Across Aotearoa residential construction has expanded rapidly over the last 10 years, however, a low level of historical residential investment compared with our global counterparts has seen housing supply consistently challenged to meet demand.
The Reserve Bank of New Zealand’s (RBNZ) dwelling availability measure finds that housing availability was steady in the three years to 2013, before declining continuously in 2020 to just 379 homes for every 1,000 residents.
While this figure improved in 2021 as new homes were built and net migration declined during the pandemic, we are still behind 2013 levels, sending a clear signal that despite record building consent issuance, Kiwis still need new homes.
Global factors continue to play an important role in New Zealand’s economic performance as mortgage lending rates push higher to combat decades-high inflation and a shortage of both materials and labour limits the growth potential of our construction industry.
“While there is record building consent issuance across the country illustrating a strong pipeline of planned projects, the number of new homes being built in Auckland is actually starting to decline,” says Suzie Wigglesworth, Bayleys national director of projects, and general manager for Auckland Central.
“We can see the effects of a deteriorating global economy impact residential developers’ and their ability to secure finance to complete developments, a trend which is likely to reduce bank lending appetites in the residential space over the next two years.”
Recent figures from the RBNZ show close to two-thirds of all domestic bank lending in the form of mortgage debt has exposure to housing, making the financial system very sensitive to price movements in the residential market.
“This will continue to limit the number of new projects that are offered to the market, and make it even more important for purchasers to be sure they’re investing in a quality product,” Wigglesworth says.
While residential sales data for existing homes is delivering a mixed bag of results across the country, Wigglesworth says purchasers across residential asset types are looking to new-build projects as a hedge against still-high house prices.
“Investors, first home buyers and movers are focused on building long-term wealth, and residential property has a proven capability for capital gain that’s widely viewed as a hedge against inflation,” she says.
While residential sales data for existing homes is delivering a mixed bag of results across the country, purchasers across residential asset types are looking to new-build projects as a hedge against still-high house prices.
Suzie Wigglesworth, Bayleys National Director of Projects
Added benefits of purchasing new include 10 percent deposit requirements for owner-occupiers and a 20 percent (half the 40 percent required for existing homes) deposit for investors. Investors also see value in purchasing new through favourable tax arrangements and the five year bright-line property rule.
Of current market dynamics, Wigglesworth says boutique apartment developments, with large floorplans of three bedrooms and design-led principles are netting the highest prices.
“We have a large ageing population that wants to cash in on the gains their traditional family homes have made over the last five years and make a move to something more modern with lifestyle upside,” she says.
“These buyers are less susceptible to fluctuations in mortgage lending rates and continue to prioritise space and location.”
In Auckland, this is evidenced by the strong interest in the high-end residential developments Bayleys is marketing including Omana North in Milford, Jimmy’s Point and Launch Bay in Hobsonville Point, and Mountview in Epsom.
“These projects are all being brought to market by recognisable developers – New Zealand Retail Property Group (NZRPG), Winton and Canam - with a proven track record of high-quality products which offer much-needed supply at the higher-end of the ‘lock-up-and-leave’ residential market,” she adds.
A research paper by the RBNZ recently found total returns on housing as an investment averaged 10.9 percent in the nine years to 2009 - higher than any other asset including shares and bonds.
Wigglesworth says data like this continues to provide a powerful impetus for purchasers to transact.
“The wider residential market might be experiencing a recalibration right now, but we can see signs the new-build market is bucking the trend, especially as investors come back to the fore,” she adds.
First home buyers encouraged by the ability to purchase with only a 10 percent deposit are equally motivated by this month’s relaxation of tough responsible lending rules (the Credit Contracts and Consumer Finance Act or CCCFA) that previously saw a borrower’s daily expenses forensically analysed, resulting in fewer mortgage approvals.
“Buyers are seeking opportunities, and for investors purchasing new means they can continue to deduct interest expenses from their rental income which is a key financial incentive that is driving interest in the sector.”
To year-end, Wigglesworth expects challenges including rising construction costs and an ill-understanding of density changes will continue to confuse the market, though the Bayleys New Build team are well-positioned to provide an expert intermediary between buyers and developers/sellers.
Challenges including rising construction costs and an ill-understanding of density changes will continue to confuse the market, though the Bayleys New Build team are well-positioned to provide an expert intermediary between buyers and developers/sellers.
Suzie Wigglesworth, Bayleys National Director of Projects
“Between policy, zoning and legislative changes it has become difficult for those in the market to keep abreast of developments that dictate a property’s ultimate value – be that for a landowner interpreting the value of potential or a buyer evaluating value in a shifting market,” she says.
The established Projects Team at Bayleys are already industry-leading, working with the country’s most reputable developers to create feasibility studies, market analysis, pricing, design and trend forecasting, and this gives us a natural advantage as we seek to advise clients in the small-to-medium development space,” she adds.
Fast-becoming the number one, go-to for small, medium and large-scale new build residential developments in New Zealand, Bayleys’ national director of residential Johnny Sinclair says the agency is cementing its position as the go-to for landowners considering the sale of property primed for development.
“We have a national network of salespeople and support across all market segments offering a level of connectivity that is unparalleled,” he says.