We're breaking down the upward and downward forces at play in the NZ property market. Ed McKnight and Andrew Nicol are my special guests today in the latest episode of the NZ Everyday Investor – Is NZ heading for a property crash?!
Okay, so let’s break it down into a battle for good and evil – there are equal and opposing forces at play in the property market currently – a cosmic battle is being fought right now, and as the future is not yet written, let’s peer into what could be coming down the pipeline soon.
Forces for evil:
Airbnb stock ‘flooding the market’
Airbnb properties will be converted into longer rental properties, thus driving down rental yields across the board. Is there truth to this or is there more to it?
Less seasonal workers and international students. If there’s less people who desire short term accommodation, this force could drive down demand for rental stock and by default, hit yields and inevitable property prices.
Rising unemployment levels. If there are more people not able to pay market rent, could this drive down rent and therefore the value of property also?
Supply-side. What impact will there be on the new supply that’s been building and only hitting the market now – will property developers be dumping stock into a [newly] over-supplied market?
Sources of deposit coming under pressure. Bank of mum and Dad more likely to withhold cash that would have otherwise be given to kids as their deposit to purchase their first home. KiwiSaver balances may decrease.
Lenders applying more conservatism. Although counter-intuitive, lenders conservatism may exacerbate an already difficult lending environment. Regulation has, since 2013 especially, acted as a limitor to what banks would do. These limits may be falling away now, but underneath this, ‘those with the gold make the rules’, and they’re understandably a bit nervy right now.
Forces for good:
Lower interest rates will increase property prices. See the Cantillon effect. Everyday investors are at a fork in the road – taking ground now at early stages could be wise to position for the inevitable increases in asset prices that eventuate when interest rates decrease. See Austrian economics.
Initially, supply (current pipeline) of housing stock to hit the market at the wrong time, potentially causing a sharp dip in market prices (??). Then, presumably, some developers cease or pause activity, causing a medium to long term lack of new supply. Less new stock, could assist the market in reaching equilibrium or even over-shooting.
NZ as ‘safe-haven’. NZ has already had this reputation and this is set to pick up even more – those (wealthier individuals) with the means to do so, will move here and this will inevitably cause upward pressure on demand (medium to long term view). More ex-pats coming back to NZ will no doubt come from this also. NZ is a small container, and is quite sensitive to changes in demand, due to constrained supply.
Changing RBNZ policy around LVR regulations (tbc). This may increase the amount of first home buyers, which provide another floor of support to housing stock that may be provided by nervous, small-time, property investors who panic. If investors are also now able to access higher levels of funding to purchase further properties, more demand puts pressure on prices further (for those investors who are in a position to act, actually do act).
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