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11 January 2017

Steady As She Goes

The Property Institute’s Ashley Church Contemplates The Ability of Recent Major Events To Unsettle Auckland’s Housing Market.


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There are the earthquakes, John Key’s resignation, Bill English’s appointment as Prime Minister, the Trump effect, Brexit – and who knows, the Labour Government could rise to power in 2017. Can the housing market stand firm under threat?

Ashley says it all relates back to confidence. Whether we’re talking about the Auckland market, with its lack of supply and urgent need for more houses or the more speculative market, where there is little population growth yet demand is rising, confidence underpins both.

No matter what happens at home or overseas, the effect significant events have on our confidence is the key driver of New Zealand’s property market, says Ashley.

Ashley Church, Chief Executive, Property Institute of New Zealand.

Ashley Church, Chief Executive, Property Institute of New Zealand.

“If the earthquakes had happened 10 years ago, I suspect they would have had a devastating effect on the economy. But in Christchurch and Wellington, it’s made virtually no difference and confidence hasn’t been affected. People have seen the way they dealt with Christchurch and recognise, on the scale of things, it won’t make that much difference.”

Except, he is certain even more pressure will come on the available labour market, and demolishing and rebuilding will stretch resources further. “But that also attracts more people to Auckland, which is exactly what we don’t want for the property market. Talk to developers and the major issue is a lack of skilled labour and the cost of resources. That will have some impact on the ability to build. But it also fuels the economy and keeps us on a strong track.”

The demolition of 1970's Downtown Shopping Centre clearing the way for a new 39-storey office tower. A major issue for developers is the is a lack of skilled labour and the cost of resources.

The demolition of 1970's Downtown Shopping Centre clearing the way for a new 39-storey office tower. A major issue for developers is the is a lack of skilled labour and the cost of resources.

Then there is the effect of Bill English’s rise to power. Will this undermine what the National Party has achieved?

“Within the National Party context, it depends on how Bill English performs over the next few months. I think there will be a dent in National’s poll ratings because previously they were based on Key’s personal power. But if he can deliver on the things he’s talking about, it will be business as usual.”

And if National does lose power in 2017, will this spell calamity?

“A change of Government doesn’t actually mean that much. It’s all smoke and mirrors. Labour and National aren’t that different."The sorts of things Labour might do are very much around the fringes. They might bring in ring fencing of property investor losses. That’s not necessarily a bad thing. They might take some power from the Reserve Bank and play with aspects like LVRs and removing the 20% deposit requirement on first home buyers. “In terms of banking I don’t see much change. There’s been independence around the Reserve Bank for 26 years.”

Then there are the global phenomenon, like Trump and his policies of economic nationalism. “Trump is a big question mark hanging over the world. And as other countries become less open to immigration – New Zealand is in a favourable position as a more welcoming place to come to.

“Trump will put trade barriers in place. The US has been our third choice of trading partner but when you look at other options around the world, we are comfortably poised."

“We are the world’s pre-eminent free trader and that will continue to put us in good stead.”

“The TPP wasn’t about a huge amount of money. It was more about potential. Brexit in the medium term will be positive for New Zealand as the Brits look around for trade relationships with old friends. We will probably settle a deal with the UK and another with Europe – two for the price of one.”

Construction cranes are now a prominent feature of the Auckland skyline.

Construction cranes are now a prominent feature of the Auckland skyline.

According to Ashley, the Auckland market is not likely to crash soon. It comes down to supply and demand, he says and how quickly we can build enough houses.

“There are just two things that can change the market quickly – a dramatic turnaround in immigration – both Kiwis leaving and people arriving here.” Census figures show the level of home occupancy has dropped significantly in recent years. We have far fewer people living in homes and a rapidly rising population. We need more houses. Any drop in that demand will see prices fall.

The other influencer that could change the market is a dramatic increase in interest rates. The chances of interest rates rising were greater with Trump’s election. But the impact has been small. "Interest rates may rise by around 1% in the next year or so. But we won’t see them going up to where they were a decade ago." No economist wants interest rates to go up high and fast because that drives up the exchange rate and makes it hard to export. That’s why the Reserve Bank won’t put up interest rates. They’re concerned about the value of the dollar and want to drive it down not up. That’s true of all western economies. 

So when you look at all indicators, says Ashley, the property story is very positive. And despite the fact we have these major developments happening all around us, nothing has even put a dent in housing market confidence. 

 

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