The Government predicts the housing market will stall in the next 12 months, but economists and real estate experts are not too sure.
In its economic forecast, released in the Budget, the Treasury said that annual house price growth would slow from a peak of 17.3% to just 0.9% by mid next year.
READ MORE: Find out if your suburb is rising or falling
The Treasury attributes the dramatic drop in growth to the Government's recent housing market shake-up, which included measures aimed at curbing investor activity, and the Reserve Bank's reintroduction of home loan restrictions.
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Finance Minister Grant Robertson said: “This is a very sharp adjustment in house prices but a very necessary one.”
However, economist Tony Alexander believes that the Treasury has overestimated the impact of its policies on investors, namely the extension of the brightline test and removal of tax benefits on interest payments.
“Their assumption of flattening prices is excessively optimistic. With such low interest rates and no other outlet for investments – no bank is going to leverage four times your equity to invest in the stock market or Bitcoin the way they do for property – property is the only way to accelerate wealth.”
Alexander says a drop in immigration may slow housing demand, but it won’t affect buyers’ behaviour.
“It comes down to what people believe,” he says. “It’s the expectations that affect what people do, so if they believe there’s a huge inflow of expats, that will affect their behaviour.”
PM Jacinda Ardern, left, and Finance Minister Grant Robertson, centre, arrive at Parliament to deliver the Budget. Photo / Getty Images
Harcourts NZ managing director Bryan Thomson isn’t buying the forecast either.
“You’re playing a fool’s game if you listen to predictions,” he says. “They predicted disaster a year ago and look what happened.”
Thomson says buyers shouldn’t be making decisions based on economists’ forecasts, but look at what’s happening on the ground.
“Seasonal market demand still very good, results are good, people are buying.”
He takes issue with the Government’s assertion they were cooling investor speculation, saying that while some investors paused to assess their positions, others still see the fundamentals are in favour of property investment.
ASB’s chief economist Nick Tuffley predicts prices will hold up better than the Treasury is forecasting. “We’re expecting 5% growth. It will slow significantly, but it’s a matter of degree and impact.”
Economist Tony Alexander: "Their assumption of flattening prices is excessively optimistic." Photo / Supplied
Tuffley says that a housing shortage, particularly in Auckland, will sustain prices for the next four to five years until supply catches up with demand.
He thinks the Government’s restrictions on investors will have more of a bite in Auckland than other parts of New Zealand, arguing that lower prices and good income from primary industries will keep the regions attractive to buyers.
Westpac’s acting chief economist Michael Gordon says there is a lot of disagreement on the rate of house price growth, with forecasts ranging from 15% growth to none at all.
“Treasury’s forecasts were done in early April. But now the peak of growth is already done,” he says.
However, he stresses that the forecasts concern house price growth not price drops. “We’re talking about growth rates, not a sudden lurch down. All that means is prices are not going up more than they are today,” he says.
Economist Benje Patterson agrees: “You have to remember, that while government wants house price increases to slow, they’re not targeting for them to fall. They’re just trying to get demand and supply situation back into a more sustainable balance.”
He adds: “Treasury has to come up with a forecast, but there are risks around that forecast. It depends on the level of uncertainty.”
Patterson’s pick is to watch where some of the supply spending goes from the Budget allocation to infrastructure and social housing – some of which, he hopes, will be spent on research and development to bring down the cost of building and improve efficiency.
