09 May NZ continues to struggle with affordability – Kelvin Davidson
Kelvin Davidson explains that wage growth in New Zealand is not helping housing affordability as the market there struggles to come to terms with what will help.
Kevin: Looking once again at the New Zealand market, the CoreLogic report, the quarterly property market and economic update report has just been released. For an insight as to what that’s showing, I’m joined by Kelvin Davidson. Kelvin, thanks again for your time.
Kelvin: No worries.
Kevin: What were the major outtakes for this for you for the economy in New Zealand? Because I think I want to focus, if we can, on housing affordability once again, which is a big issue whether it’s Australia or New Zealand. Kelvin?
Kelvin: Yes, that’s right. So in the economy, we’re doing a slowing economy. GDP growth is inching lower, but it’s still pretty good. So we’re not talking about an economy that’s racing away, but it’s not collapsing either. So generally pretty supportive for the property market. What I’m not seeing is wage growth, so even though GDP growth is okay, it’s not really flowing through to any increases in wages. So really any increase in house prices is actually making affordability just that little bit worse, ’cause wages aren’t really going anywhere.
Kevin: So is that impacting first home buyers?
Kelvin: Yeah, it definitely will be. Affordability isn’t getting dramatically worse, but it’s already at a fairly low level. So buying houses is pretty much as hard as it’s ever been. Even though it’s not really changing much, it’s starting from a very low level in terms of affordability.
Kevin: Yeah, just looking at the stats, though, first home buyers, a 24% market share would seem to me to be fairly good. We’ve seen it as low as 10%, which is really when the market does start to tighten. Would you be happy with a 24% market share?
Kelvin: Yeah, for first buyers, they are still finding ways into the market. As I say, affordability is pretty stretched, but they’re finding other ways in. So actually seeing the KiwiSaver deposits, which is quite a big influence in New Zealand, as well as, I guess, just real willingness to compromise on the location or the property types. They’re still finding a way in. So I guess some of the groups that they could be having to face competition from have been, they’ve been sort of toned back a little bit. Certainly the investors are facing pressures from the government in terms of extra regulations. There’s a bit of extra costs they’re facing. So yes, maybe some of those competing groups have been slightly checked, and so that’s allowing first time buyers to get in, even though affordability is pretty stretched.
Kevin: Yeah, would you say those measures against investors, you know, or making it a little bit tighter for them has helped with affordability?
Kelvin: I don’t say we’ve seen a huge impact yet. Some of these things are still off in the distance. So going through Parliament now, there’s a measure going through Parliament at the moment to sort of curb the tax advantages that investors get from running losses on rental properties. So there is actually a bill passing through at the moment to make that much less favourable. So that is something that investors are having to think about now, but it’s just not quite law. There’s a few things that I don’t think, you know, they’re not quite in yet. But they’re poised to have an effect, I guess, over the next year or two.
Kevin: And what about LVRs, loan-to-value ratios? The banks, are they getting a little bit more flexible in that area?
Kelvin: Yeah, there has been a bit of a loosening there in the last … So we saw the rules loosened again, especially on the first of January so that they are just, I guess, creeping in the favourable direction for borrowers. But still, the LVR speed limits that are in place here aren’t quite being tested yet by the banks. The banks are still pretty cautious. Even though they have headroom to lend a bit more, they’re not quite using it yet. But I think that will provide a bit of momentum for credit flows over the coming months. People can get mortgages, but you just need to pass quite a few tests to that finance, ’cause-
Kevin: To get it, yeah.
Kelvin: … you’ve got to have the deposit obviously, and you’ve got to be able to prove that you can afford to pay the mortgage. And banks are testing that a lot more tightly than they have in the past. So yeah, there is money available and there’s press and some momentum to come from that yet. But as I say, you’ve got to jump a few hurdles.
Kevin: Good stuff. Kelvin Davidson, thank you so much for your time.
Kelvin: It’s a pleasure.