The Reserve Bank of New Zealand is proceeding in its attempt to trigger an economic recession, as a means to reduce price inflation. Labour shortages due to border closures, supply chain disruptions and COVID era money printing have contributed to the highest inflation in decades.
After the recent OCR increase by the Reserve Bank, ANZ Bank has predicted a pull back in property prices, of around 22%. Predictions though are often way off the mark.
Rental prices are beginning to plateau which is good news for Kiwi tenants. At the same time property valuations across NZ are trending downwards from their peak in November of 2021. Corelogic reports that the housing market is weak and prices are down about 10% since late 2021; analyst Kelvin Davis says of the deeper than expected dip in house prices, “For context, the [2008 Global Financial Crisis] saw a final peak to trough fall of -10%.”
According to CoreLogic’s latest figures for November 2022, Wellington is the biggest loser, with double digit declines in home prices over the past year, followed by more moderate declines in Auckland and elsewhere.
Liquidations in the building sector
The property development industry has seen over 280 businesses liquidate in the past year, causing some to call an end to the property boom. Authorities, though, have been quick to point out that liquidation doesn’t necessarily mean that a development firm has ‘failed’. Companies are often put into liquidation and closed once projects are complete and developments sold off.
Building and Construction Minister Megan Woods says we need more long term data before drawing conclusions about the sector. She says the property development industry is far more prone to being affected by the boom bust cycle than other sectors in our economy.
Shane Brealey, a developer and businessman, disagrees. His predictions the building sector could purge up to 45,000 jobs have been widely reported on. Brealey thinks numbers might look okay now, but that is largely due to investments made before rates started rising. He expects the numbers of new developments to follow recent sales numbers, and “fall off a cliff”.
Also widely reported are Former Prime Minister John Key’s comments on the economy. Key suspects rates will have to rise much further in order for the housing market to “really crack”, with the labour market also crashing.
Comparatively, Minister Woods is upbeat and believes New Zealand is well positioned when compared to most countries in this downturn.
A range of plans and measures are being put in place by the Government to help the sector in a prolonged downturn. This includes a large state building program, new funds through the The Ministry of Housing and Urban Development, as well as changes to the first home grants.
Meanwhile, mortgage holders are beginning to feel even more financial pressure due to both increasing prices at the supermarket and the rapidly increasing interest rates that are in some cases costing families well more than ten thousand additional dollars per year to service.
Related story from NZNE
- Government struggles to address housing problems (4 December 2022)