demand and are likely to have the unintended consequence of shutting some first-home buyers out of the market," he said. "Ultimately lifting housing supply is the only way to get lasting improvements to home affordability."

A major contribution to improving Auckland's housing supply is expected this week when the city's draft unitary plan is released. Central government laid most of the blame for the sharp increase in house prices on poor local body planning, and Building and Housing Minister Nick Smith will finalise a national policy statement on urban development and resource management reform legislation before the end of the year.

(BusinessDesk)

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