I'm Worried About the Property Boom

20 December 2022 by Ross Barnett

I'm Worried About the Property Boom

There seems to be 4 key property factors all lining up to create a huge property boom at some point.  Like the the movie "Perfect Storm", when several factors all line up together, you end up with the perfect, freak wave, and this is how I view the property market, a "Perfect Storm" is coming, with a potential huge property boom.  When?  That is always the hard question, and most guesses are generally wrong.   It could be 12 months, 18 months, 24 months or further away. 

Key factors that affect property;

1) Immigration -  NZ has had negative immigration for 2 years, but over the last 5 months there has been a surge in Arrivals to NZ.  Lots of these will obviously be tourists and short term guests, but it is still a great trend.  These people will require beds and housing, which is good for NZ property.  It will be very interesting to see the long term immigration numbers over the next 2 years, but we appear to be having a huge growth period.  

  • 2 years April 2020 to March 22, approximately 100,000 more departures than arrivals into NZ!
  • Almost 9 months April 2022 to 17/12/22, approximately 80,000 more arrivals than departures 

My pick - Rents will slowly start to go up as there becomes less houses available.  Most likely starting with Auckland where most immigrants traditionally go.

Check out the numbers in the Picture below, showing the last 3 years arrivals vs depatures;



2)  Low number of new builds - This will take a while to come through as we had some many new builds in progress in the 2022 calender year.  But now in late 2022, new home inquiries, consents and builds are really dropping of.  

This is likely to leave us with a huge shortage at some point in the future.

Recent article - new home inquiries slow

3) Change of government and change of interest limitation rules - There is a fair chance that the interest limitation rules will be reversed.   This will make it more attractive for property investors to keep rentals and to buy more rentals.

Labour and the Greens are still polling at over 40% combined, so it is not a sure thing, so don't rely on this, but it is also a fair possibility this will change.

4)  Interest rates - What would happen to the property market if interest rates crashed?

Logical answer would be it would boom.  

It might seem funny to be talking about interest rates crashing, when we are in the middle of interest rates rising.  But with Interest Rates rising so quickly, it is likely that Reserve bank will over cook it, probably hold interest rates too high for too long (this is traditionally what they do) and then have to crash them in a huge hurry to avoid a major recession.

Have a look at the picture below, look at how steeply the OCR has increased since February 2022, 1.0% to 4.25%, an increase of 3.25% in 10 months!  

Again very hard to pick when interest rates will go down, but it seems increasingly likely New Zealand is heading into a recession, and the high interest rates are going to hurt a lot of home owners.


So why am I worried?

These things are great for Property Investors long term, but I don't think the boom and bust model is great for NZ as a whole.  We don't seem to have learned from our past mistakes, and we seem to be setting up property for another boom that is going to make it more difficult for young Kiwi's to get onto the property ladder.

High immigration might solve problems short term, but obviously it puts huge demand on NZ housing, and in the past the high immigration numbers have been a major reason for housing shortages.

A smoother cycle, or lower growth would lead to a more sustainable model.

Disclaimer: This article has been prepared for the purpose of providing general information, without taking into consideration any particular person's objectives, financial situation or needs. Any opinions contained in it are held by the author as at the report date and are subject to change without notice.



preview image - Unlocking Financial Harmony: Navigating the Symphony of Life with Mindfulness

Unlocking Financial Harmony: Navigating the Symphony of Life with Mindfulness

In the hustle and bustle of daily life, the concept of mindfulness often finds its place in discussions about mental health and stress reduction. However, its impact on financial wellbeing is a hidden gem worth exploring.

A 2021 survey by the New Zealand Retirement Commission ranked New Zealand’s overall financial wellbeing as 61 out of 100. In this case, financial wellbeing is defined as “a combination of meeting commitments, being financially comfortable, and resilient for the future.” The area in which New Zealand scored the lowest was preparedness for retirement, with a 43 out of 100 which highlights that around one in three New Zealanders are concerned that they will not have adequate savings to last through their retirement.

24 November 2023 by Lifetime
preview image - Finding Your Financial Ikigai: The Japanese Art of a Balanced & Purposeful Life

Finding Your Financial Ikigai: The Japanese Art of a Balanced & Purposeful Life

In a world that often measures success in financial terms, the Japanese concept of Ikigai offers a refreshing perspective. Transcending the boundaries of culture and geography, this philosophy loosely translates as "a reason for being". Ikigai is a convergence of what you love, what you're good at, what the world needs, and what you can be paid for. It's an approach that represents a broader view of prosperity, encompassing joy, purpose, and contentment. As financial advisers, we find this particularly compelling. This article delves deeper into how Ikigai can not only enrich your life but also inform your financial decisions for a more fulfilling journey.

21 November 2023 by Lifetime