Aussie rules in price drops
NEW ZEALAND remains one of the world’s least affordable housing markets but it’s wrong to forecast a collapse based on what’s happening in Australia, BNZ chief economist Tony Alexander says.
While house prices in Melbourne and Australia are 10 percent to 15 percent off their peaks, “it is not valid to extrapolate recent declines in Australian house prices into the NZ scene,” he argues.
“Forecasts of a collapse in New Zealand house prices have been made repeatedly since the 1980s and were most prevalent during and immediately after the GFC [global financial crisis].
“None of these forecasts have proved correct. Average prices fell only 11 percent between 2007 and 2009 and have risen 88 percent since then.
“Since 2003, while Australia’s Capital Cities House Price Index has risen by 90 percent, New Zealand’s nationwide index has risen by 150 percent.”
Alexander says one reason for the difference in price growth is Australia’s housing stock has jumped by 30 percent compared to 20 percent in NZ.
“In New Zealand there is a housing shortage which is getting worse, whereas in Australia there is a temporary oversupply.
“The New Zealand housing shortage is growing and will
continue to do so as net migration flows are remaining high, near 50,000 per annum.”
He points out while Australia’s household debt servicing ratio rose from 8.2 percent to 9.1 percent between 2003 and 2009, NZ’s ratio fell from 9.1 percent to 7.6 percent.
Another difference has been fewer sales to foreign buyers in NZ. Since 2016, average non-resident buying has slipped from 2.5 percent of all sales to 0.6 percent whereas comparable Australian figures show foreigners accounts for less than four percent of existing houses and five percent of new dwellings.
Apartment sales also play a bigger role in the Australian market.
“Since 2003, 67 percent of dwellings built in Australia have been in multi-unit developments. The NZ proportion is just 26 percent,” Alexander says.
“Prices for apartments have historically shown greater volatility than prices for houses.”
He adds stamp duties have depressed Australian prices, in NZ there was no surge in people gearing compulsory superannuation money into housing as occurred in Australia, and, until recently, interest-only mortgages accounted for a much higher level of lending across the Tasman.
There also have been construction constraints in NZ.
“The most recent annual number of dwelling consents issued in New Zealand is 34,500 or 1.8 percent of the housing stock,” Alexander says.
“In Australia the number is 190,285 and the proportion 1.9 percent - still greater than in New Zealand even after a fall from 230,000 a year ago.
“There is a shortage of builders across all trades in New Zealand partly because shortages offshore have attracted some Kiwis away for higher incomes and opportunities.”