Northland Property Investors' Association

northland@nzpif.org.nz

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10-05-2016

No regulation needed

The house sale statistics for March came out recently and showed that Auckland prices had risen after falling for several months. Other areas around New Zealand are also seeing house price increases and a new wave of media property angst developed.

Rental property investors were again in the spotlight as 44% of Auckland sales in March were rental properties. We were seen as the reason for house price rises because we were pushing up demand. However rental properties account for more than 40% of the housing market in Auckland, so it isn't surprising that investors normally make up this percentage of property buyers.

The real reason for increased demand is not the proportion of different buyers, it is the fact that our population is increasing at record levels. Latest Department of Statistics records for February showed that the annual increase in net migration for the year had reached over 67,000.

This level was achieved through more Kiwis coming home and fewer leaving for other countries rather than a higher level of overseas migrants. Because of this, the population growth is more spread out over the country, although naturally the highest concentration is in Auckland.

It is the imbalance in supply and demand that is likely to have the greatest impact on house prices, and this doesn't appear to be changing any time soon.

Auckland property prices started to soften around October last year, and the regulatory changes aimed at property investors were assumed to have been the key reason.

However the Auckland market had been growing for a few years and was at the point in the cycle where it was likely that prices would soften. Although it cannot be quantified, it also appears that Chinese buyers fell away quite sharply at the same time. This was no doubt partly as a result of new requirements for IRD numbers and bank accounts, but it is more likely due to the economic and political changes in mainland China. The fact that other countries also saw a fall in Chinese property buyers tends to suggest that New Zealand's specific regulatory changes were not the key reason.

Although there is still a supply and demand imbalance in Auckland property, we should also not read too much into the results of one month. Statistics can be difficult to interpret. The large increase in Auckland's median property price may be due to a higher proportion of expensive properties being sold in March rather than an overall increase in values. The REINZ reported that March saw "a noticeable surge in sales of higher priced properties, with the number of sales over $1 million increasing by over 90% compared to February. This is especially true in Auckland, where one in three properties that sell are valued at more than $1 million - a record 35% of the market.”

Before we get concerned at the results of one month's statistics and receive the inevitable calls for more regulation to help home buyers, we should take a look at affordability studies.

Massey University has just come out with their latest affordability study and states that "Auckland sustains improvement in affordability for the third consecutive quarter, contributing to a modest annual improvement of 3.1%".

Nationally, property prices are 9.2% more affordable than a year ago according to Massey. This is due to income increases of 3% and falling mortgage interest rates that are more than offsetting property price rises.

So the housing market is behaving more or less as you would expect and there is no basis to the calls for more regulation.

One change that would be nice for our tenants is the potential for an increase in the accommodation supplement in this month's budget. Reducing overcrowding in rental properties needs more attention than improving affordability for home buyers.

Tags: federation reports

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