Poised for growth
Many fundamentals aligned to accelerate New Zealand’s residential sector into its epic period of price growth. These included bustling economic conditions, a population explosion, a reversal of historic underinvestment in infrastructure and development activity, quantitative easing and globally low interest rates, high levels of employment and job security, and easy access to credit.
In December 2018, some of these drivers remain in place, but not to the same extent. The recent boom period is not the ‘new norm’, but equally, we are not faced with a market crash. The raft of legislative changes and market constraints introduced to increase financial stability are enabling market conditions to temper. Importantly, for the sector’s long-term prosperity, we are entering an adjustment phase that will bring plenty of positive opportunities, just not so readily as in the past few years.
In 2019 and 2020, we can expect price growth in the regions to continue playing catch-up to Auckland’s monumental run. This will be most noticeable in locations with strong job prospects and undersupply. Auckland is now in a prolonged period of price consolidation. There will not be a hard landing as the measures introduced
have limited the sector’s susceptibility to such a correction.
However, lower rates of price growth in Auckland will have ripple effects throughout the development industry. A levelling off in sales prices and rates of sale, along with stubbornly high development costs, will lead to a cyclical high in deferred and abandoned projects. This will counter productively reduce future supply that is needed to unlock more affordable prices. While KiwiBuild will underwrite certain projects and enable supply, it’s not a long-term silver-bullet solution.
To really deliver long-standing price stability and improve affordability, a number of conditions will need to emerge. In conjunction with the government, the private sector will need to increase capacity, land values will need to recalibrate, innovative building, consenting and financial models will need to be instigated and expectations of capital growth moderated. If these conditions don’t eventuate, price growth rates will likely creep further upwards sooner rather than later.