Treasury isn't predicting a large pick up in house prices

Property investment is forecast to pick up in 2013, although a large pickup in prices is not anticipated, according to the economic outlook included in this year’s Budget.

Friday, May 25th 2012, 12:00AM

by Rob Hosking

The pick up in activity is not just tired up with the Canterbury rebuild.

"Indicators of residential building activity show activity is likely to remain at a low level in the short term," according to the Treasury's advice contained in the economic outlook attached to Finance Minister Bill English's fourth budget.

"Household credit growth is weak and building consents are rising but the level remains low."

"Treasury forecasts assume a large increase in residential investment from the middle of 2012. The pace of activity is forecast to continue to rise, reaching a peak growth rate of over 40% in the year ending March 2014. The level of activity continues to rise for the remainder of the forecast period, but the growth rates slow to 15% in the year ending March 2015 and 5.2% in the year ending March 2016."

The initial, large, burst of this is mostly Canterbury-driven activity, but beyond that the pick up is more widespread.

"While the initial phases of the rise in residential investment are driven by the Canterbury rebuild, activity in the rest of the country is forecast to become increasingly significant over 2013.

"The national demand for housing is supported by past population growth, expected future population growth, rising household incomes, falling unemployment and repair of leaky homes."

That is against a backdrop of continued wariness about extra debt by a lot of New Zealanders, the forecasts say.

"Ongoing household caution is reflected in the subdued outlook for house price inflation. The forecast for rapid growth in the supply of houses also helps to temper gains in house prices.

"House price growth of around 1.5% per year is forecast, less than the rate of consumer price inflation."

Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.

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