After the frenzy years, Kiwis adopt a wait-and-see approach

2018 has been the year of the plateau, as the market stabilised and shifted down a gear after the mania of 2016/17.

The crash that many feared was imminent, given that we are at the end of the traditional 10-year cycle, has not eventuated. In fact, most market levers are still positioned to support growth, albeit at a slower pace.

The Coalition Government is one year in and fears that the property market would crumble around it have more or less abated, although uncertainty around tax does appear to be related to caution in the market.

Analysing property market drivers within a supply and demand framework can help us understand what impact the current climate is having on the property market.

Taxation of residential property (signalled by the Tax Working Group), a Healthy Homes Guarantee Act and changes to the Tenancy Act have led to a “wait and see” vibe within the market. Many property market participants are opting to hold their current positions until any impact of legislation and regulatory changes are market tested.

Loan to value (LVR) ratios have impeded certain types of buyers, notably investors. In the latest iteration of LVR, banks have been required to:

• Hold no more than 15 percent of their residential mortgage lending to highLVR (less than 20 percent deposit) borrowers who are owner occupiers; and

• Hold no more than 5 percent of residential mortgage lending to high-LVR (less than 35 percent) borrowers who are investors.

On the other side of the demand equation, activity levels are still being supported by historically low mortgage rates.

At the upper end of the market, changes to foreign buyer legislation may have an impact on demand, although the natural reduction in net migration over the past six months has had a significantly larger knock-on effect.

Many Kiwis still seem to feel that much of the market is unaffordable. “That’s just too much to pay for that property” is a common refrain right now.

The supply side of the equation is still characterised by a shortage of residential housing stock within main urban centres (most notable in Auckland) and a constrained building sector struggling to create enough supply to meet demand levels.

KiwiBuild may begin to address some of this imbalance in years to come. However, to date it has produced very few finished homes that weren’t already under construction. With existing housing stock, sales volumes have dropped significantly from their peaks. However, there appears to have been a rapid return to traditional seasonal market conditions, with the warmer weather now driving some growth into activity levels again. Overall, the market is less hot now than it was two years ago, but it’s still a long way from running cold, or even lukewarm. A low interest rate environment and constraints in housing supply continue to support value levels and growth.

James Wilson is director of valuation innovation at Valocity.