Liam Dann: RIP housing market boom – you won’t be missed


The long New Zealand housing market boom quietly died last week.

REINZ data confirmed two consecutive months of price falls, sales volumes hit lows we haven’t seen since 1992.

Economists called time on an epic period of growth that dates back more than a decade and has seen median prices more than double.

I guess it could still end up being like one of those annoying TV show deaths.

You know the ones, we see the main character cut down, lying bleeding and lifeless in the season finale – only for the scriptwriters to concoct a miraculous recovery.

But I’m not sure this market has the scriptwriters on its side.

With interest rates only just starting their rise, bank lending getting ever tighter, immigration in reverse and new building at record levels, there really isn’t much on the horizon to suggest a resurrection is at hand.

What really struck me is that, for all the intense public debate and media commentary we’ve endured, for all the energy we’ve spent contemplating how to slow this market, it’s passing has not inspired anything like the level of public interest we might have once expected.

There’s been no panic from the property sector, nor any great celebrations from social justice advocates.

Perhaps it’s the aforementioned scepticism that’s tempered public reaction.

Or perhaps that’s just how things roll in these crazy pandemic days.

Inflation is everywhere, including the news cycle.

Covid case counts and policy protests crowd out the headlines, pushing everything else to a kind of second division news league.

The housing data last week was squeezed somewhere between the threat of European war and a member of the British royal family reaching a settlement in his sexual assault case.

Strange days, indeed.

We should recognise that reaching the peak of the market cycle doesn’t actually resolve the housing crisis.

A 2 to 3 per cent fall across the past two months isn’t enough to have the youth of New Zealand dancing in the streets – even if that’s the only place they’re legally allowed to dance these days.

Another sobering news release last week makes it clear why.

CoreLogic’s Housing Affordability index showed it’s never been more difficult to buy a house in this country.

Its bi-annual Housing Affordability Report showed the average property across New Zealand was now worth 8.8 times the average household income for the three months ended December – up from 8.3 just three months earlier.

That is also well north of the long-term average of 5.9.

We shouldn’t be surprised to see these two pieces of data cross paths.

That timeframe for the Housing Affordability survey effectively captures what the REINZ data suggests is the peak of this price cycle – to the end of November.

The two consecutive monthly falls only bring the annual growth rate down to about 20 per cent.

So what next? The consensus view is that monthly falls will keep coming, translating to an annual median price fall of6 or 7 per cent across 2022.

If we take ANZ Economics’ fresh forecasts as an example, they foresee a soft landing.

So that’s a 7 per cent dip for 2022 followed by a return to very modest growth of 1.8 per cent in 2023.

Even if that plays out then we’re still clearly a long way from affordability returning to the long-run average.

But if growth were to stick below the rate of wage inflation for a few years then we will at least be making some progress.

A journey of 1000 miles starts with a single step – or something like that.

So while I see the market shift is still largely theoretical, I think it’s a very important first step.

We may actually be travelling in the right direction, finally.

Market sentiment is a powerful thing and if it really swings, it may swing further than we’d like.

Removing house price growth from the broader economic equation will undoubtedly have consequences.

It may make home-owning consumers less confident about spending and slow growth.

The ANZ forecast suggests the kind of orderly correction that would suit the Government and homeowners and minimise damage to the wider economy.

That’s why the Government and many economists are hoping the slowdown will follow the moderate path ANZ has picked.

But, by the economics team’s own admission, they’ve picked a middle path for forecasts though a sea of variables that could still push things wildly in either direction.

The pandemic has been an economic experiment and we don’t really know, for example, what will happen when borders open again.

Will we see an influx of returning Kiwis and much needed skilled foreign workers pushing up immigration numbers?

Or will the return of free movement see young Kiwis leaving on mass for their OEs and taking advantage of labour shortages and better wages around the world?

Will the building boom roll on? Or could tight credit conditions see it end with a crunch as it did in 2008?

And what will the Reserve Bank do? We can expect to see it lift interest rates again on Wednesday and offer some fresh guidance as to how far it thinks rates will need to rise.

Then end of the housing boom must surely come as a relief for Reserve Bank Adrian Orr and his team.

But the shift from asset price inflation to consumer price inflation means there is no time to savour the moment.

So I will: Farewell housing market boom and good riddance.

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