I have decided to venture out of the box with this article and comment on how I see things with the property market

Although this space is reserved for legal bits-and-pieces, these sorts of issues can be a little dry and so I have decided to venture out of the box with this article and comment on how I see things with the property market, having spent 23 years acting for a wide variety of clients in it.  It is very important to bear in mind that the “property market” has many different varieties within the wider ambit of property.  This newsletter is dedicated to the residential market, hence my focus on that aspect only.

I am not an economist.  In fact, considering how wrong these “experts” have been over many years trying to read the tea leaves, I am glad to not call myself one.  In my opinion, you do not need fancy letters after your name to understand what drives residential property prices in Auckland, and for that matter other parts of the country.  Simply put, factors that drive prices involve only two things: demand and supply.  And, there are a few considerations contained within these two factors.

Auckland has regularly suffered from a lack of supply of new dwellings.  Indeed, since about 2012 the only years that we have built more dwellings than were required were the years 2020-2023 (inclusive).  Prior to 2020, the country had a deficit of about 10,000 – 15,000 per annum.

For the same period, and before COVID-19, New Zealand had an average net migration gain of 27,900 people per annum.

The COVID-19 years are somewhat of a statistical outlier because New Zealand closed its borders for a couple of years and so there was no migration into the country.  Indeed, even nationalised New Zealanders were prohibited from returning home.

So, the number of dwellings V the number of people requiring them is an obvious factor driving house prices.

The final link in the chain is the cost of money.

It is no surprise that during the period Adrian Orr tightened the purse strings, house prices fell.  And when money was dirt cheap, and the same Mr Orr was printing it faster than a politician changes his principles, we saw a boom in house price inflation.  The cost of money is a certain factor in the demand side of the equation.

So where does all of this leave us now?  It is best to answer that by the use of a few statistics.

In 2024, the figures tell us we needed 50,000 dwellings, but we only produced 35,000.

In the year ending June 2024, net migration (arrivals less departures) was 73,300.  At year end October 2023, that net migration number peaked at 136,600.

These numbers tell us quite simply that we 136,600 people moved to New Zealand to the year end October 2023, and they all needed to live somewhere,  Yet we only produced an additional 35,000 houses (or so) during the same period.  Our legal regulations prevent most of these people buying property in New Zealand.  In order to do so, one must be tax resident here; have an IRD number but also have been here for at least 183 days of the last 365.  So many of these arrivals will not be eligible to buy residential property for a while yet (if they can afford it).

And, presently, the cost of money is still relatively high, despite recent cuts to the OCR.  With inflation now well back under the 3% upper limit, further cuts are expected for at least 12 months.

If the current trends regarding dwellings built V migration continue, in my view, the main factor to constrain price growth will be the cost of money and the rules around eligibility.  Once money becomes cheap again, and the 136,600 migrants obtain residency and fulfil the 183 days requirement, I think we can expect upward pressure on prices.  Of course, that does not take into account migration for the next 12 months and dwellings not built over that same period.  The developers I act for have done nothing for two years, so the lag effect on building consents, and then dwellings built, is going to be prominent.

Of course, if you wanted a second opinion on all of this, you could ask Nostradumus.

Or perhaps the expert economists, one of whom wrote very recently, “Do we economists feel we know the speed with which mortgage rates will decline and where they will eventually settle? Let’s see. We did not pick the collapse in interest rates over 2008-09. We didn’t pick the fall in rates to record lows in 2019 amidst a bout of worries about deflation.  We obviously didn’t pick the 0.25% cash rate during the pandemic. We didn’t pick that the cash rate would eventually peak at 5.5% in May last year or that the likes of the one-year fixed mortgage rate would almost hit 7.4%.  There is no basis for believing that we have confidence in our forecasts for what will happen now”.

Nick Kearney | Director | LLM, LLB, Dip. Pol.

Jim Thompson Law | Phone: (09) 486 0745