As we draw closer to the end of 2018 we look at the housing market and how it has performed during the year, but more importantly how it might perform over the year ahead.
Supply Issues With Housing
For the past few years there has been a housing shortage, or what politicians and the media call a “housing crisis” particularly in the big cities like Auckland. This is really a imbalance with housing supply and demand and it is a complex issue to resolve.
When the economy is going well then people want to move back from overseas, or from rural and small town to the cities to be part of it, and with that there is also demand on the housing. This puts pressure on both rents and house prices as demand for housing is outstripping the supply.
The “easy fix” if you believed any marketing logic would be to increase supply, but that is not always as easy as it sounds.
The process of building new houses and apartments can be quite a drawn out process and especially if you are trying to do it to any significant scale. It can take years from the initial planning stage until the new houses or apartments are ready to be lived in. There is the issue of finding the land, planning the development, arranging the development finance, getting the permission to develop the land and build on it, finding and contracting the builders and then finally getting the building done.
KiwiBuild Was The Cure For The Housing Crisis
At the last election the “housing crisis” was turned into a political football.
The National Party had created an economy that was touted as the “Rock Star Economy” after navigating through the Global Financial Crisis of 2008 and then the devastating Christchurch earthquakes.
They had worked on getting the framework to increase housing development and established the Special Housing Areas (SHA) where property developers could get the consents fast-tracked on the condition that the development had a percentage allocated to affordable housing. In Hobsonville Point they created the popular AXIS Homes which were allocated via a ballot scheme to first home buyers that met a certain criteria. You can read more about AXIS Homes and what homes are still available.
The Labour Party introduced KiwiBuild as the means to fix the housing crisis.
The concept of KiwiBuild was certainly a popular concept for the election with promises of 100,000 affordable houses to be built over 10-years for first home buyers with half of these built in Auckland where the struggle was seen as the hardest. They said that this will fix the housing crisis and due to the scale of the building programme and the use of modern manufacturing techniques the KiwiBuild homes will be affordably priced for new home buyers.
The Labour Party were positive that KiwiBuild was going to work, while the National Party say they are promising a housing plan it knows it can’t deliver.
We have seen KiwiBuild in the media but not all for the right reasons.
How many KiwiBuild Houses have been built? It’s now well over a year since the election and those big promises, although the “start date” for KiwiBuild was pushed back to July 2018 so really we are just 5-months into the first year. After the election the housing minister Phil Twyford reconfirmed that KiwiBuild would build 100,000 houses but said that in the first year to July 2019 we should only expect 1000 new homes as it will take a while to ramp up production. At this stage Phil Twyford is on record stating that there will be 50 new KiwiBuild homes finished by Christmas so they have a lot to do if they are going to meet the targets that they set themselves.
Are KiwiBuild homes really affordable? The promise was to build affordable houses for first home buyers with half of these built in Auckland. So far not many houses have been built but we have already heard of three developments that have not met the market;
- Five KiwiBuild properties in Onehunga failed to sell via the ballot and were offered to anyone willing to buy them who could qualify for the programme, on a first come, first served basis.
- At Marfell in New Plymouth there are 68 modest KiwiBuild starter homes being marketed for $450,000 yest the area has a median price of $326,000 according to property data provider CoreLogic. This means that the KiwiBuild homes are expected to sell for 38% above the median house prices which makes you question what definition of affordable is being used.
- In Wanaka only 7 of the KiwiBuild homes have sold. The homes are in a subdivision called Northlake and this was the first 10 homes put on the market priced between $565,000 and $650,000. This is a significant development with a total of 211 KiwiBuild homes will be built in the subdivision over the next two years so it makes you wonder what the future of this development is when they are already struggling to sell the new homes.
What is the “real” demand? When the KiwiBuild website went live they asked people to register their interest. We then heard how many people had registered and this was used in the media as an indication of the demand for KiwiBuild Homes; however I questioned the numbers at the time as I had personally registered to ensure that I was kept informed but knowing that I would not qualify as I’m already a home owner – how many others did the same? It was published last week that 46,489 people had signed up to register their interest but only 248 people had been pre-qualified.
It will be interesting to see how KiwiBuild changes and evolves over 2019 because while the concept may seem good, the planning and execution has been poor.
What About The Banks?
As leading Auckland mortgage brokers we always need to keep updated with the various banks criteria and during the past year there have been some very significant changes.
When we say “significant changes” some of them will appear like little changes, but even small changes can be the difference between getting a loan approval or having the application declined. In this last year we have seen a marked increase in the number of mortgage approvals from the smaller New Zealand banks which can be a little more flexible than the big banks, and from the non-bank lenders which have a range of options and are able to offer competitive deals.
For first home buyers the banks are able to still offer some low deposit home loans (under 20% deposit) but are restricted by the LVR rules. Those rules are changing from the 1st January 2019 when the banks are able to do a little more low deposit lending, but they will still be limited in what they can do. As mortgage brokers we have access to a range of banks so when one bank cannot offer a low deposit home loan, another bank quite often can. This is one of the advantages of having choice.
A lot of first home buyers are accessing their KiwiSaver, the HomeStart Grants and help from families to help with the deposits.
There are also the Welcome Home Loans offered by some banks which are targeted for first home buyers but have a number of restrictions including income caps and house price caps which make these difficult in areas like Auckland. Non bank lenders have options to lend over 80% and also allow second mortgages which many first home buyers can consider as an option to get into their first home.
Finance for new builds have been exempt from the LVR rules so should be easier, but the banks all have different criteria and even when there is a house and land package or a fixed price contract the banks will typically be conservative. Building a new home can be one of the most satisfying things but can also be extremely frustrating so it is important to ensure that the finance works with your individual situation and compliments what you are doing with your building project. Given our location and experience we understand new build finance better than most and more importantly can help people understand the processes and potential issues so the build can run more smoothly.
Construction finance is very difficult at the moment and that is one reason that the developers are not building as many houses as everyone had hoped for. Many of the building companies have seen KiwiBuild as a great opportunity for this reason as the banks are still prepared to finance a construction project when they know the Government will be underwriting the purchase of those homes.
Property investment loans have been restricted by the by the LVR rules which meant that you needed a deposit of 35% for investment property, but this is changing to a lower 30% deposit from the 1st January 2019. We expect that this change will see more people get interested in property investment again in 2019; however the Government has highlighted some changes with tax treatment which could be introduced soon which people will need to consider.
You may have heard that the banks are more difficult than they used to be, and they are.
The important thing is to get an experienced mortgage broker working for you as they will know which banks will suit which situation.
The Open Market Is Slow
Talking to real estate agents and when speaking honestly they will tell you that sales have slowed considerably over the past year.
Consultants selling new builds will also tell a similar story and as we are seeing even those selling KiwiBuild homes are struggling to sell new affordable properties which were expected to be so popular that they would be sold using a ballot system.
Initially the market slowed in late 2017 and this was seen as nervousness around the time of the election, and then the market was in limbo for a time as Winston Peter’s went through the process of choosing the new government. We then headed into the Christmas break with the expectation that things would return to normal in the New Year …. but that did not really happen.
We have seen good properties that are well priced still selling well; however with more choice the buyers can be more fussy.
It’s A Buyers Market … But For How Long?
The housing market does suit the buyers more than the sellers at the moment.
With less buyers actively looking the demand is reduced and therefore not as many people looking to buy properties.
In markets like this it is good to be a buyer as you can generally take a little more time to plan your purchase and get to know the local market where you plan to buy. Part of planning your purchase should also include planning your finance and getting pre-approved so you can negotiate a purchase with little or no conditions.
So how long will the market stay like this?
We would love to know but we cannot be sure.
On one hand we have some easing on the LVR rules which may see more buyers in the market and then there are potentially a lot of people that could see pay increases soon. On the other hand we have seen a lot of uncertainty with the economy and some significant price increases which are hitting the household budget hard.
We expect that 2019 may be another interesting year and will probably still favour buyers.
In summary, our housing market update is suggesting it will remain a buyers market for some time yet.
