NZ market on fire

Bernard Hickey joins us for the first look at the New Zealand market which is going gangbusters and he explains why that is the case.
Kevin:  We’re looking at the real estate market. We’re going to go across “The Ditch” now and have a look at New Zealand. Joining me, economist and publisher for Hive News, Bernard Hickey.
Bernard, thank you so much for your time.
Bernard:  Hello. How are things?
Kevin:  Wonderful, thank you. We’re getting great reports on this side of “The Ditch” about what’s happening in New Zealand. The economy there seems to be going quite well. What sort of an influence is that having on the property market?
Bernard:  It is certainly helping. We have economic growth of somewhere between 2% and 3%, depending on where you are, and we have very high net migration. We have strong construction, and we have a booming tourism sector. That’s all helping the economy.
The dairy part of the sector is not doing so well. It’s a bit like our version of iron ore, with a slump in prices. That means that some parts of the economy, particularly those most exposed to dairy, have struggled over the last couple of years. But the big cities are doing very well because of strong net migration and lots of activity in construction and tourism.
Kevin:  There is a saying that south of the Bombay Hills, nothing much happens, but is the Auckland influence on real estate still that strong, or is it spreading out to other parts of New Zealand?
Bernard:  Auckland dominates the New Zealand market and, in many ways, the economy. We have about one-third to 40% of our population in Auckland. It’s by far the fastest growing part of the economy, and that’s because largely it has the most people coming.
We have about 120 people per day arriving in Auckland at the moment. That’s because net migration is very strong – for a bunch of reasons. We have a lot of New Zealanders actually coming back from Australia to live in New Zealand again and a lot fewer New Zealanders leaving New Zealand to work in Australia.
Because Australia and New Zealand have this unique relationship where we can work in each others’ countries relatively easily without having to apply for a special visa, there is a lot of travel back and forth, and generally, over the last 20 or 30 years, it’s been New Zealanders going to live in Australia.
But in the last couple of years, we’ve seen that turn around quite dramatically to the point now where we’re getting net migration from Australia to New Zealand, just over 1000 in the last year or so. That’s helping to boost demand for housing, particularly in Auckland, because about half of the new migrants come to Auckland.
At the same time, in Auckland, you have a construction boom going on. We have a lot of commercial property and housing that needs to be built. One of the reasons why Auckland’s housing market has done so well in the last three or four years is that we’re simply not building enough houses.
When you look at the numbers, we’re building just over 1000 per month at the moment, and we really need to be building about 1500 houses per month just to deal with the net migration and the net population growth. That’s helping to boost demand and prices in Auckland.
Kevin:  Yes, that will keep the prices climbing, won’t it? What about other parts of New Zealand, say, down around Taupo? I’d like to talk to you about Christchurch, as well, but let’s look at other parts of the North Island, firstly.
Bernard:  Obviously, with the boom in Auckland in the last three or four years, that started to radiate out to some of the other bigger cities, and the ones closest are Hamilton and Tauranga. There is what they call a Golden Triangle in New Zealand between Auckland, Tauranga, and Hamilton.
They are the three biggest cities in the upper North Island, and they’ve had relatively strong population growth and economic growth over the last decade. They’re connected up by strong railway and strong road networks, and a lot of the activity in the North Island happens in that Golden Triangle.
Prices have risen upwards of 20% in Hamilton and Tauranga in the last year, catching up with what’s happening in Auckland. Now the heat is radiating out to other bigger cities, including Wellington at the bottom of the North Island and other cities such as Dunedin, even Nelson and also, strangely, Gisborne and Hawke’s Bay, where you’re getting some people in Auckland who have made big equity gains on their houses realizing that they can get a lot more bang for their buck by moving to the likes of Napier, Gisborne, or Dunedin. That’s helping to boost prices in those places, as well.
There is one exception to that, and that’s Christchurch, which is New Zealand’s second biggest city. It has obviously been very disrupted in the last six or so years by the earthquakes in 2010 and 2011, which destroyed tens of thousands of houses. The rebuild of the residential part of Christchurch is coming to an end now, and there has been a lot of new supply coming onto the market.
In the last year or so, the Christchurch market has flattened out in terms of price inflation and rents have also started to drop there because of the extra supply with a big amount of rebuilding that went on over the earthquakes. But in the rest of the country, you’re seeing house price inflation anywhere between 10% and 20% at the moment.
The other big factor to watch in the New Zealand market is what the Reserve Bank of New Zealand is doing. A bit like in Australia where increased capital requirements and direction to the banks to make it harder for rental property investors to borrow, you’re seeing something similar here, too, in the last year, where the Reserve Bank, in November, restricted rental property investors to borrow no more than 70% of the value of the home in Auckland. That cooled things down a bit in Auckland from November onwards.
But it’s interesting. Just in the last couple of weeks, we’ve seen auction clearance rates start to rise again in Auckland, and the essential problems there of record high net migration up against insufficient supply is starting to get some heat back into the market.
Kevin:  All good news coming out of New Zealand. Bernard, unfortunately, we are out of time but thank you so much. Bernard Hickey who is an economist and publisher with Hive News. That’s
Bernard, thank you very much for your time.
Bernard:  Cheers.

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