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.

2024 editions

May 2024

Housing affordability deteriorated significantly following the pandemic, with house prices relative to incomes touching highs never seen before. It’s been a particularly bumpy ride for new entrants, who have not only had to save a larger proportion of their income to come up with a deposit (and/or wait longer), but who now face a much higher debt-servicing cost as a share of income compared to the decade preceding the pandemic. The good news is that the worst is hopefully behind us. But international comparisons show that some economies may have it even worse, implying that the recent peaks in unaffordability seen in NZ may still be shy of any “natural limit”. We present a range of affordability indicators as well as a weighted affordability index based on some of these measures. Plugging in our forecasts show that the only major relief on the affordability front over the next few years is expected to come via the debt-servicing channel as mortgage rates decline. But overall, our outlook implies housing will remain less affordable over the next few years than it was prior to the pandemic.

April 2024

House prices came in a little softer than we anticipated in the first quarter of the year, and forward indicators suggest the second and third quarters could be just as soft. Auckland often leads nationwide housing outcomes, so this month we take a closer look into what some of the Auckland indicators are saying about what might lie ahead for the country as a whole. Given Auckland tends to get the lion’s share of net migrants, this regional lens on the housing market is particularly important in the context of current surging net migration. However, we find little evidence in rental yields to suggest migration is about to drive a surge in investor demand for houses. In fact, rental yields in Auckland have been somewhat muted in recent months compared to the national average. All in all, indicators of market tightness in Auckland, and the rest of New Zealand for that matter, are running on the colder side of tepid, and that points to some downside risk around our house price forecast for a modest 3% rise in prices over 2024.

March 2024

Is it better to buy a house, or rent it? It’s a question a lot of people grapple with. As always, the ultimate answer is “it depends!” but in this article, we shed some light on the question by taking a long-term perspective. In what follows, we take data from 1999 to 2023, make a bunch of assumptions about the outlook, and compare cash flows of someone who buys a house versus someone who rents. The upshot? When borrowing at a high LVR (we assume 80%), servicing a mortgage and paying other ownership costs will generally be more expensive than renting in the first years of ownership. But eventually, homeownership costs will typically be lower than renting. Therefore, to the would-be borrower-buyer, what’s best does depend to some degree on how long you are willing to wait to break even. But as we show, the amount of time that takes depends on a bunch of variables and assumptions, and how you frame what ‘breaking even’ actually means. Do you care about annual cash flows, cumulative cash flows, or discounted cash flows? And what about capital gains and opportunity costs? We discuss the lot. But it’s important to note that the mythical “median person” in our analysis is likely to differ greatly from personal experiences. And as with most choices in life, whether big financial decisions work out well will inevitably partly depend on luck.

February 2024

The housing market looks stagnant. While January house prices were stronger than we expected, sales were abnormally soft, listings continue to rise and days to sell are back near their 2022 peaks, especially in Auckland. We are expecting the Reserve Bank of New Zealand (RBNZ) to lift the Official Cash Rate (OCR) two more times to combat increasingly stubborn domestic inflation. Homeowners should be conscious that mortgage rate cuts in the near future are not a sure-fire bet, as the RBNZ will be unwilling to provide mortgage rate relief until they’re confident that inflation will stay in their 1-3% band. Our expectations for further lifts in the OCR put the risk of further house price falls back on the table. At this stage, it’s a risk only, because the HPI remains robust in the face of a deteriorating outlook. We still expect house prices to go broadly sideways over the first half of this year, but the picture is looking a lot less certain than it was at the end of last year.

January 2024

Construction may be about to bottom out. Fair to say, the housing market rebound has been underwhelming since it found a floor earlier than anticipated in April. However, the outlook for construction is nonetheless intriguing, as population growth and still-high interest rates square off. While consents are yet to find a floor, builders in the ANZ Business Outlook survey became much more optimistic some months ago, and their colleagues in the NZIER QSBO now concur. That suggests that consents and construction activity could soon base. The RBNZ is relying on a prolonged slowdown in residential construction as part of their plan to bring down domestic inflation, and the risk is that the slowdown will be sharper but not as prolonged as the RBNZ expects. The implications for the inflation outlook are unclear.