The BIG Picture

Involving so much more than just snap-decision making, choosing a home requires a big-picture approach to economic policy. Bayleys property reporter Katharina Charles speaks to economist Cameron Bagrie to find out what macro-economic trends are set to impact buyer behaviour this year.

Sandwiched between legislation, migration, stimulatory monetary policy, loan-to-value ratio restrictions and labour constraints adding to the supply versus demand debacle, residential property buyers often find themselves gazing into the tea leaves of economic policy for answers, says Cameron Bagrie, chief economist and managing director of Bagrie Economics.


Despite migration falling from record highs, New Zealand – and especially Auckland continues to experience massive population growth with some 54,623 migrants arriving in the 12-months to September 2019.

“The demand persists for housing, which is an indication prices will keep moving up, however it’s never really that clear cut,” Bagrie explains.

“Affordability eventually puts a cap in place, as demonstrated in Auckland with its flattening market over recent times.”

Regional New Zealand has outperformed larger city centres in terms of sale volumes and year-on-year house price growth - values for the year to October 2019 grew 8.2 percent outside Auckland, while Auckland’s data showed a decline of 0.7 percent, according to the Real Estate Institute of New Zealand’s (REINZ) Housing Price Index (HPI).

“Our insatiable thirst for yield has also pushed price-conscious buyers out into the regions where respectable yields can still be found.

However, as prices in the regions track upward, yields move south – and you start to see buyer resistance at certain price points. It’s no coincidence that the strongest performing regions in New Zealand over the past year have been the cheaper ones. This is the affordability dynamic at work, Bagrie says.


“Interest rates are low, and set to remain low,” says Bagrie, echoing sentiments from the Reserve Bank of New Zealand’s (RBNZ).

“Low interest rates mean borrowers find it easier to service a loan and move the dial in favour of owning versus renting. Whether interest rates move up or down by 50 basis points in the next few years is incidental. They’ll still be at remarkably low levels,” he adds.


In its latest Housing Confidence Report, ASB Bank found that net 13 percent of survey respondents now say it’s a good time to buy residential property – which is the highest number in seven years.

“An improved air of confidence across both the economy and our residential market is only good news, as it tells us things are starting to look a little better under the hood,” Bagrie says.

“Low interest rates are a global phenomenon and as the RBNZ has stated in its last Monetary Policy Statement (MPS), interest rates are likely to stay low for a long time. This is excellent news for both buyers and sellers who can take encouragement from preferable lending conditions and the opportunity to pay off debt faster than ever before.”


“The banking sector’s impact on the economy is huge, and it has drawn attention from regulators including the RBNZ, resulting in more hoops to jump through when you seek a loan,” Bagrie says.

Access to credit has become less free and easy, and outright harder for some sectors. 

The RBNZ worries about financial stability or areas that could destabilise New Zealand. This includes things like debt levels and exuberance in housing, commercial property and agriculture.

“With the recently announced capital review findings imposing higher capital ratios on New Zealand’s banks, to safeguard against a market downturn, there exists an opportunity for non-bank lenders to enter into the market and the smaller New Zealand owned banks also step up.”

While predicted to direct the focus of big banks on to residential mortgage lending which typically carries less risk than sectors such as agribusiness and property development, Bagrie expects that capital will still find a way to identify new opportunities.

“New operators such as Australian-based MaxCap Group, have recently expanded to the New Zealand market offering funding for property development projects and driving lending competition for development while answering the call for additional availability of credit,” Bagrie says.

In its most recent Credit Conditions Survey, the RBNZ found that 29 percent of bankers felt the willingness to lend to commercial property developers had declined – a sentiment which leaves opportunity for international and other local firms to invest in New Zealand and its development.

According to Bagrie, New Zealanders will also need other lenders to fill the void if housing shortages are not going to intensify past current building levels.

For residential property purchasers, this is important because it speaks to the supply and demand dynamic, and those looking to secure optimal value are well-advised to watch development, investment and planned infrastructure as an indication of future value.


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