We’re still punching above our weight

Increasing exposure to global markets has resulted in NZ becoming a place to do business

The end of the calendar year is always a time for reflection. And as we head into 2020, what better time to look at not only the performance of the new housing market over the last year, but also over the last 20 years. How have bricks and mortar fared since 2000?

What is evident from crunching the numbers is New Zealand has substantially changed. At the start of the millennium, we were a country with affordable housing stock compared with other similar countries.

Now we're a country where house prices are more or less in line with the rest of the world (we're no longer the cheap option for international buyers). In 2019, expect to pay more to live in the main cities, and less in the regions.

This change has mostly been fuelled by New Zealand’s increasing exposure to global markets and increased net migration. We've become a popular place to invest, bring business, buy houses and call home.

Put simply, we are a small country which over-performs. This brings with it major economic benefits but also a series of downsides, most notably housing affordability and home ownership rates.

Conversations around frameworks that support the housing market and seek to address those issues are well underway, and the initial focus areas are reassuring: a review of the Resource Management Act and the mechanisms impeding quick and efficient housing development; a focus on building healthier more sustainable housing stock; and a look into viable longer-term rental/rent-to-buy initiatives.

Narrowing the focus, 2019 has proven another active year for the housing market, although the big changes have been behind the scenes as opposed to within: the reset of Kiwibuild; the dumping of a proposed capital gains tax; the loss of tax breaks for investment properties; the increased focus on healthy homes legislation and standards; the results of the census and local authority elections; and, perhaps most important, further cuts to the Official Cash Rate.

The cumulative impact of all of the above has been to make buyers and homeowners more cautious. The drop in listing volumes, especially in Auckland, has skewed the market somewhat — first home buyers are taking advantage of low interest rates and less competition to snap up "affordable" homes, but there is only so many of those to go around in the main urban centres.

Meanwhile, homeowners in the million-dollar-plus category have been holding out for a pick-up in the market, and recent sales stats suggest Auckland is finally seeing that after two years of a slump.

Despite the above, we are still seeing strong housing market results in smaller locations as investors and first home buyers alike compete for affordable stock. As predicted, rates of value growth have stalled somewhat in these locations, which is reassuring as the census results indicate that not all of these locations have had the population growth to sustain such rapid house price growth.

What will 2020 bring? When we examine the performance of the housing market in 2019 we see a market which was soft at a nationwide level, fuelled by stalled value growth in Auckland and other main urban locations. However, unlike some predictions, value levels did not fall of the proverbial cliff; they simply slowed or flattened as much of the hype left the market.

The underlying fundamentals that underpin value growth are still balanced to support value levels, namely strong demand fuelled by historically low interest rates, coupled with stable and strong net migration (circa 55,000). Despite strong upward trends in new building consents, it is evident that the building sector and framework which supports it is still plagued by capacity constraints and unable to produce the volume of new builds required to balance the supply-demand equation

The cumulative impact of the above should result in the status quo continuing into the first quarter of 2020.

However, homeowners who may have held off selling for fear of making a loss will likely realise that the worst hasn't happened and maybe it's time to re-enter the market. We are beginning to observe this, with investor numbers rising and first-home buying activity showing no signs of flagging.

Of course, the above market confidence may soften again as we approach the 2020 general election and participants again take a sideline approach to the housing market to see what pans out.

Overall, I am not as optimistic that we will see a big spike in house prices in the main cities, and it's likely house price growth in New Zealand's smaller urban centres will continue to soften.

A lot will ride on the election result and housing policies that will be proposed. However, based on historic housing market cycles, I expect that we won't see significant changes in the main centres until the latter half of 2020 and early 2021.