House price cycle has a long way to go: Alexander

The house price cycle has a long way to go as young people come back into the market and wages improve, says BNZ chief economist Tony Alexander.

Friday, May 30th 2014, 12:00AM

by The Landlord

“Don't be fooled into thinking that just because residential real estate activity has fallen 9% in the past six months on a year ago, or that lending growth is not accelerating, that the house price cycle has finished. It has a long way to go.”

He said house prices had risen during a period when wages had been relatively stagnant. Now that things were looking up, they would likely increase even further.

“Imagine what will happen from now on as remuneration growth naturally accelerates because of the tightening labour market and the balance of power shifts from employers running the same stories of cashflow woe as their profits rise, to increasingly empowered employees regaining their individual and collective strength.”

But housing affordability is shaping up to be a key election issue this year.

Labour wants migration kept at a lower level, saying it contributes to rising house prices and puts pressure on interest rates.

As well as reducing immigration Labour would increase housing supply, apply a capital gains tax to domestic investors and make it harder for overseas speculators to drive the property markets.

Alexander said for those wanting to rein prices in, migration controls were well down the list of things that might work.

He said three-quarters of migrants leaving and returning to the country were New Zealanders and migrants were needed in a tightening labour market.

“Key parts of the solution to housing affordability could include removing residential and rural land designations, buyers choosing standardised designs from rather than individually architecturally designed abodes, councils abolishing development and infrastructure fees and placing costs back on the existing rate-paying base, reducing construction standards with regard to insulation, earthquake preparedness etc, banning developers from imposing rules for houses built in their new subdivisions, removing restrictions on placement of multi-storey buildings. See why affordability won't improve much if ever from current levels?”

He said some of those factors were things he would not support, but they would have more impact than restricting foreigners buying houses.

“Given the style of houses we like, the ways we like to live, the multitudinous rules and restrictions, the many construction costs as everyone clips the ticket along the way, and the existing shortage of houses in our two biggest cities accounting for almost half our population, house prices rise.”

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