Five million reasons the economists are wrong

Given everything that’s going on at the moment, you could be forgiven for missing that New Zealand’s population just topped the five million mark.  The milestone snuck up on us so fast, in just seventeen years in fact. We almost forgot to pause and think just what will be the impacts of the rapidly increasing membership of ‘club Aotearoa’.  Of particular interest for us, of course, is the potential effect on the world of residential real estate.

During lockdown economists provided their predictions on what fortunes or ruins lay ahead for the country. With much of New Zealanders’ wealth tied to the fate of the housing market – it makes for an interesting/fear invoking/attention grabbing headline to quote significant falls in a market. But with predicted falls ranging between 10-30%, we just can’t see how they can be right. Here’s why:

Stock Levels Are At An All Time Low

We have an under supply of housing in the market, especially in our major regions. And the current stock levels have further exacerbated the situation. At the time of writing this Wellington homes and apartments available for sale are 491. Just five years ago those levels consistently sat around the 1500 mark. So where have all the houses gone?


Supply And Demand

Governments over the past ten years recognise that new housing is not keeping up with population growth. In fact, the issue is more often than not at the forefront of election campaigning. It’s seen programmes such as Kiwibuild introduced in an attempt to overcome the ‘housing crisis’. But to date we still face the same pressures. Now there are international border restrictions forcing Kiwis to stay put and many an ex-pat looking to return home – the issue of supply and demand is unlikely to improve in the short to medium term.


With two-year interest rates at an all-time low of 2.69% and the potential to fall further, it is now cheaper to own than rent. This has never been truer than in the case of Wellington which has the highest rents in the country. First home buyers are acutely aware of this and are out at open homes in their droves. This is putting significant upwards pressure on prices, for now at least. As long as the bottom of the market is moving, vendors looking to make a move upwards into a larger home will have the equity to do so and so on up the chain.


On the subject of affordability, the investors are back! And who can blame them. There have been falls on the share markets, retail and office space are now a riskier proposition and there are historically low interest rates. This means attention has turned back to the NZ ‘safe haven’ of bricks and mortar.

A friend called me last week about a rental property they were looking at in Mount Manganui. They were unsure if it was a good option and concerned that in just five short years the price of the property had doubled from $500,000 to $1,000,000. So, my friend and I investigated the serviceability of the property.  Assuming the property was purchased with a full debt of $500,000 at a two-year rate of 4.81% interest only, the cost of owning the property is a mere $54 dollars per week above what he was paying in 2015. Strong growth and investment in the area over that same period is likely to have seen rents more than this which makes the cost of ownership the same as when the property was worth just a fraction of the current market value.

Loan to Value Ratios

  Loan to value restrictions introduced in 2013 and then again in 2016 saw a requirement for 20% LVR for the primary residence and up to 40% for any subsequent property. These changes came about because of the GFC, where the banks’ risk appetite decreased because of a housing market in decline. These restrictions have created a great net position for homeowners and more breathing space for banks to restructure if needed.  But now the Reserve Bank has scrapped the LVR’s so those with solid equity behind them are on the lookout for opportunities again.


Unemployment is on the rise. This is particularly prevalent in the retail, tourism and hospitality sectors. Often jobs in these sectors are filled by younger workers paid the minimum wage or slightly higher. They can therefore not be an accurate cross section of the New Zealand population. Because of this it’s likely that home ownership and subsequent sales due to hardship is lower than if we were to see significant job losses in industries made up of large corporates.

Printing Money

Printing money has become a default response for adverse market conditions. The finance minister recently announced plans for up to fifty billion dollars of spending in areas including education schemes, infrastructures and construction projects. That is the equivalent of $10,000 for every person living in New Zealand. But record low interest makes interest earned by savings almost zero. This is just another factor which will put upward pressure on asset prices as investors seek better returns.

The Wellington Market

We have one word for the Wellington market at the moment: WOW.

In the absence of any activity it was hard to anticipate just what kind of market we might be coming into post lockdown. Although we imagined it would be average at best. So it has come as a great surprise to all of us that the market is stronger than ever.

Our team has had nine homes and one apartment for sale since lockdown. With the exception of the apartment we have had in excess of five offers on each of them and in some cases upwards of ten! This May was certainly busier than other years as the market played catch up and it appears that someone forgot to tell the buyers that the world was about to end only eight short weeks ago. With a workforce insulated by the Government and an average salary over $84,000, Wellington is a haven in times of uncertainty.



There are endless reasons to Love Local and here you’ll find a few tips, tricks and handy guides to help you do just that.

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