Alexander: House prices will keep rising

Government moves to improve housing affordability have been slammed as weak by BNZ chief economist Tony Alexander.

Friday, November 2nd 2012, 12:00AM 2 Comments

by The Landlord

The Government has pledged to ask councils to make more land available within and outside cities, set a maximum six-month limit on council processing of residential building consents, consider rezoning all land as residential, look at how to fund infrastructure and hold an inquiry into construction sector productivity.

But Alexander said there were many reasons why Auckland’s house prices in particular would continue to rise regardless.

These included a property shortage: Auckland did not enter the recession with an over-supply of property and construction has been constrained since then. Last year, building consent levels were at a four-decade low.

He said removing LAQCs and depreciation deductions had not made a difference to prices nor encouraged investors to sell. Interest rates would likely remain low for some time, he said, because of the poor growth prospects in global economies.

A turnaround in migration would also support house prices, he said.

“The migration cycle appears to be on the cusp of turning and if the housing market has performed so well with net outflows over 3000 in the past year, the implications of positive gains are clear.”

Alexander said unemployment was likely to fall quite quickly and the ageing population would mean a need for more houses because of a decrease in average house occupancy.

“Any credibility people may have assigned to those who have been predicting big price declines simply because prices have risen a long way and now fallen sharply in some other countries has gone out the window. Few people will now listen to their price decline views.”

He said he did not think a capital gains tax would make any difference. “Australia has a capital gains tax and their house prices are very high, plus their housing market moves in cycles like ours. New Zealand investor interest in housing has risen, not fallen, since the LAQC and depreciation rules were changed.”

He said a CGT would likely dissuade people from building and push prices up.

Alexander recommended borrowers keep their mortgages floating but keep an eye out for a lender offering a five-year rate near 5.5%.

« House prices will stay firm: Council

Free Investment Property Showcase Events: Auckland, Wellington and Christchurch »

Special Offers

Comments from our readers

On 6 November 2012 at 2:24 pm bArt said:

Tony Alexander may think the government is not doing much to contain housing prices but down here in ChCh they have a novel scheme that the rest of NZ should be aware of. In the case of a disaster remove the insurance companies from the picture by taking over their liabilities and the screw people over by only offering property owners a fraction of what their property is worth, (i.e. what they actually paid for it and in spite of the full replacement cover they have). Be warned.

On 6 November 2012 at 4:06 pm Miles said:

Auckland did not enter the recession with an over-supply of property says Tony Alexander. But he omits to say that in 2008, there had been 8 years of BNZ and other bank's credit binge excesses which gave rise to the house price increases especially in Auckland. In terms of those higher prices there was no over-supply.
But citizens want lower prices to consider building at 3 times median salary. I take it that Tony Alexander does not want people to get realistically priced sections. It is reasonable to conclude that BNZ is anti the ordinary home buyer or wants them to spend excessively on mortgage repayments. That is entirely understandable. It is a competitive mortgage world in a market highly regulated by local government which is the problem.
If unlimited sections had been available since Y2K, and council restrictions been restrained, and central government imposed a higher capital adequacy ratio on banks creation of money, then perhaps now the house prices would be a realistic 3 times median salary.

Sign In to add your comment