Housing in 2020
All you need to know
Will house prices climb to new heights? Can enough houses be built to reduce Auckland’s shortage? What’s next for interest rates and how will New Zealand’s general election affect investors? Here’s what the experts have to say.
Rising house prices
National house prices looked like they might finally come off the boil this year because of a slump in Auckland and slower growth nationally.
But a resurgence in Auckland over the past four months has most pundits throwing that theory out the door.
Westpac economists forecast Auckland house prices to rise by 5 per cent in 2020 and national prices to grow even more.
“The housing market has indeed turned,” Westpac chief economist Dominick Stephens said.
“Annual house price inflation has already reached 5.6 per cent, and it now looks as though it will reach 7 per cent by April 2020 at the latest — there is a chance that it could touch 7 per cent even earlier than that.”
Driving Westpac’s optimism were extremely low home loan interest rates, continued migration, low unemployment and a strong economy.
Nick Goodall, from analyst CoreLogic, also tipped prices to jump, saying “it wouldn’t be a surprise to see growth of at least 5 per cent” nationally and more houses being sold overall. Prices should also get a boost from banks being more willing to give out home loans, he said.
They had earlier only given home loans to buyers able to demonstrate they could continue making mortgage repayments even if interest rates climbed to 7 per cent, but this requirement had now eased slightly, he said.
James Wilson, from fellow analysts Valocity, tipped prices to climb by between 2 and 5 per cent, and Auckland real estate agents also say they’ve been selling more higherpriced homes in the past month or so than earlier in 2019.
And it’s not just the experts who are bullish.
Real estate firm Colliers International polled 4518 New Zealanders and found a net 49 per cent believed Auckland prices would rise next year.
For the first time in two years, poll respondents also thought prices would go up in every region of the country.
House price dampeners
Are there any stumbling blocks that could trip house prices up in 2020?
Westpac’s Stephens tipped current low interest rates would make the market run hot early this year, but rates would start rising by the second half of the year, which would cool prices.
“Some fixed mortgage rates are already starting to creep higher again, and we forecast further increases over 2020.
“If that proves correct, the pace of house price increase may well cool by 2021,” he said.
CoreLogic’s Goodall also foresaw hiccups in the second half of the year as new laws forced banks to begin — from July 1 — keeping more cash in reserve as a safety net to ensure they didn’t go broke in an emergency.
This could “put some upwards pressure on mortgage rates” or make it harder for home buyers to get new loans and thus dampen house price growth, he said.
Homeowners also needed to be aware of how insurance companies were increasingly using “risk-based pricing” on their policies.
“This is causing large premium increases for riskier areas — those prone to flooding, for instance — and buyers need to assess insurance early in the process rather than just before they go unconditional,” Goodall said.
Election uncertainty
The New Zealand general election — to be held no later than November 21, — also threatened to dampen price growth.
Valocity’s Wilson tipped buyers and sellers to develop a “really cautious mindset” in the lead-up to the election.
“I think we’re going to see a return to this wait-and-see mentality and the housing market will slow down,” he said.
And although housing had been a major campaign issue in the 2017 election on the back of a near decade of runaway house prices in Auckland, the major parties have recently been keeping quiet on the issue.
The Government earlier fell flat in its efforts to keep up with building targets for its promised 100,000 affordable KiwiBuild homes and reset the policy in 2019.
Its focus has instead turned to supporting private developers with the task of building homes in what was a welcome development, according to Wilson.
Property Investors’ Federation executive officer Andrew King, meanwhile, said most of his group’s members would support National even though it hadn’t unveiled its housing policy.
“I hate to say it, but a lot of our members who previously voted for Labour and NZ First are turned off because of the regulatory changes that have gone through,” he said.
“If they continue like that, people are thinking that those parties are anti-landlord.”
Investor resurgence
CoreLogic’s Goodall tipped investors to jump back into action this year.
Investors had been dominant during the housing boom, but tougher lending rules slowed them down in 2016, before a raft of regulatory changes by the current Government to make rental homes healthier for tenants slowed them further.
These regulations included a requirement for landlords to ensure all rental homes were insulated and to further upgrade them to meet a range of further Healthy Home standards by 2021.
Property Investors’ Federation’s King said many federation members had already taken steps to meet the new requirements.
However, they would still try to fight a proposed law change that would prevent landlords being able to end a tenancy without giving tenants a reason.
They said good tenants would suffer most from the proposed change because it would make it harder to evict bad neighbouring tenants.
But although landlords complained the Government’s changes had made it more expensive and difficult to own rental properties, CoreLogic’s Goodall said most were ready to invest again.
So-called mum and dad investors with three or four properties were those most actively jumping back into the market, he said.
“It looks pretty clear that the drop in returns on other assets, such as term deposits, and also the scrapping of the capital gains tax proposals back in April, have given these smaller players a bigger shot of confidence than other investors,” he said.
This, combined with low interest rates and banks being more willing to offer home loans, meant 2020 could well be the year of the investor, he said.
First-home buyers, on the other hand, were likely to drop out of the market as house prices pushed further out of reach.
Housing supply boost?
The Government may have fallen flat with KiwiBuild, but building industry figures are excited about another big measure it is taking.
It has put a new bill to Parliament proposing future homeowners would pay for the construction of roads, water pipes and other infrastructure needed for new housing.
A pilot programme is in place in Milldale, north of Auckland, where private investors and Government will raise an initial $91 million to pay for infrastructure to support 9000 new homes.
Home buyers will then repay the debt with $1000 a year payments for up to 35 years.
Without the scheme, the Milldale developer would have had to wait 10 years for Auckland Council to be able to raise the money needed for the infrastructure.
Infrastructure NZ chief executive Paul Blair said the Parliamentary bill was still in its early days but had the potential to unlock large tracts of Auckland land for housing much faster, and ultimately help reduce the shortage of houses and keep prices down.
Eric Crampton, from think tank the NZ Initiative, was cautiously optimistic, but said if it lived up to its potential, the legislation could be “revolutionary”.