Unprecedented pandemic stimulus, record-low interest rates and a supply-demand imbalance contributed to a sustained period of value growth for our national housing sector, however, Bayleys finds easing demand pressures aren’t necessarily uniform.

Shifting market dynamics by way of headline inflation and tightening credit conditions are seeing buyers exercise a higher level of caution when it comes to residential purchases, and a different set of demand drivers underpin interest in regional housing markets when compared with properties in our main centres.

The national housing market is experiencing gradual shift from a consistent, prolonged period of value growth to a multi-speed moderation, where local economic differences drive varying interest across regions and property types.

NUMBER CRUNCHING

Tighter lending conditions and higher average fixed mortgage lending rates mean homeowners are paying more to service their debt.

Inflation is at a three-decade high, with the Reserve Bank of New Zealand (RBNZ) recently lifting the Official Cash Rate (OCR) to its highest level – 1.5 percent – since August 2019.

While noting record-low unemployment and strong job prospects, Kiwi wages are not keeping pace, and affordability constraints are hitting buyers at the lower end of the market the hardest.

In Auckland, house prices are roughly 11 times the average income – which has put a natural cap on how much further property prices can rise before some buyers are simply unable to pay.

Recent Buyer Classification Data from research firm CoreLogic has revealed a debt versus equity split – where tighter credit conditions generate different behaviours between buyers.

The data shows a drop in the market share of mortgaged investors and (more likely) highly indebted first home buyers, while movers and cash investors step up to fill the void.

Anecdotal evidence shows buyers with a larger equity base are investigating opportunities beyond main centres – in search of affordability, better rental yields and growing lifestyle opportunities.

MORE FOR LESS

Whilst not yet entrenched, data shows the gradual emergence of a two-tiered marketplace.

According to CoreLogic’s Housing Price Index (HPI) data for March 2022 – the average property rose in value across New Zealand’s regional areas by 0.85 percent, while in our main centres, values regressed 0.2 percent.

A surge in interest for affordable areas including Northland, Taranaki and Manawatu-Whanganui – where the average house price is between $600,000 and $900,000 is encouraged by intra-regional migration as buyers from urban areas seek alternative lifestyle opportunities.

In Auckland and Wellington, periphery metropolitan areas are experiencing thriving market conditions, buoyed by increasing connectivity through transport infrastructure and large tracts of land that have been rezoned for residential development.

North Waikato towns including Te Kauwhata and Pokeno, as well as the Kapiti Coast and Horowhenua north of Wellington, continue to attract a burgeoning population with residents drawn to the ability to live and work with more flexibility.

Where the global workforce is increasingly mobile, work from anywhere capabilities allow Kiwis to design their own lifestyles, looking beyond traditional cities for employment opportunities.

Similarly, locations once just a ‘holiday destination’ are now viewed through a permanent lens demonstrated by resort-style properties across Northland and Queenstown performing above the national average this quarter so far.

For predominantly rural areas across the central North and South Islands, firm global prices for key commodity exports are providing a welcome boost to local incomes.

There’s evidence that record profits for farmers have had a flow-on effect for economic activity across these regions, with the rural land market continuing to note value growth which underpins activity through 2022.

Residential development is also playing a pivotal role in ongoing demand disparity, with the greatest new building consents recorded in Auckland and Christchurch.

While it takes an average of two years for new supply to come online, residential consent numbers for the 12 months to February 2022 noted a 26 percent rise on the same period a year prior and the strong rise in medium density consents in main centres continue to create more supply and greater choice for buyers in these markets.

THE ROAD AHEAD

The impact of tougher credit conditions and the rising cost of living have the potential to impact the number of buyers willing and able to pay higher prices – which are more commonly noted across our main centres including Auckland, Tauranga and Wellington where the average value exceeds $1 million.

These markets are some of the best-performing over the last two years, noting out-of-cycle value gains that some observers expect will fall back as the demand shock subsides and pandemic stimulus gives way to a more cautious buyer approach.

While employment indicators remain strong across the country – stopping well short of necessitating the forced sale of Kiwi homes, the arrival of new migrants is expected to have a more demonstrated market impact later this year.

Around October, skilled migrants, returning expatriates and international students are expected to increase demand for rentals and apartments across our main centres – especially in central business districts.

On the other side of the pandemic, Kiwis are looking to live in less densely populated places, with land and a more balanced lifestyle coming at a lower price in the regions. Projections for more muted value growth Across the country will also see housing affordability look a little better by the end of this year.

Looking ahead, we expect to see regional property markets outperform main centres. However, increasing choice for buyers in the latter coupled with the central bank’s moves to dampen consumer demand will likely stabilise value growth and offer a greater level of buyer certainty over the next six months.