Economic Overview - March 2019 Quarter

Economy TelferYoung

New Zealand has continued its sustained period of economic growth that began back in 2010. New Zealand’s economy grew in line with market expectations in the December 2018 quarter, increasing by 0.6% (2.8% annual average growth). Market expectations are for the economy to continue to grow albeit at a slightly slower rate than in the past.

Supportive monetary policy settings, ongoing growth in government spending on social services and infrastructure, strong population growth and increased construction activity are all supporting ongoing future economic growth.  Labour market conditions remain strong in most regions, with low levels of unemployment, and businesses are continuing to report problems employing skilled labour. Despite the tight labour market conditions, household incomes are only increasing at a moderate pace. 

The potential impact of external factors on our future economic performance have increased.  Increased uncertainty over the future direction of world economic growth, the growing trade conflict between the USA, China and Europe, uncertainty around Brexit, and the simmering uncertainty for countries with high levels of debt and their ability to access financial markets all have the potential to have a local impact.

A number of factors are continuing to support current house prices. Strong population growth, driven in part by net overseas migration gains of 56,000 per annum (March 2019 year), is supporting demand both within our main metropolitan areas and surrounding regions. This continues to run substantially higher than the longer-term average for the cycle. The ten-year average net overseas migration gain now stands at 29,000 people per annum. Other factors continuing to support the housing market includes further falls in mortgage interest rates and the level of construction activity continuing to lag population growth. The recent confirmation the Government will not introduce a capital gains tax or extend the five-year holding period test has also removed some uncertainty from the market. Offsetting these positive factors, banks’ tightening of bank lending criteria, making it harder for purchasers to access credit and poor housing affordability has slowed market growth.

Housing affordability remains a concern in most markets.  Recently a number of commercial organisations have started promoting shared equity products for home buyers. The BNZ (YouOwn product owned by Bancorp) and Miuiwi (a co-ownership product connecting first home buyers with shared equity capital investors) have announced they will offer shared equity products to assist first home buyers. These types of products were previously dominated by community housing providers. The objective is to increase, at the margin, the number of households that can affordably purchase a dwelling. Commercial operators’ interest in products like these underpin the concern about the poor levels of housing affordability.

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 a mix of properties sold in any one quarter can change, masking actual movements in value.

Overview provided by Ian Mitchell of Livingston and Associates Ltd.

Posted 29 days ago