Peter Thompson: Government plans will have no immediate impact on current market

Peter Thompson, Managing Director, Barfoot & Thompson
Peter Thompson: Government plans will have no immediate impact on current market

The new Coalition Government’s initial statements around its intentions for residential housing are in-line with its election promises, and contained no post coalition discussion surprises.

On initial analysis, it’s hard to see the measures it plans to introduce will make any significant difference to the current market – particularly in Auckland – over the next few years.

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For me, the most promising aspects have been the Prime Ministers restatement that the she does not “expect to see a dramatic drop in people’s housing values” and the Minister of Housing’s comments about “rent to own schemes or similar progressive ownership models”.

Progressive ownership models may make home ownership more achievable for first time buyers, and may also provide an answer to the challenge essential workers on relatively modest incomes have in meeting the cost of homes in our bigger cities.

What remains a big question mark for me in the Government’s plan is the 100,000 affordable homes in 10 years for first time home buyers.

Initial statements have confirmed that these homes would sell for between $500,000 and $600,000, and that half of them would be built in Auckland.

However, the big question remains how soon will they come on stream?

The Prime Minister’s comments on this have not been reassuring, suggesting it could be 20,000 in total by the end of year three. If half go to Auckland, that’s 10,000 homes, and given the obvious reality of the need for the scheme to get some momentum, we may be looking at less than 5000 homes in the first two years. 

I am not looking to be disparaging of the Government’s initiative, but just want to make the point that if some see this scheme as a short-term, silver bullet that will solve Auckland’s housing supply issue then they will be disappointed.

Far more encouraging are comments about the State entering the market at the planning stage, and buying properties off developers. This initiative will assist in ensuring a greater number of projects achieve the early investor support that will see them more quickly progress to the construction stage.

Balancing the upbeat announcements from the new Government about its plans to tackle the country’s housing challenges was Statistics NZ’s estimate (covered in-depth by the website interest.co.nz) that Auckland is currently 25,000 properties short of the housing it needs for the current population. It is a sobering statistic.

The key point is that over the next three years even a massive focus on residential building will not eliminate supply issues in Auckland. And that has major implications for the sales price of existing stock.

Reducing the number of immigrants allowed into the country will undoubtedly ease some of the supply pressure but the Statistics NZ data also flags that Auckland’s population growth is not solely based on foreign immigration.

In the 12 months ending June 2017 Auckland’s net population growth was 42,700 people. Of this number a third, or 13,800, came from natural growth, with the remaining two thirds, or 28,900, coming from net immigration. However, within the immigration figure Statistics NZ included people relocating from other parts of the country, expats returning and Australians (who have rights of entry) as well as those needing visa approval to stay.

Statistics NZ does not drill down into how the immigrant category is made up, but undoubtedly it includes a good proportion of people who were relocating, expats or Australians.

What the slow burn nature of KiwiBuild and ongoing population growth suggest to me is that the Auckland market is not going to experience significant change.

Auckland property prices have not risen in the past 12 months, with the current average and median sales prices being similar to what they were in October 2016.

My expectation is that after everyone has had time to absorb the detail of the Coalition Government’s plans around housing and visa based immigration, the market will see its normal spring/early summer uplift in sales activity.

The most likely scenario for prices is them staying within a tight band, and slowly edging up. 

Peter Thompson

Managing Director, Barfoot & Thompson

barfoot & Thomspon

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