HSBC has warned that the housing market could be becoming overheated and that this could start to have a negative impact on the economy.
In an economic report titled Housing risks and the RBNZ, HSBC's economists say their conservative estimates are that Auckland has a housing shortage of around 30,000 homes, which is equivalent to about 6% of the region's total housing stock, and that the shortfall is increasing by around 7000 homes a year, with record low interest rates and record levels of net inward migration driving demand.
"Given continued rapid house price growth, there are growing concerns that the Auckland market has become overheated and that the unaffordability of the region's housing could have a detrimental impact on economic performance at some point," the report says.
"There are growing signs that speculative behaviour is driving the market, with investors currently accounting for nearly half of all purchases."
And that was posing risks to financial stability, which would concern the Reserve Bank.
"For the RBNZ, the risks associated with a long period of low interest rates are mounting," the report warns.
That could see the the RBNZ delay further cuts to interest rates.
"Although the RBNZ has been clear that its cash rate setting has been focused on the inflation outlook and its macro-prudential settings [such as imposing minimum loan-to-valuation ratios] are targeted to managing the housing market, it is getting harder to ignore the financial stability risks when managing the cash rate," the report says.
"Our central case is that low inflation and the rising NZ dollar are likely to prompt a a cash rate cut in August.
"However an upside surprise to the Consumer Price Index combined with an exuberant housing market could keep the RBNZ on hold."
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21 Comments
What a joke. These guys are some of the worst offenders for bringing in laundered money. They haven't got a great reputation internationally either being fined millions for not abiding by the rules. Why are they allowed to still allowed in NZ? This do nothing government should is not listening . We will remember this for next year.
This is really insightful.. never heard this before! They should become advisors to the RBNZ!
But I still cant figure out where all the people are who are looking for the 30,000 missing houses? Let's assume an average of 3 people per home - that's 90,000 people in Auckland living in cars and garages? Rents not really going up much, are the underside of bridges that crowded at night? Now some analysis on why they think Auckland is short 30,000 houses would be useful!
Found missing homes - Problem solved! More than 33,000 Auckland dwellings are officially classified empty as the city grapples with a crisis of affordable housing and homelessness.
http://m.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11654…
How about sorting out all the empty homes (Ones that have been empty for say two years). Most likely they could be put to good use before they disintegrate.
There really there needs to be some kind of tax for empty homes especially in Auckland to act as a deterrent. Otherwise it's just ridiculous to say we have a 30,000 housing shortage when we know there is officially 33,000 Auckland empty dwellings out there (Probably in the more expensive areas too).
Well why don't we obtain power records and water records and work it out properly? That would be pretty simple. But no...we just speculate back and forth, with nothing done until this govt has its arm twisted so far up its back it has to react ( trusts and housing corp div recent examples). This do nothing govt just doesn't want to see the data.
With more people in Auckland originating from other countries I guess there would be more empty homes than usual. Quite a lot of people return to their own countries for holidays and to see their extended families. They probably have places in other countries where they can stay for free. A certain number of houses will be held as investments by foreign people because foreign people are allowed to buy houses I guess. Makes sense when you think about it.
I saw a youtube analysis of japan in the late 80s and in tokyo, the market was so overpriced that banks issued mortgages with 120year terms. Yup thats right. And there too the reserve bank failed to act quickly enough and in the end they had to kill the real economy with high interest rates, higher than would otherwise have been if the reserve bank had acted earlier. Sadly, in japan, reserve bank governers often moved on to the private banks at thr end of their tenures and thus the private banks learnt all the tricks from the ex governors. Hmmmm no correlation here is there??
Nice article this. Did they actually pay someone to research it? Nothing new really. Alot of if if if. Hmmm exposed are they?
A sensible rbnz will not cut the ocr going forward. A sensible rbnz will increase bank reserve requirements and increase mortgage deposit requirements. A sensible rbnz would have started this process 2yrs ago. A sensible nz government would require nz citizenship prior to buying a house. Instead we have idiots who at the helm of both nz govt and rbnz. One of these we voted in. And they both claim to be economic mystros.
New Zealand is the third most popular country with Chinese property investors. By March 2016 residential house prices in Auckland were up 11.6% year-on-year (all information here https://tranio.com/canada,new_zealand,australia,united-kingdom,usa/analytics/top_five_countries_for_chinese_property_investments_5131/). A sudden uncontrolled flood of capital into an already extremely hot market like Auckland, coupled with low inventory seems fearful.
So whats gunna happen? Some say.... it will keep going up. Some say.... financial instability, eg falling nzd, skyrocketing inflation, unemployment, bankruptcies, credit crunch, negative equity. Well, my money is on nzd crash. Hope it happens too. It will teach alot of people a lesson in economics
Mtate4442 - your article looks eerily similar to the Japanese buy up of foreign property in the late 1980's. Some say china is sleepwalking in japan's footsteps. Another country with zombie banks. Chinese debt is eyewatering. How similar the parallels are. And when china falls over then what? 50yrs of depression? War? China is a big % of the world demand and world economy. Very very scary.
This confirm my thoughts. china will bring the world economy to its knees. https://next.ft.com/content/acd3f2fc-084a-11e6-876d-b823056b209b
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