Your February 2020 Newsletter

Where the market is going in 2020.

The main reason this newsletter is a bit overdue is because I have been carefully watching what is happening in the news and comparing that with what is happening in our office. It will be no surprise that my personal predictions will follow just about everyone elses  and  that’s it’s heading back up again. However  this has taken quite some time to materialise. The media predictions were rampant at the end of last year, but at a local level it wasn’t happening. We were still seeing the lower end of the market active, but the higher priced properties were selling slowly. However, this year we are seeing a large numbers of Auckland buyers moving back into the market. My personal enquiry has shifted from predominantly locals to predominantly Aucklanders. We have multiple offers on many properties with a new company record of 10 on the same property.
Last year we saw a two-tier market, where properties under $500,000 raced ahead whereas properties over $600,000 were selling slower. This created a distortion as the lower priced properties were gaining on the higher half and the price gap between them closed. Logic would say that with the new interest in the dearer houses we should see a period of adjustment where these properties re-establish their price difference.

2020’predictions are: –

Continued strong interest in properties up to $500,000 from the first home buyers and the investors. This market will continue its steady 10-12% pa growth.
The higher priced properties will remain at the same level for about three months, then experience a strong upward surge. This is because there are a lot of available properties in this higher price range and these need to sell before there will be upward pressure on prices. We have about three months’ supply depending on enquiry. The market will then surge over the winter months. This market will also see around 12% growth with most of it focused in the second half of the year
Some key factors and points of interest: –

  • We are finding a surprising amount of Auckland buyers who are buying, but not selling their Auckland homes. About 30%. These people have enough equity in their current homes, that they can buy in Whangarei and not sell in Auckland. This is going to have a huge effect on the available Auckland properties for sale and push the Auckland prices up faster, as the already short supply gets shorter. The interest they pay on their new home loan will more than be covered by the increased equity in their existing loan. Not a bad strategy for a home buyer who owns an Auckland home.
  • Interest rates are very low and may even head down a small amount yet. Housing loans are now very affordable, and a $600,000 loan is going to cost you about $386 per week. Compare this to when Whangarei’s average house price was going up at $1700 per week. A buyer keeping their old home and buying another is going to get double the capital gain.
  • Nearly every general election causes the housing market to stall. I will make a bold prediction and say that will not happen this year. Historically most elections are based on a conservative government in power, and peoples fear that if a liberal, left- leaning government gets into power then we will see anti home ownership legislation, such as a Capital Gains tax. As we already have a left leaning government in power and they have stated they will not be introducing a capital gains tax, then there is no threat to home ownership. The worst that can happen is a more conservative government will take power at the end of the year. Therefore, I don’t see people holding off buying due to the election this time around. I have every chance of having egg on my face for this prediction as it will be a first, and historically elections are bad for real estate.
  • Building costs have skyrocketed after the Christchurch Earthquake recovery swallowed up most of the available builders. Builders have waiting lists, and many are pricing work on the basis that they can put a high cost on the quote and can afford to miss the contract. Anyone building will be looking at $3000 per sqm building costs this year, meaning that a modest $160m2 home will cost you $480,000. Add a $350,000 section to that and your new build costs are $830,000. Right now, existing homes are better value, but it will not take long for the current supply to be sold and then these new build costs will set the new prices.
  • Section supply is still at an all-time low. There is an adjustment period when people take time to accept the new section development prices and the new build costs, but when they do these new $400,000 plus section prices will be the norm.
  • The Americas cup will start 21 March next year. Impact on house prices …. none. It’s a great event but has almost no impact on the Real Estate market. It didn’t last time it was in NZ and it won’t this time either. 

Confession Time

Almost 90% of my predictions are proving accurate, right down to the percentage growth, however there are two glaring exceptions.  The first is rents. Two years ago, I predicted that average rents would hit $480 pw by the end of 2017. They are close to that now and there is continued strong upward pressure. Rents in excess of $600 pw are being achieved but the fact is I got it wrong. The pressure was there but the resistance to higher rents has taken longer to dissipate than I thought. A bit like walking through thick mud. Progress was made, but at a slower pace.  The second is Rental ownership. At the beginning of last year, I predicted that many of the mum and pop landlords would get out of the rental market and there may be a small drop in prices. This has proven to be totally wrong. There was a brief flurry of mum and pop investors getting out as compliance costs and landlord requirements got harder, but this was more than offset by first home buyers picking up the properties and interest rates dropping further, meaning people with money were looking for alternative investments. In my defence I did say that if the Government raised the first home buyer assistance ceiling from $400,000 to $450,000 in their budget, that this would alter the prediction and sure enough they did. However, two mistakes are two mistakes! I apologise and will fine tune my crystal ball.

How Fast is Whangarei Growing?

I have been a long-term advocate for growth in Whangarei and have written numerous articles about how it is growing twice as fast as the WDC are planning. The WDC were planning around  less than 1% growth whereas the District Health Boards’ new medical registrations was showing 2% growth. ( WDC have just released a paper saying we grew at 1.57% over the last few years.)  I have read some recent press articles  about rapid population growth in the district inspired by Government  spending:- such as the $800 million infrastructure spend , Ports of Auckland shifting and the Navy shifting , and  figures that say if  the Ports of Auckland  and the Navy shift north the district population could hit 145,000 in 10 years .  This figure is quoted by the NZ Herald as being expounded by the current WDC chief executive Rob Forlong.  Right now it”s  hard to think Whangarei’s can cope with this type of population growth.  It’s not that it won’t increase at a fast pace , but we simply don’t have the infrastructure to allow this growth. Sewage, electricity, roads, bridges, and then we don’t have the builders, electricians, plumbers etc to build all the houses.  We don’t have the time to wriggle through all the red tape in 10 years to create the sections needed. We can handle a population of 120,000  in 10 years, but 145,000 it would be an unmitigated disaster for the city, and we would have homeless people under every lamppost trying to find a dry sewage free place to stand. With optimistic predictions showing an average of approximately 2,500 new people per year for the next 10 years , we would need over 1,000 new houses per year. Currently we are building less than half that. We currently have about 450 sections being developed or in the planning stages , so even if we had the builders we don’t have the available land,  and sections take a lot of time to develop. 
The growth prediction has been  exaggerated and I hope people are not giving it too much credence . Let’s look at some factors

  • The Hunterwasser Building. Magic building and I’m personally glad it’s being built, even though  the reality is it’s going to run well over the given budget (already 4 Million and heading to 8 Million). It’s never going to turn a profit as sold to the ratepayers, and in fact will be a cost on us all for years to come. It will be a great tourist attraction,  but it on its own is not going to pull hundreds of permanent residents into the city. People don’t shift cities because of a Noddy House . 
  • The 800 plus million infrastructure spend. This is conditional upon the Labour coalition staying in power for 10 years or future governments buying into it. Then years and years of planning and resource management consents, buying properties, and dealing with objectors.  Some of the roading may be done reasonably quickly, as the planning was well advanced under the previous government, and the rail line could be re-opened, but most of the spend will be 5-10 years away at a very optimistic guess.
  • The Navy. This is not new. Stan Semenoff tried to get them here during his mayoralty and probably a few mayors before that. It would require a massive infrastructure investment to create suitable land and buildings and at best would take 10 years of preparation, but more likely 20-30.
  • Ports of Auckland. Again, a massive investment in infrastructure required. Most of the 800 million plus will need to have been spent on the big five projects and all the work done, before this concept could even start. So, at best 15 to 20 years.
  • Whangarei is growing and fast, but at The DHB estimated  rate of 2% per annum and allowing for an accelerating growth rate of 3%  we could see a further 24,000 people in the city and district in 10 years. From a base of 96,000 that’s around 121,000 in 10 years.. So, let’s not get too carried away with growth projections. 
  • What we can see now is that restaurants are getting fuller and car parking is getting harder to find. Doctor practices are full and it’s hard to get a new doctor, (a problem recognised by the DHB, who have appointed a recruitment Doctor, whose job it is to find other Doctors for Northland.) Traffic is building up and congestion is a common topic of conversation. Rentals are in short supply and the supermarkets are busier. The recreational walks and parks around the city have more people using them, so growth is happening but 145,000 is a 20 year projection, not a 10. 

Auckland and the NZ Herald.

It is no wonder newspaper readership is declining worldwide. In the midst of a statistically proven shortage of listings and housing in Auckland, ( Barfoots, REINZ, Trademe, the NZ Herald run with the following counter headline “ Housing U-turn: All of a sudden Auckland has a surplus of homes. (Amelia Wade 12/2/20)”
The article follows a comment made by the Salvation Army based on the last years Census. Yes! that’s the one where 1 in 7 people either partially completed it or didn’t do it at all. (700,000 people) The same one where as a result of the fiasco and independent review, the CEO, Liz MacPherson resigned before she was sacked.
Based on this census the Salvation army reported that the population of Auckland dropped 77,500 people in the last 5 years. They then go on the say this means there are now 7,168 surplus homes in Auckland. The Herald have swallowed this click bait and gone on to make this a morning headline. Talk about 2+2=3. 
Anyone who believes Auckland’s population has dropped 77,500 people hasn’t been there for the last 5 years. They haven’t seen the massive amount of housing construction that is gobbling up land faster than a vacuum cleaner sucks dust. Nor seen the arrival every year of 50,000 new permanent migrants, who mostly settle in Auckland. And what about the 40,000 estimated shortage of existing housing stock. I am sure the Salvation Army have a good purpose in using this statistic, but surely the NZ Herald don’t believe their own headline.

Tammy’s Rental Areas

I have published three newsletters where I have made comments on where to buy rental properties in Whangarei. Our rentals Business Development Manager, the very lovely and smart Tammy Drinkwater, has written her own summary of areas. For those wanting to see this follow the link to her newsletter. If you are a landlord, you should get on her database as she puts out very good material. click here  to see her newsletters

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