What is the future of housing in NZ?

Written by Money Empire

January 18, 2022

Housing is a constantly talked about matter globally, and in particular, is a key component to wealth building for Kiwis, so what is the future of housing in New Zealand? From unaffordability of homes, to barely reachable deposits, to investment properties, housing will always be a hot topic. Not only does a home fulfil the basic requirement of living (shelter), it also helps people step on to the financial ladder, create and grow their prosperity, and provide stability.

That’s a lot riding on a huge financial investment. 

For a long time, the very traditional ‘Kiwi dream’ has been buying a quarter acre section with a white picket fence, a tidy garage, and enough space out the back for some grass and a deck. It does sound like a dream, doesn’t it? There are still sections like this out there, but with the relentless rising of house prices, it almost feels like a dream that is impossible to reach. 

Where does this take us for the future of housing in New Zealand?

With our ever-growing population and attraction to our stunning country, we think it’s time we pivot to a new type of build: medium or high density housing. This would include apartments, terraced homes, and townhouses. Not only do homeowners need to recalibrate their thinking into this new style of build, but property developers need to start building these types of homes. Not only does this option make housing affordable for the buyers, it makes it a great opportunity for the developer to build and sell more properties – which means developers can go on and make more properties, providing more housing). High and medium density housing is becoming more of a necessity as urban sprawl really takes shape, especially in the larger cities where there isn’t really any space to build out, instead we have to build up. 

The next main issue we face with the future of housing in New Zealand is that we currently don’t have the most ideal infrastructure to support our growing population. What could take three hours on a bus or using public transport, might only take an hour in the car. At the moment, Wellington is undergoing huge changes to their archaic piping system, and Christchurch is still working through post-earthquake builds (however the city is looking great as it’s been designed well)!

We always think about a couple with kids, a mum and dad owning a big family home, but the most common home buyer is actually a couple without children. We see friends and siblings combine their life savings and investments to purchase a property together, which means the ‘Kiwi Dream’ home might not be relevant to this diverse group of buyers. 

Is there any legislation going through to support the future of housing in New Zealand?

There are a few changes happening through legislation as we have stated in our House Pricing Forecast for 2022 that will impact housing throughout New Zealand. The housing policy update (as we have written about here too) has come into effect as of October 2021, which from what we can see, will negatively impact first home buyers and only make it more difficult to get onto the property ladder. There is also the Resource Management Act (RMA) undergoing reforms that will be actioned in August this year (2022) – which essentially gives homeowners on larger sections the ability to cut and divide it up, and sell the remaining onto developers, giving them more control over their property. We’ve kept quiet on this one as it was speedily shot through parliament under the old bipartisan leadership, so we strongly assume the proposal will undergo a few changes. 

The future of housing in New Zealand seems unstable, doesn’t it?

Yeah, we get this a lot. People think there’s going to be a market crash (recorded at a drop of 5% or more), which is pretty small considering in the last year property values have gone up on average of 20%. With the national median price around $1,000,000, we can’t see any changes. What we hope to see is the government stepping in to help control house supply and demand in a way that doesn’t negatively impact first home buyers or developers. As we have stated earlier, the main way to build wealth in New Zealand is property, we are a country who likes to ‘own’ tangible things, rather than rent or lease like they do over in Europe. 

Members of parliament often own houses, so there is vested interest in the property market from a government perspective. A lot of the Kiwi economy is bolstered on homeownership, so we don’t reckon the government will let a ‘crash’ truly happen, especially one that was similar to the Global Financial Crisis of 2007 – 2008. People want to buy homes, unemployment is low, and the mortgage rates are still comparably pretty cheap. 

So where does this leave the future of housing for New Zealand?

The new CCCFA act will push through a credit crunch for the first half of the year as borrowing will be hard to come by from lenders (banks or third-party lenders), which in turn will create fewer frantic buyers to drive prices up. COVID may stall people’s financial plans for a few months with fear of future lockdowns, but with record consents of new builds (48,522 to be exact) alongside new tax legislation in favour of these, Kiwis will continue to buy and favour property as its favourite investment class. 

The 2022 year may however see a slow down from extraordinary capital gains of 30% with interest rates rising from inflation pressures and materials increasing in price along with a shortage of labour. Don’t be surprised to see no or little gains throughout the year 2022 but when you have made 30% in a year it’s not sustainable for them to continue to rise and be in any way affordable. 

The biggest losers for this year ahead will be First Home Buyers via the CCCFA act (assuming this is not overturned) vs. the biggest winners who are high income earners with disposable cash. The best investment strategy is to purchase a new build in capital growth or up and coming areas for tax advantages and gains over time.

There are more listings than ever recorded on the main real estate websites. When borders open, there will likely be a huge exodus of people who are eligible to buy homes to do their OE’s and go travelling, or move over to Australia (or other countries) where the cost of living is cheaper and people generally get paid more. 

There’s a lot to take on board, and there’s a lot that could change. If you’re not sure where to start, or want more info, get in touch with one of our financial advisers. We can give you way more info than an article. 

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