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The BIG Picture

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.

“There’s a lot going on in the housing arena,” Cameron Bagrie, chief economist and managing director of Bagrie Economics says.

Sandwiched between new legislation, booming migration, monetary policy aimed at stimulating the domestic economy, loan-to-value ratio restrictions remaining in place, and labour constraints which have added to the supply versus demand debacle, residential property buyers often find themselves gazing into the tea leaves of economic policy for answers.

In this article, we examine some topical issues which will give buyers pause for thought as to where, when and how they choose to make their next property-motivated move.


Despite migration numbers having fallen from record high levels, New Zealand – and especially Auckland continues to experience massive population growth with some 54,623 migrants arriving in the country during the 12-months to September 2019.

“The demand for housing persists and while supply is coming online as we build more houses, the fact remains we have a shortage of housing which is an indication that prices should keep moving up,” Bagrie says.

However, it’s never really that clear cut, he adds.

Affordability eventually puts a cap in place, as demonstrated in Auckland which has experienced a flattening market over recent times.

Conversely, looking at the last 12 months of sales data, regional New Zealand has outperformed larger city centres in terms of sale volumes and year-on-year house price growth.

Residential values for the year to October 2019 grew 8.2 percent outside Auckland, while within Auckland the data showed a decline of 0.7 percent, according to the Real Estate Institute of New Zealand’s (REINZ) Housing Price Index (HPI).

“Cheaper houses and regions are playing catchup. Auckland’s population used to grow faster than the country as a whole. Now Auckland is growing in line with the national average despite more migrants turning up.”

“Aucklanders are still migrating out into the regions,” Bagrie says.

Auckland’s housing shortage has been exported out to the rest of New Zealand and we are now seeing rents in the regions outpace Auckland as housing shortages bite, he adds.

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

“However, the flipside – which is what we were beginning to see at the close of 2019, is that as prices in the regions track upward, yields track downward – 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.

Historic attitudes have billed Auckland as the city with the housing shortage. It’s now across most of the country as building activity struggles to keep pace with demand, he adds.


“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.”

“Low interest rates are also driving an insatiable chase for yield by investors, across both the residential and commercial arenas,” he adds.

“Whether interest rates move up or down by 50 basis points in the next few years is pretty incidental. They are going to be at remarkably low levels”.

Banks also don’t lend based on the current advertised interest rates; these institutions use a higher rate to assess a borrower’s ability to service the loan. Bagrie says these rates are coming down, which makes a big difference on how much an individual can borrow using mortgage calculators.


“Where current and proposed changes to policy and legislation including new obligations on landlords, the foreign buyer ban, ring-fencing tax losses and capital requirements, may have seen some property investors hit the eject button – those rentals are being picked up by hungry first home buyers,” says Bagrie.

However, Bagrie says the tightened rental market puts further putting pressure on rents to rise faster.

Despite this, the fundamental issue of affordability is not being addressed, Bagrie says.

“The more house prices move up, and the Reserve Bank stokes the fire by lowering interest rates, the worse the problem gets.

“Intensification is the way of the future and it is economically imperative that the Government goes down that route, paving the way for cheaper and more efficient building processes,” he says.

Challenged by capacity and skill shortages however, Bagrie acknowledges the need to prioritise goals in order to make an impact, as promising too much, especially as we head toward the General Election, could be counter-productive.

“It’s encouraging to see a stronger focus on infrastructure spending by the Government. We have clear infrastructure deficits and some of those deficits constrain the supply of housing.”

Bagrie says we are making small inroads but it’s a long drawn out process to make housing affordable again.


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.

While the RBNZ estimates its increased capital requirements will raise bank lending by 20 basis points, relative to the Official Cash Rate (OCR), Bagrie does not anticipate any extreme movements in interest rates or the OCR for the next 12-months.

“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,” Bagrie says.


“The banking sector’s impact on the economy is huge. The sector has come under the spotlight from regulators including the Reserve Bank and the result is that there are 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 Reserve Bank 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.

Bagrie explains that the RBNZ really just wants moderation, as moderation reduces the potential for a boom to turn into a bust.

“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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