Palmy Market Update

By Jason Hockly
The wobbles observed during the late election and the formation of a government have been well and truly shaken off as the market has continued the long term pattern of steady growth of approximately 10% pa.
One pattern I observed in the price bracket analysis was a surge in the number sale over $1.0M in the last 4 month of 2016. This surge then flows down to the $650-$800K bracket in the middle 4 months of 2017.  Not sure if this is a coincidence or a tell-tale of a certain market condition.
Nationally the property market has shown a more positive sign than a few months ago.  The Auckland and Christchurch markets are still holding with many provincial cities and towns showing a fairly steady growth pattern.  However it appears there are many current sales which have not been recorded as yet for Auckland.
The Reserve bank slightly changed LVR rules for banks, however this appears very minor and well over blown in the media.  Why? Possibly to give the Auckland market enough confidence to prevent a strong negative pattern from initiating and setting in.
The election sure did bring the housing market to the forefront.  To proposition a housing crisis because housing is becoming more relatively unaffordable seems irrational.  If things are so unaffordable how does so many market purchasers afford to buy houses in an increasing market.  Surely if things are so unaffordable house prices could not be able to increase at the rate they are?
From my view we do not have a housing crisis in NZ, yet.  There are many houses in NZ, sure we need to continue building more houses, as always.  However to estimate we are over 70,000 houses short in the nation appears a little puerile.  If this was the case one would expect to see lots of people living in tents etc maybe even some slums starting.  From my research we are continuing in a crisis of personal financial literacy.  We have an increasingly large sector of our population making rather mindless personal housing choices.  If one can’t afford surely one would look to where they can afford?
One of the most interesting changes proposed is increasing the bright line test from 2 years to 5 years.  This would appear to no longer be a speculative deterrent but a limited form of a capital gains tax by stealth.  I don’t believe most people understand the significance of this change.  It could be a negative constraint to selling, further limiting the supply of properties on the market in the future.
Also when foreign buyers make up such a small percentage of the market, will banning them from our secondary residential market have a significant shift for our primary residential market?  Many foreigners want to build their own already, as many do not come up to their preference.
So what does my crystal ball look like for next year?  It didn’t really matter much which politically led government formed, the facts are both sides were promising more money in the hands of Kiwis.  As a result my prediction is much of this extra money is likely to be funnelled into the housing markets through increased rents and homeowners with more disposable incomes to be even more competitive in buying.  The Labour led government has optimistically promised more houses, as yet we have seen very little solutions as to how this will occur.  Therefore there is strong chance of a fairly positive market into the foreseeable future.
At a basic fundamental level it appears the NZ taxpayer is heavily subsidising the housing market.  And this has been happening for a long time.  In the mid 2000’s the housing market saw strong growth on the back of significant “Working for Family” tax credits.  Will this repeat?  It appears we are in a strong circular reasoning argument where relative affordability leads to more tax credits.  A similar circular reasoning argument to the 1980’s where house price movements were included in inflation figures which therefore effected interest rates.  How far can this go before something gives way?