NZ: Solid foundations of property market - ANZ

Analysts at ANZ explain that for the NZ economy, new home building is at a high level, while rebuild activity in Canterbury has waned, overall housing demand is being driven by strong population growth, a shortfall of housing, and low interest rates.

Key Quotes

“And despite rising construction and land costs, high existing house prices have made building attractive relative to buying. With demand expected to remain solid, we expect residential building activity will remain at high levels. But capacity in the construction industry is constrained and labour shortages are acute. Government initiatives intended to improve housing affordability will also contribute to demand, but we expect impacts on both the rate of home building and house prices will be relatively small.”

“We have reached a more difficult phase in the construction cycle and rising costs and delays could put pressure on firms in the industry. Pockets of pressure could emerge, particularly around cash flow.”

“Property Gauges

Housing market activity has stabilised in recent months, after increasing over the second half of 2017. House price inflation and credit growth have been broadly steady too.”

“Economic Overview

Generally, recent economic developments have been positive. Firms and households are getting on with it, the terms of trade remains high and population growth is strong. Less favourably, funding costs and market volatility have increased, while the economy continues to face some late-cycle challenges. Nonetheless, the economic picture remains positive. We expect the economy to continue growing at around-trend pace of 2-3% over the medium term. These are reasonable rates of growth, but achieving above-trend growth will be a challenge. We expect inflation will rise gradually over the medium term, with OCR hikes in time. But with evidence of a lift in domestic price pressures lacking, the OCR looks to be on hold for some time yet.”