BNZ chief economist Tony Alexander has left no doubt about what he thinks will happen to Auckland house prices in his latest BNZ Weekly Overview newsletter.
In it he reprises a piece he wrote in 2012 titled 19 Reasons Why Auckland House Prices Will Keep Rising.
His views on the direction they are headed in have not changed in the interim.
"Auckland started with a shortage in 2008, the shortage got a lot worse as NZ house construction fell back to levels of the 1960s in 2011, and the shortage continues to get worse as the number of consents issued in the past 12 months in Auckland has not even reached the 23 year annual average which produced the shortage in the first place," he wrote.
"Note that in 2012 the Auckland Council estimated that 13,000 dwellings needed to be built each year.
"Two years down the track and the annual total in the year to September for Auckland was 7,320 and a year ago that total was 5,595. Prices keep rising."
Alexander also pointed out that just because land on the outskirts of the city might be freed up for housing, it could be many years before anything was actually built on it.
"For a land owner, as long as they can service the rates, the easiest hassle-free thing to do if one does not need the land sale money, is simply hold it and wait for population pressures to drive the price higher. History shows this to be a fairly good investment strategy," he said.
He also pointed out that he thought it was too early for the Reserve Bank to start easing back on the loan-to-valuation ratio mortgage lending restrictions.
"Some people got quite excited early this week thinking that the Reserve Bank on Wednesday might announce an easing in the loan to valuation restrictions," he said.
"I gave a radio interview listing a number of reasons why it is much, much too soon to expect such an easing and the Reserve Bank eventually stated on Wednesday: '...there remains a risk of a resurgence in in house price inflation, particularly in light of strong immigration flows.' "
Alexander said it was not inconceivable that the LVR restrictions would be eased down the track.
"But the timing is too soon and were I running the RBNZ I would want to see much more evidence of a sustained suppression of house price inflation before backing away from this new tool," he said.
He also gave his thoughts on what to go for if people want to take out a mortgage.
"Were I borrowing at the moment I would take my time and see who is offering not the best standard rates, but the best discounted rates.
"Competition between the lenders is hotting up and I would feel that the power is in my hands.
"I would pick and choose and if I could get a sub-6% rate for five years I would take the low rate and the great certainty that it offers."
This Overview was one of the best overviews on the Auckland housing market I have read in a while.
If you would like to read it in its entirety, click on this link.
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9 Comments
I really enjoyed on page 5 of his briefing how he pitched his banks 3 year mortgage offer - "I would be looking for a lender offering a discounted rate in the 2 – 3 year area, such as we recently offered at 5.85% for three years."
Keep it classy, bank economist.
Off to read my economic news elsewhere - this is venal rubbish.
Once upon a time Tony Alexander's newsletters were published regularly here on interest.co.nz
If you recall Tony alexander's presence here 3 years ago, he explained the difficulties analising what is happening in the property market due to the problems of poor and inadequate data. This is from a multi-billion dollar industry that simply pours out data in a form that hasnt changed in 20 years, although it is now electronic, more timely. Yet the market itself has changed.
You will also recall that Alexander began collecting his own survey information of property sales from Real Estate agents. He was particularly interested in the number of overseas buyers and the number of purchases by recent migrants
John Key frequently criticised the results of Alexander's surveys
Then interest.co.nz stopped publishing the survey results
Then, David Hargreaves began expressing concern about the lack of meaningful data
John Key stated it was too costly to gather the necessary information
Wasnt going to happen
Then Hargreaves stopped and disappeared.
Now, this week, RBNZ governor Wheeler states that he used the results of Alexander's surveys
In response, 3 years later, an enlightened RBNZ has now commenced collecting better data, segmented into FHBs, investors, and others. It's a start.
How can someone design and run a database on property used by the RBNZ and hold down a job as a bank economist? Why would a central bank be using a data set provided by a commercial bank? Why isn't this data set run by the property industry itself and why would it not b superior to a project run by a bank economist?
What is a "concise view"? Short, simple, and easy to comprehend? This guy's view pretty much mirrors that of the general consensus and are likely to be be a driver of the status quo whereby house prices follow a linear path equal to or greater to the incremental increases in the CPI/money supply.
So it would only appear that the only factor that could upset this milk and roses scenario is some unknown event or circumstance that disrupts the juggernaut beyond the goverments' and private sectors' control. Now what on earth could that be? Because even if Tony Alexander has any idea of what it "could be", I very much doubt it's going to be expressed in the public domain. Anyway, I very much doubt it enters his head space as his commitment is to his employee and his community and immediate family. He isn't superman and needs some down time.
For the sake of harmony, very little will be discussed outside the limitations of what people understand about the dynamics of asset markets, which is usually very limited at best and almost sacred from an urban myth perspective. So if anything does happen, on the downside, it's likely to be attributed to something unforseeable and beyond our control. On the upside, the narrative is pretty much laid out how Tony sees it.
If land banking is an issue stopping development, then the council is missing out on rates income because the land is not developed? If yes, should the council be allowed to charge rates on land relative to what they would collect off the land if it was fully developed? Then the high rates bill would encourage prompt development of the land or if there is no demand for sections the owner will try and get there property re-zoned rural to lower the rates bill.
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