Looking ahead in 2021

Every year brings something interesting in the residential real estate market around New Zealand, if not always for the country as a whole, at least for many of the regions. As it turns out, having seen an unusual period from 2012 to the end of 2019 when regions were doing different things, now all locations broadly-speaking are in sync.

In 2012 Auckland’s market started rising strongly, but the rest of the country did not really accelerate firmly in terms of turnover and prices until 2015. Come the end of 2016, with help from the 40% minimum deposit requirement for investors, Auckland peaked out, but the rest of New Zealand kept rising.

This can be seen in Auckland average prices rising just 1% from the end of 2016 to the end of 2019 compared with 25% average rises elsewhere. But since the March quarter of last year Auckland has re-engaged with the upward leg of its cycle while the rest of the country has continued to move ahead, with price rises respectively of 17% and 14%.

Will this resynchronisation continue through 2021 or will differences open up again?

When we consider the main factors which have been driving real estate markets ahead in recent months it is hard to see that any substantial regional differences will appear this year beyond the usual statistical variations inherent in any system.

First and foremost, all regions will continue to feel the upward effects of low interest rates this year and expectations that such rates will remain low through 2022 – for both borrowers and those saving in banks.

Second, people in all parts of the country will embrace a continuing expectation that when the borders open up many of the Kiwis currently overseas will return to Auckland, Eketahuna, New Plymouth, Christchurch etc.

Third, all around the country shortages of readily developable land have arisen as builders have been flooded with orders for new houses from buyers struggling to find what they want amongst listings which nationwide are running 70% lower than ten years ago. If anything, courtesy of the 2016 Unitary Plan, Auckland has more land within its boundaries able to be scraped and rebuilt on than most other locations.

Fourth, all regions will be equally negatively affected by young buyers starting to shift their spending plans back to international travel and away from home buying as optimism slowly grows regarding the borders reopening and the timing for when this will occur – presumably early-2022.

Fifth, investors have been highly active all around the country and the reinstated 40% minimum deposit requirement will impact all locations. However, from a simple dollars point of view some buyers unable to make a deposit in Auckland may look elsewhere, particularly Christchurch as we have now hit the ten-year time period commonly picked in 2011 for when the city would be “done”.

Coupled with the land availability in Auckland does this mean our biggest city will quickly lag pricewise again soon? Not really because after three years lying fallow, the city was due to restart rising strongly anyway, as noted above.

Could government policy changes greatly impact the real estate sector’s prospects? Probably not. The government will not want to reduce the surge in demand for new housing because construction will provide a good economic boost for the next few years while growing supply in a way which will eventually slow the pace of price rises.

They might take some measures which reduce returns for investors. But with interest rates at record lows many will not leave the sector. Plus, amidst a shortage of rental properties and with rents set in a free market the government would risk spurring a surge in rent increases as landlords seek to restore their returns.

Come the end of this year, the balance of many diverse factors suggests still good turnover with prices again appreciably higher than current levels – though not rising at the unsustainable and undesirable pace of late last year.

Tony Alexander, Independent Economist