Regions risk homes glut

It will be another strong year for the real estate industry, according to BNZ's chief economist Tony Alexander. But those buying in the regions are being put on notice.

Alexander says firm migration inflows, a strong economy and an increased worsening of housing supply in Auckland will keep it a seller's market.

That can only mean one thing - investors will continue to look at the regions for real estate. However, Alexander says investors need to compare the increasing supply of new housing there with regional population growth projections.

There is a risk that an oversupply of new homes in the regions will lead to a capital gain that's below investor's expectations.

Alexander says: "A 40 per cent LVR limit has helped curtail investor demand in Auckland. But investors have simply flocked to the regions. That is where the risks of price corrections lie - not in Auckland."

He says net migration inflows may ease a bit and that sellers have probably not taken this change into account. However, a shortage of builders, materials and finance for developers (wonder why?) will keep Auckland's housing supply short of meeting the pent-up demand.

The bottom line, according to Alexander, is the Reserve Bank cut the official cash rate last year to boost economic growth.

But in doing so RBNZ governor Graeme Wheeler fuelled house price inflation - putting the banking sector at risk should a strong downturn hit the country (no one forced the banks to lend someone $700,000 for a $500,000 property though).

Prices down
Despite Alexander's call that housing pressure in Auckland will continue, and therefore prices will remain firm, the latest median house price data from the Real Estate Institute paints a confusing picture.

It shows prices in the city have dropped 7.2 per cent from $868,000 in October to $805,000 in January. However, a trusted source assures me this anomaly is due to December and January data being skewed by the holidays. It won't be until April that the trend - be it up or down - can be established.

Strange daysNew Zealand is short of 60,000 homes, according to a report by the Labour Party based on figures from the ANZ.

Party leader Andrew Little wants to see a state-run house building programme to close the gap, and should it win the next general election has promised to build 100,000 homes for first-home buyers over 10 years.

Little told the Herald that previous governments have helped to build basic homes to get families on the property ladder and stabilise prices.

"Every day we wait, the housing shortage grows by over 40 houses," he says. "The results are all around us - out of control prices, speculators, skyrocketing rents."

Prime Minister Bill English says the nationwide housing shortage is between 10,000 and 20,000 homes. He sees the shortage as a sign the economy is doing well, a measure that's probably unique to New Zealand.

Whether we are short of 60,000 or 10,000 homes, there are people needing an affordable roof over their heads today.