Why are prices strong? A number of reasons:
A population that is growing & moving.
Dwellings are having, on average less ocupants. Do you know the average in 1900 was about 7 people per dwelling? Average!
Growth in migration.
Build costs, all up, are phenominal! Consents, land, decorating, landscaping, funding. In Wellington the build cost, true, seldom is under $3000 a square metre by the time you walk in the front door! Without land!
Now, add to that the nanny state. I tell people you need rocks in your head or be very very good to make money in NZ developing land & building residential homes en mass. The intrusive & arbitrary power of the state is a real uncertainty to costs & completion dates....ie to if you will make or lose money. Its a lottery.
Here is very good comment from Tony Alexander, BNZ economist. I recomend his weekly newsletter. Subscribe here
http://www.bnz.co.nz/Business_Solutions/1,1184,2-22-842,00.html
I Quote:
While we do not expect the pace of growth in sales earlier this year to reappear in the near future prospects
remain good – as we have long indicated – for average house prices to keep rising for the next 1-2 years.
There is the lowest level of addition to the existing housing stock in four decades and an upturn in
construction while underway will be constrained by a shortage first of funding for developers and then late
next year by a new shortage of contractors.
You may have noticed during the week that one of the other forecasting groups has adopted quite bullish
commentary on the housing market. So this now is where things start to get quite interesting. Regular
readers will know that over 18 months ago we were warning that although house prices would fall they would
decline maybe “only” 10% - 15% because of supporting factors such as rapidly falling construction, an
under-supply of housing, and the eventual impacts on debt-loving Kiwis of falling interest rates and
improving net migration flows. We suggested that if people wanted to make a “canny” purchase in the
housing market they should do so before the middle of this year.
Prices on average have now risen 9% since January and as we pointed out here last week the price gains
are occurring in the three main urban centres and not the regions this cycle. That aside, one of the other
things we pointed out last year is that probably in the second half of this year the debate about affordable
housing would reignite. That has not happened in public forums yet as far as we can see, but it won’t be far
away now that there appears to be general awareness of the property shortage moving out of just a dearth
of listings into a physical shortage of properties.
One might recall how when we were writing positively about the housing market in Winter the doom-sayers
were forecasting prices would decline anew because Spring would bring a flood of listings. That has not
happened, but one suspects the improving house price sentiment/discussion will bring forward a few more
sellers looking to alter their long term property exposure to something better aligned with their underlying
cash flows and risk tolerance.
But back on affordable housing. This is an extremely important issue with regard to social inclusion and
cohesiveness. One of the things we generally appear to value as New Zealanders is the ability to own our
own home and not to live in the tiny accommodation so prevalent overseas. When house prices were
skyrocketing 2-3 years ago and worries about this threat to our culture were high the Commerce Select
Committee held an investigation into the home affordability issue and produced a set of relatively lacklustre
recommendations which as far as we can tell have had no impact."
Yes folks, unless something big changes, houses in the places there are jobs will continue to be in demand.
And unlike other form of investments...you can live in them too!
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