There has been a significant decrease in the number of New Zealanders leaving the country, currently at its lowest level for over a decade.
The estimate is that over half of these immigrants have settled in Auckland, which has provided a major boost to their population that grew by 34,000 to June 2014.
While consents for new residential increased to 7700 in the year to February 2015 this goes nowhere near matching the population surge or addressing the current housing shortage.
The huge supply/demand issue then creates another issue with regard to house prices.
Auckland house price inflation reached 17 per cent last month while the rest of the country averaged 4.9 per cent.
Auckland house prices have tripled since 2002 and the median house price is 8.2 times greater than the median household income.
New Zealand has the second highest price-to-income ratio internationally.
This creates quite a big bubble that could make a big mess if it should suddenly pop. If interest rates for example were to increase significantly!
There has been increased sales to investors and a continued drop in the rate of home ownership which reached a record low of 61.5 per cent in 2013.
So in a nut shell that pretty much highlights most of the concerns the Reserve Bank have at present. So what can be done to address these concerns? Mr Spencer suggested that the bank had a number of options to consider:
1. Increase availability of land for development and ease consent processes to speed up the current process and increase supply. This would still take years to meet current demands.
2. Review of taxes and other incentives affecting land banking and creating a disincentive to sit on undeveloped land.
3. Bring in a capital gains tax on investment properties as a disincentive for investors.
4. Applying higher risk grades and therefore higher interest rates to investment property loans.
5. Ultimately using the OCR (overnight cash rate) to curb activity, ie, increase rates. However, he did express this was not their preferred option as they would like to hold rates at their current level for obvious reasons.
So you can see it now becomes our problem. Rotorua is currently experiencing economic growth and an increase in business confidence.
The Auckland property shortage is bringing investors to Rotorua to buy properties. Any action that provides a disincentive to invest in property will impact significantly on us. It will be very interesting to see what unfolds in this space ...
