01 Aug Q&A : Lloyd Gutteridge
The housing market in Auckland and the economy in NZ in general seems to be taking a bit of a breather before the forthcoming election.
In your opinion, what do you think will happen to property values in New Zealand during the next 12 months?
Unless there is a dramatic shift in voting patterns in the next 2 months, it is likely that a national led
government will will a 4th term in office in September 2017. Hence, with the continued absence of a capital gains tax on investment properties in NZ will still make housing an attractive investment keeping property values in positive territory. However, the very high gains of 10-15% p.a. seen in the last few years are likely to be replaced with a more realistic outlook which will see values rise by say 2-3% p.a in line with the reserve bank forecasts. A property correction is likely with prices in some centres falling but an outright crash is unlikely. The fundamentals of the economy are in good shape with business and consumer confidence remaining high and unemployment hovering around 5%.
If the national party does receive a 4th term in office, promised tax cuts in April 2018 may be seen as
inflationary as the supply side in the NZ economy struggles to keep up. Interest rates on mortgages may start to creep up putting further downward pressure on property values as the reserve bank increases the OCR in line with its own estimates. It would pay attention to any further LVR or other restrictions by the reserve bank once the election is over
First home buyers are struggling to purchase property in this country. (Our own daughters are renting,
disillusioned with the prospect of saving for a home they may never be able to purchase and spend their
disposable income on rent, entertainment, travel, clothes etc. ) If a larger proportion of the workforce remain in rental accommodation, what impact do you think this will have on the NZ economy?
This is hard to say as they will be short and long term and generational impacts of a shift towards rental
In the short run as the economy continues to grow, upward pressure will continue on rents in the main centres where many of the new jobs are being created, reducing disposable income for saving even further and making it even tougher to save for a deposit. This will also have a longer term impact on young workers and there may be pressure on employers to shift more to the regions where rent increases if any have been or are more modest. This however would also require a rethink of regional policy by the government and also put infrastructural pressure on regional areas which find it difficult to cope with an influx of tourists let alone future workers. Technology can help but how likely are major employers willing to leave behind the main centres given exisiting business relationships/networks have been established?
The generational impact may be further away but could become more dominant. In Europe, the arguments over rental versus ownership have been swayed in favour of the former. In a significant mind shift, the European ‘model’ of rental accommodation has been accepted and now forms part of the European model of renting for life with a strong government focus on superannuation and saving for the future. In NZ, the mindset of the family home being the principal method of saving for retirement needs to be challenged. The current squeeze on property for many low paid or public sector workers will mean that a whole new generation will need to rethink their attitude to KiwiSaver and how to provide for their retirement which is likely to be nearer 70 if the current government has its way. Note that only yesterday in the UK, the official pension age was raised to 68 without any warning by a government in crisis mode. The same could easily happen here in NZ.
Immigration – advantages and disadvantages?
This is an emotive argument fuelled by emotion v facts and a brief treatment cannot hope to solve the issue of immigration
The economic facts (from a number of different sources) seem to suggest that in net terms given tax revenue generated, spending on household items and the creation of new business opportunities, immigration is vital to NZ’s future success. Immigrants become a ‘good bet’ and add real value to the economy. In a globalised world, immigrants are a vital injection although there does seem to be a preference for the main centres especially Auckland where over 60% of new immigrants settle putting pressure on rents and property values, school rolls, hospitals, roads etc
With over 80,000 young new Zealanders not in education and training – the so called NEETS – immigration becomes an emotive issue. Why are we granting over 80,00 temporary and work visa’s to overseas workers when we have a ‘ready made ‘ group of young workers who could be gainfully employed? is a familiar cry.
The issues are complex and a number of stakeholders all seem to have an axe to grind. Emotion begins to
override economic facts when stories of young families sleeping in cars grab the media attention unable to get into a dry house or unable to enrol in their school of choice. Seemingly frozen out of their own communities by individuals who have limited if any attachment to NZ. This is a naive view as the complex issues around housing and education for example cannot be blamed on one particular group such as immigrants but they do make an easy target
NZ needs to engage in a discussion around the make up of its people and how immigration – carefully
monitored – can impact favourably on the whole country. Many industries in the Bay of Plenty and other rural areas would suffer enormous economic hardship if the immigration tap was turned off. The views of NZ First are unhelpful in this respect and in the forthcoming election, the economic facts need to be heard before any final quota or set number of immigrants is established.
For a population of 4.5 million, the current levels of immigration and returning kiwi’s back to NZ, are not
sustainable given the current pressure on infrastructure in Auckland and Wellington. There does seem to be a strong argument for regional placement of newly arrived workers but what if there a re no jobs for them to go to? And so the debate rages on