ANZ Property Focus

ANZ Property Focus assesses the state of the property market in New Zealand, providing investors and prospective homeowners with an independent appraisal of recent developments.

2021 editions

September 2021: Rent is due (PDF 2.12MB)
Are significant rent rises imminent? House prices have surged (along with debt); policies that favour first-home buyers may be crowding out rental supply; regulatory costs (and risks) for investors have risen; interest rates are rising and landlords can no longer deduct this cost; and rental yields have fallen to very low levels (possibly weighing on the incentive to build more rental properties – at least from a cash flow perspective). It all sounds a bit like a perfect storm, but there are constraints to rent rises. Chiefly, landlords need to balance these forces against tenants’ ability to pay. But benefits and wages have risen. Fair to say, the solution to rising rent pressures isn’t tighter regulations on landlords, it’s more supply of housing generally.


August 2021: Turning point (PDF 1.29MB)
We think the housing market is at (or very close to) a turning point. But we’re cognisant that forecasting house prices can be a lot more art than science, and that economists and government institutions alike have failed art class badly this past year or so. Indicators of market tightness are pointing to some persistence in house price pressures in the near term as very low inventories keep competition fierce. But higher mortgage rates, tax policy changes, tighter credit conditions, affordability constraints, and ongoing (but highly constrained) progress towards lifting supply are significant headwinds, and now we can throw COVID-19 uncertainty into the mix. Believe it or not, house prices can fall. While a material decline is not our central forecast (assumption), from these stratospheric levels that’s certainly a risk.


July 2021: Headwinds gathering (PDF 1.62MB)
As 2021 has progressed, it has become increasingly clear that the economy has recovered well and is steaming ahead so quickly that it’s high time for the Reserve Bank (RBNZ) to start unwinding the emergency stimulus delivered in response to the crisis. The RBNZ has already scaled back and then formally ended quantitative easing (“money printing”) and the next logical step is to start lifting the OCR, with the first hike expected next month. While on the one hand that’s an endorsement of the strength of the economic rebound and the lift in confidence (and house prices), it also means borrowers will face higher interest costs in the months and years ahead. This month we discuss what markets are telling us about how high interest rates might go, compare that to past cycles, and discuss some of the factors that will determine how high interest rates can go over coming years.


June 2021: A slow ship to turn (PDF 1.72MB)
May housing data suggest recent Government policy announcements are weighing on overall housing activity. Sales fell 11.8% m/m in May (seasonally adjusted). But with listings also sparse, reduced investor demand hasn’t yet been enough to slow the monthly pace of house price inflation. This came as a bit of a surprise and we have upgraded our near-term house price forecasts to include a little more momentum. We have also brought forward our expectation for OCR hikes by six months to February 2022. That means mortgage rates are expected to rise a little sooner than before, taking some of the steam out of the housing cycle a bit earlier.


May 2021: Making headway (for now) (PDF 1.54MB)
The closed border means the New Zealand housing market is in the rare position of being able to build enough houses to keep up with new demand. This month we explore a range of supply and demand indicators to gauge the severity of the current housing shortage and how this is likely to evolve in coming years. Overall, we sketch out a picture of a housing market whose fundamentals do not support the kind of sky-high price increases we saw over 2020. But at the same time, the construction industry is running into acute capacity pressures, which are driving up costs spectacularly and delaying the rollout of new housing. On net, it looks like New Zealand will be able to chip away at the housing shortage pretty quickly over 2021. But it’s important to note that this progress is largely due to the border closure; as the largest source of demand for new housing has been completely shut off. This brief respite will not last unless serious changes to immigration policy are made. This month’s Feature Article explores the housing shortage in more depth.


April 2021: Policy plethora (PDF 984KB)
Housing policy has moved very fast in recent months, and for good reason – the market has gone bonkers. Affordability and credit constraints mean the recent pace of house price inflation was never going to be sustainable, but now, with the policy headwind about to start biting harder, we think the slowdown is looming. This month we take stock of recent policy changes and discuss some of their expected impacts. House price inflation is expected to slow a little faster than otherwise, and the risk that house prices actually fall is now higher. But while these policies may take the heat out of the market, the impact on rents could be less helpful from a broader housing affordability perspective. Further, most of the recent policy changes won’t help to deliver the additional houses NZ needs to address its structural problem – they buy time. The supply side is where policy now needs to focus.


March 2021: Nothing lasts forever (PDF 920KB)
The housing market has had a spectacular run over the past year, fuelled by easy financing conditions, with interest rates low and credit readily available. But this environment is not expected to last forever. Interest rates are expected to rise, albeit gradually, with longer-end interest rates expected to lift first. This is expected to pass through only very slowly to costs faced by borrowers, but eventually, debt-servicing is expected to become more expensive. Meanwhile, abundant bank funding has ensured that credit has been readily available to meet demand, but slowing deposit growth, bank caution and policy changes are expected to see credit conditions become more of a constraint. Eventually, these factors, alongside affordability limits and other headwinds, are expected to see a slowing in the housing market, though the timing is uncertain, and conditions are expected to tighten only gradually. To the extent that some in the market are assuming current very easy financing conditions will continue, expectations may be disappointed, potentially weighing on the market more than we currently expect. 


February 2021: Off the beaten track (PDF 1.07MB)
Globally, housing markets have generally beaten expectations through the COVID-19 crisis, in part due to a policy response that has been large and synchronised. But the New Zealand housing market has been an outlier, supported by – and contributing to – our strong economic recovery to date, which has been underpinned by our successful health response and effective fiscal and monetary policy. Relative to history, the recent episode has been different too. Although the current housing upturn shares some similarities with the 2000s, maintaining momentum for such an extended period appears unlikely this time around. While momentum can be self-propelling to some extent, acute housing unaffordability, very high debt levels, macro-prudential policy tightening and credit constraints look set to weigh in time, with a slowing in the rate of housing price inflation expected. However, it may take time for the market to turn and, until that happens, affordability and debt levels could become even more stretched. See Feature Article: Off the beaten track for more.


January 2021: On the horizon – Key themes for 2021 (PDF 692KB)
A number of ongoing themes will shape the way forward in the year ahead. The COVID-19 pandemic continues to run rampant globally, and our national fortunes will remain crucially tied to our continued success in keeping the virus out. The path to inoculation will take time, and bumps are possible along the way. Domestically, housing is likely to remain high-profile, with the market ending the year on an unsustainable footing. A degree of cooling seems likely, and credit conditions may become less permissive, though it is also possible that unaffordability continues to worsen, exacerbating longer-term risks. Meanwhile, new challenges look set to come to the fore, like the impact of our lost summer of tourism. Businesses have been remarkably resilient, setting us up well to weather this test. But even so, we need to brace for some impact. Inflation risks have increased too, especially with supply disruptions an ongoing problem, and volatility may return as markets digest the unfolding outlook. For policymakers, trade-offs are becoming trickier to manage and longer-term issues will rear their heads, along with questions about when policy settings might return to “normal”. And of course, we will be faced with unknown unknowns in the time ahead – those inevitable uncertainties that will shape the path forward, for better or worse. See Feature Article: On the horizon – Key themes for 2021 for more.