New Zealand has continued its period of sustained economic growth which began back in 2010, although the rate of increase in economic activity has started to slow. New Zealand’s economy grew in line with market expectations in the March 2019 quarter and increased by 0.6% (2.7% annual average growth). The outlook for global economic activity has weakened which will have a flow-on effect on the demand for New Zealand’s goods and services. There is also heightened uncertainty as a result of lower levels of international trade and descent over international trade policies which is expected to result in lower trading-partner growth. Central banks around the world are easing monetary policy to support their economies. Global long-term interest rates have declined to historically low levels, consistent with low expected future inflation and economic growth rates.
Despite the building headwinds, New Zealand’s economy is expected to continue to grow, albeit at a slower rate than in the recent past. The factors which underlie future growth in our local economy include: the RBNZ continuing to have supportive monetary policy settings and recently reduced the official cash rate by 0.5 percentage points; increased Government spending on infrastructure, housing and other social services; strong population growth, driven by net overseas migration gains in excess of 50,000 people per annum. In addition, labour market conditions remain tight with low levels of unemployment, ongoing employment growth and modest growth in wages.
Across New Zealand as a whole, house price growth is expected to slowly increase over the next 12 to 18 months to average 5% to 7% per annum, although significant regional differences are expected. The increase in prices will, in part, result from constrained supply as population growth continues to outstrip the pace of new housing construction. Recent falls in mortgage interest rates will also be a strong stimulus for demand and consequently increase pressure on prices.
Housing affordability, even with the fall in mortgage interest rates, remains a concern in most markets, most notably in Auckland. Poor housing affordability can affect a region’s ability to attract and retain key workers, essential for their economies. For example, although Auckland’s population is continuing to benefit from strong overseas migration gains, the region lost over 32,000 through internal migration over the last four years.
Other factors influencing the market include the Government’s decision not to introduce a capital gains tax, which may assist in maintaining investor confidence, although their inability to offset losses against other income could limit their desire to invest in more units. Consequently, investor activity is likely to continue to be mixed.
At this stage of the housing cycle, the impact of these changes has been unevenly distributed around the country. Sales volumes have generally fallen in most regions, which can make sales price statistics volatile as the composition of dwellings sold can vary between sales periods, masking actual changes in values.
Economic overview prepared by researcher Ian Mitchell.
Posted 3 months ago