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Tony Alexander BNZ Economist ‘Weekly Overview’ 23rd March 2016

By Julie Halligan

I gave a talk on the Auckland property market to some 700 people at Ellerslie Event Centre last night and
here are the nine key points which I spoke to in terms of whether they represented a threat to the strength in
Auckland’s market. The answer for all was no. Hence, as written since 2009, Auckland prices rise.
NZ economic growth.
Is the growth outlook bad meaning the outlook for jobs and incomes is bad meaning people will find
themselves unwilling and in more and more cases unable to buy a house?
While dairying is weak there is a lot of strength in tourism, export education, wine, pipfruit, kiwifruit, honey,
manufacturing even, and construction.
Auckland growth
Has the surge been a flash in the pan and will we go back to the old world of Auckland being just a bigger
version of Wanganui?
Auckland is New Zealand’s agglomeration delivering growth from the fast interaction of talented young
people from diversified backgrounds. Auckland was 21% of NZ’s population in 1961 and now it is over 34%
heading to 40%.
Is the migration boom about to bust?
Migration busts when we head across the ditch to make money during an Australian minerals boom and our
economy is in or close to recession. But our economy is not forecast to enter recession soon and Australia’s
mining boom has been and gone and won’t come back for a generation. Net migration is likely to remain
strong for a number of years and 60% of the net flow goes to Auckland.
Is Auckland house supply about to boom?
There is a shortage of builders, shortage of developable land, shortage of land not simply being landbanked,
development costs to finance infrastructure can be huge. Supply will rise but the shortage is still
getting worse.
Interest rates
Are they about to rise strongly?
The RBNZ is still easing monetary policy and the bigger global problem is low inflation rather than any
inflation threat. Interest rates look like staying low for a great number of years/decades.
Regional investing
Are investors flocking to the regions for yield and low mortgages going to keep doing this at the expense of
investing in Auckland for the next few years?
Investors, having soaked up cheap stock which has sat on the market a long time in the regions will soon
start to ask themselves whether population growth will justify growth in supply they see in some locations. In
certain locations like Hamilton and Wellington prices are likely to rise with logical economic and population
growth support for a number of years. But in many locations elsewhere population growth is likely to be less
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than some people are thinking and investors questioning growth assumptions will eventually wonder whether
they can liquidate their asset quickly should times and rentability again get tough in the less popular places.
Aging population
Are baby boomers going to sell their housing investments soon to fund their retirements?
They need yield over a greater number of years (rising life expectancy) than people were thinking just a few
years ago. The boomers will hold their housing assets for the income they yield.
Chinese buyers
Have they disappeared for good?
They are returning in force going by the anecdotes over the past four weeks with more to come when
eventually the Chinese implement their Qualified Domestic Individual Investor 2 regime in six large cities.
There is no timing on when this will happen and it probably won’t until the capital outflow from China seen
this past year eases off.
Have potential buyers given up all hope? No
There is no shortage of people bemoaning their decision to hold off buying since 2007. They want to buy
and eventually will raise the deposit to do so.
There are other factors but these main ones sum up the situation. Pressure on Auckland prices is upward
though it is not only doubtful that we will see prices rise at the same average speed as in recent years, we
had better not else the Reserve Bank will impose stronger lending controls. Should the regions produce
widespread rises near 20% per annum then the 30% minimum deposit requirement for purchase of
investment properties in Auckland will be applied to the rest of the country.”

For the full report please follow the link; Tony Alexander 23rd March 2016

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