Kiwibank economics property insights


Population, preference and policy

When it comes to property, Kiwibank Economists say New Zealand is painfully undersupplied and it’s all down to population, preference, and policy.

Chief Economist Jarrod Kerr says: “The largest migration boom ever recorded is receding, slowly but New Zealand will continue to attract migrants and population won’t contract. There is a shortage of over 100,000 homes. Supply has not kept pace with demand. Demand is still growing, capacity constraints are being hit, and Kiwis need more affordable dwellings. Policy changes, like capital gains tax, will hinder confidence but fundamentals outweigh tweaks to taxes."

Kiwibank’s economists expect property prices to consolidate, before regaining traction into the mid-2020s – aided by income and population growth.

"The Kiwi housing market has recovered from the low sales recorded last year. National house prices are up 4% year on year. Although gains are largely being made in the regions, as they play catch-up. Auckland’s market remains muted.

“Investors are uncertain, and therefore cautious. The Government is gearing up to implement policies targeted at speculators. These policies include tightening the bright-line capital gains test, removing the negative gearing tax loophole and banning foreign purchases of existing stock. The policies, and the uncertainty associated with them, may hold back house prices over the next few years. But we don’t expect a major correction in housing, because the fundamentals are solid, and there are no signs of sinkholes.

“The housing market is undersupplied and mortgage rates remain low. And unemployment is expected to fall, not rise sharply. Housing corrections are often driven by haemorrhaging households suddenly unemployed or lumped with rampantly rising interest rates. Neither is expected. The jobs market should remain tight. And the Reserve Bank will keep interest rates low. However, we believe mortgage rates will rise eventually,” Kerr said.

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