As the country wakes with an election hangover, what does the new government mean for New Zealand’s runaway housing market? Alex explores.
Since Jacinda took the helm a few weeks ago we’ve been getting many questions along the lines of:
· How will a Labour government change the housing market?
· What will it do to house prices and interest rates?
As you will well know, house prices have been heading north for the last couple of years. Great if you own property; not so great trying to get on the ladder. One of Labour’s main pre-election promises was to curb this and fix the housing crisis by building more homes, reducing foreign buyers and creating somewhat of an equilibrium in the housing market.
Will this cause house prices drop?
Who really knows, but, best guess: it’s highly unlikely. Demand has fallen recently (see the Auckland stats for example), but there also has been a reduction in supply (listings are as low as ever and the spring surge of houses coming on the market has just not been happening). This lack of supply helps to keep the pressure on house prices.
Some areas in New Zealand have been over-inflated, but … most areas are just playing historic catch up after a number of years of no growth at all.
As to banning foreign buyers to relieve pressure … the forecasts from economists and investors is that it will have little to no impact (see Australia which has similar policies already in place). According to LINZ, the number of foreign buyers is actually very small and only affects purchasing of existing houses. 
What will interest rates do?
New Zealand interest rates are influenced from events offshore. The European central bank just reported that European banks can sustain low levels of interest for the next couple of years. The Bank of England is looking to increase its base interest rate and this is also the trend in the US.
So, will the New Zealand Reserve Bank adopt similar policies? No one knows. Maybe Peters will cause a stir with the Reserve Bank Act. Besides this, economists say it is unlikely for interest rates to change too much, as other factors like net migration, unemployment and the financial outlook of New Zealand are all very positive.
This piece is a little more formal than normal from me, but these are the questions and answers we’re getting and giving on a daily basis. Feel free to discuss any of this over a cup of coffee with me.
Alex Barendregt is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.