Houses in New Zealand are now in the minds of economists the world over. Photo / 123RF
What can we expect from the housing market in 2024 and how should we think about the ongoing challenge to help more Kiwis into homes? Kiwibank chief economist Jarrod Kerr has offered up his “BBQ” guide to property.
“Everything that is wrong with the Kiwi property market can be put down to supply, and a lack of it!” says KiwiBank chief economist Jarrod Kerr.
“We’re hopeless at building houses. And we refuse to build the infrastructure required to expand. We fail to maintain the infrastructure we have. But we insist on adding to the existing [creaking] load. The good news is, we learn from our mistakes.”
In this century alone, New Zealand had seen three significant spikes in population growth, he said.
“At the turn of the century, we saw migration boom. The spike in migration led to a spike in demand for properties, both rentals and houses. House prices rose in response. Did we increase our spending on infrastructure [not to mention health, education and other services] to handle the flow of migrants? No. But we learnt from this mistake.”
From 2013 to 2019, New Zealand experienced the greatest migration boom in recorded history, Kerr said.
“In 2018, we estimated the shortage in dwellings blew out to a frightening 100,000. The shortage worsened to 130,000 in 2019. Did we increase our spending on infrastructure (not to mention health, education and other services) to handle the flow of migrants? No. But we learnt from this mistake.”
In 2020, as Covid-19 hit New Zealand locked down and closed the borders.
“We saw a net outflow of migrants. We allowed housing supply the chance to catch up,” Kerr said.
“Supply outstripped demand, and our housing shortage improved. This was our best chance to eliminate the housing shortage. We did good, for a while.
“But then the borders reopened. And over the last year we have seen a net 120,000 migrants enter Aotearoa in search of a home.
“That was the largest increase New Zealand had seen in one year.
“Will we increase our spending on infrastructure [not to mention health, education and other services] to handle the flow of migrants? Probably not enough. But we will learn from this mistake [insert sarcastic voice].”
“We think we’re much more likely to see price gains, rather than falls, over 2024,” Kerr said. “Our best guess is house prices will rise by 5-to-7 per cent next year. Call it 6 per cent to sound precise.”
The surge would mean migration would play a big role. The latest Stats NZ data for the year to October showed a record net migration gain of 128,900.
The demand/supply imbalance would worsen, Kerr said.
And the new Government would also play a big role with the “promised” reintroduction of interest deductability, shortening the Brightline test timeline, and possible watering down of the CCCFA (Credit Contracts and Consumer Finance Act), enticing investors back into the market.
Interest rates would also be a factor, eventually, he said.
“We think rates will fall in 2024. But buyer beware: The RBNZ is threatening to hike again. So there may be a lift near-term.”
Ultimately, demand would be outstripping supply again, he said.
“It’s overly simplistic, [something that is frowned upon in the economics profession], but for every 120,000 people, we need roughly 50,000 new dwellings [with roughly 2.5 people per house}. And if we follow the downtrend in people per house to say 2.1, a more ‘desirable’ number, we need more like 60,000.
“We built 46,000 last year, a record effort, but that pace is slowing fast. We expect supply to fall back into the low-to-mid 30,000s. The residential construction boom is cooling quickly. Supply is unlikely to keep up with demand for the foreseeable future. Unless we see some significant policy changes. So that’s a big factor behind our forecast.”
“When we look at housing, there are a few high frequency indicators we like to help us gauge the strength of the market,” Kerr said. “Activity is one, days to sell is another.
“‘Days to sell’ sounds obvious. And it is. We saw the average days to sell drop below 30 days, compared to a long-term average over 39, in the height of the 2020/21 house price boom.”
In what was a “dramatic turnaround”, the days to sell blew out into 2022, Kerr said. The “days to sell” lengthened to over 50 days.
“Buyers had pulled back, and suddenly they realised they had time on their side [for a change]. FOMO became FOOP (fear of overpaying). The gap between the price sellers wanted and the price buyers were willing to pay widened, with not a lot of activity in between. Prices fell.
“Now, we’re seeing the days to sell fall back to longer term averages. The housing market is stabilising. Activity is speeding up. And there are more sellers meeting buyers. Sellers have reduced their expectations, and buyers are starting to pay up.”
There were more transactions taking place and sales had bounced strongly, off low levels.
“It’s a positive sign,” he said.
“Remember, house sales had fallen a whopping 37 per cent in 2022. So we’re bouncing back, strongly. And where sales go, prices follow.”
In Auckland, house sales had bounced 20 per cent, having fallen 40 per cent in 2022, Kerr said.
The average “days to sell” had fallen from over 50 days to around 39 days now. The rebound in activity, and drop in “days to sell”, had seen house prices lift 5 per cent since May. House prices are down 2.5 per over the year, and are off 20 per cent from the November 2021 peak. But the momentum pointed to continued gains from here, he said.
In Wellington, house sales remained soft, after falling 30 per cent in 2022.
“Activity is taking a little longer to recover, but there had been a material decline in the ‘days to sell’,” he said. House prices were down 3 per cent over the year, and were off 21 per cent from the 2021 peak.
In Christchurch, prices had not fallen as far, and the rebound was a little more entrenched. House prices had fallen, but only 8 per cent peak to trough.
“‘Days to sell’ is about average, and activity has picked up,” he said. “Sales continue to record double-digit annual growth, with a 13 per cent rise over the last year.”
In the Bay of Plenty, sales activity had kicked up, Kerr said.
“Confidence is returning, with ‘days to sell’ back below 50. Given the long-run average of about 50, it’s a positive shift. Prices in the Bay are down just 2 per cent over the year, and 15 per cent from the 2021 peak.”
In Northland, house prices declines narrowed to 7 per cent and sales activity was mixed.
“We have yet to see a convincing return,” he said. “Watch out over spring and summer.”
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
House prices will be 20% lower in real terms by the mid-2030s than in 2021.