With October over, it is once again time for major organisations to share their views on the housing market. According to Barfoot & Thompson’s figures, the average sale price in October 2017 was NZ$910,537, down 0.9% from three months earlier. The median price for October was NZ$830,000, unchanged from three months earlier.
Barfoot & Thompson managing director Peter Thompson said house prices were indeed under some pressure. Comparing October’s average and median prices with September and October last year revealed slight changes. But viewed across the past three months as a whole, market prices remained stable.
Judging by the performance of New Zealand’s largest real estate agency, property sales remain disappointing. October sales fell again to 634 transactions, the lowest level since February this year and the weakest October in seven years.
Buyers’ lack of appetite pushed the number of properties for sale to a 5-year high of 4451. Clearly, homes have been difficult to sell lately. Peter Thompson attributed the quiet market to the longer-than-usual time taken to form a new government after the election. Then came the familiar refrain: market uncertainty has cleared, and we have now entered the annual peak season for property.
Survey shows a subdued market response
Yet life is full of surprises. The future keeps challenging the patterns of the past.
On 2 November, consumer research specialist Nielsen wrote on its website: “Over the next 12 months, 253,000 New Zealanders intend to buy property, while 115,000 intend to sell. Compared with 2016, buyer numbers are down 34% and seller numbers are down 41%.”
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In essence, enthusiasm for property transactions has cooled compared with last year. The survey was conducted online between 8 August 2017 and the 17th, with a sample of 1204.
Beyond the signals from market sentiment, bankers’ forecasts for future house prices are also rather lukewarm.
According to the New Zealand Herald, current BNZ chief Anthony Healy also expects the property market to remain stable, although the bank’s mortgage lending will continue to grow amid the housing shortage. He has repeatedly voiced concern about housing affordability in New Zealand, but does not believe the recent downturn in Auckland’s market will make homes affordable. “The problem still hasn’t been solved. A lot more homes need to be built.”
What determines house prices?
Although the election result is settled and many new policies are on the agenda, they have yet to be implemented. In reality, the market still lacks a clear direction. Many economists also believe there are not yet enough policy details to make firm judgements about the future.
The stronger the wait-and-see mood, the more investors want to know: when will house prices rise, and when will they fall? Where will prices rise, and where will they fall?
The same questions also trouble friends and family back in China. Let us look at how Chinese economists explain the house price puzzle. Ren Zeping, chief economist at China’s Founder Securities, has studied property for 10 years. He sums up the logic of property investment in one sentence: “Population in the long term, land in the medium term, finance in the short term.”
“To judge whether house prices in a place will rise or fall, we must first determine whether people will move into or out of it. Where people are moving in, what happens to house prices over the long term? They rise. Where people are moving out? Prices certainly cannot gain momentum.”
“In the medium term, look at land. If people are moving into a place but the government does not release land, what happens to house prices? They rise sharply. In the short term, look at finance. If people are moving in, the government is releasing little land, and monetary stimulus has just begun, what happens to house prices? They soar.”
Following this logic, let us consider New Zealand’s policy direction and present some facts for readers to weigh together.
Population: New Zealand is a country of immigrants. Population growth in recent years has relied mainly on immigration. Official figures show that 71,000 people moved to New Zealand in the year to September 2017. In September, 5100 people moved here, the lowest monthly figure in two years. Notably, the current government formed by Labour, New Zealand First and the Greens has already planned policies to control immigration numbers.
Land: Successive updates to the Auckland Unitary Plan are steadily freeing up land. Some farmers have even complained that residential land is encroaching on farmland, reducing fruit and vegetable production. The industrial property sector is also concerned that extensive housing development on the urban fringe is affecting the availability of industrial land. The government’s overall direction is clear: find every possible way to secure more land for housing.
The number of new dwelling building consents reached 2770 in September 2017, up 6% from September last year. Despite a sharp fall in new dwelling consents in Canterbury, the annual total for the year to September 2017 was 30,892, up 3.0% year on year. Overall, building consent numbers are trending upwards and have reached their highest level since early 2004.
Finance: The Reserve Bank of New Zealand previously said it would keep the official cash rate unchanged for around a year. However, major mortgage rates have already begun trending upwards. Meanwhile, the bank has shown no sign of easing LVR lending restrictions, and discussions about DTI restrictions are continuing.