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Tony Alexander looks at what will influence house prices in the future

Soaring interest rates.?

Nope. Our central bank is under pressure to cut rates further following last year’s 1% reduction in the official cash rate, central banks overseas are either easing or delaying planned rises, and one of the factors causing recent sharemarket weakness has been worries about deflation. In NZ inflation is just 0.1% and the RBNZ has found itself unable to get headline inflation back into the target range of 1% - 3%.

Soaring house supply?

Nope. Courtesy of massive net migration flows NZ population growth is picking up. NZ’s average population growth rate is 1.1% per annum. Growth last year was 1.9% following 1.5% in 2014. Since 2006 the population has risen by 411,100 people. At an average nationwide house occupancy rate of 2.7 people that means a need for 152,000 houses. Since 2006 consents have been issued nationwide for 204,000 houses. With some 80% of consents estimated as adding to the housing stock this means 163,000 extra houses. Take off about 12,000 houses in Christchurch removed from the available stock by the earthquakes five years ago and things are about in balance until you allow for an aging population bringing more households of just one or two people.

So no over-supply BUT. Auckland has a big and worsening shortage. Many other parts of the country will have an over-supply. So if you are an Auckland investor jumping boots and all into the regions buying what you consider to be cheap properties with good yields be very, very careful. Those locals giggling outside the dairy may not be laughing at the latest headlines regarding some celebrity, but at you. Watch for investors whipping back toward Auckland once this run of regional growth peters out perhaps early next year.

Migration outflows?

Nope. The net gain last year was 65,000 people, our economy is in good shape compared with others, we are distant from worsening geo-political situations offshore, and the commodities boom has been and gone in Australia. Annual flows will likely peak this year but the easing off is likely to be very gradual and occur over many years.

This is part of the Weekly Overview for 18 February.  To read the full text of the Overview go here

Tags: house price inflation

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