ANZ: Migration Surge Expected to Drive Impending Rebound in Housing Market

PHOTO: ANZ chief Executive, Antonia Watson. FILE

According to economists at New Zealand’s largest bank, ANZ, house prices are poised to increase, and one significant factor behind this shift in market momentum is the rapid surge in migration.

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ANZ has recently published its latest Property Focus report, projecting a mild upturn in prices during the second half of this year. However, the bank suggests that the risks associated with this forecast may lean towards being too conservative.

The strengthening of the market is evident in the latest figures from the Real Estate Institute, which show an increase in sales while new listings remain relatively low. Additionally, auction clearance rates in Auckland have experienced a significant rise.

Although the market still faces challenges, such as high mortgage rates and stretched affordability, ANZ’s economists anticipate stronger tailwinds to prevail later in the year.

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The factors supporting the market include the surge in net migration, a slowdown in new housing supply growth leading to a widening shortfall, and a resilient labor market.

While net migration is cooling down from previously excessive levels, the recent migration influx remains substantial. Its impact is expected to become more apparent in the housing market during the latter half of the year, according to ANZ.

The specific market segment affected by new migrants, whether it be the rental market or the house-buying market, is challenging to determine in real time. However, over time, the higher rental prices may lead to an adjustment in house prices. This adjustment could occur due to an increase in investor demand driven by rising yields, as well as changes in relative prices that encourage renters to transition into homeownership.

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ANZ suggests that New Zealanders can gain insights into the potential impact of the migration surge on the housing market by looking at Australia. Australia opened its borders earlier than New Zealand and has experienced a slightly larger influx of migrants relative to its population size. As a result, rents in Australia have sharply accelerated, with rental price inflation reaching 6.1% year-on-year in April, coinciding with a decline in new rental housing supply.

The ANZ economists draw parallels between the New Zealand and Australian rental markets, highlighting the rapid migration surge occurring alongside a slowdown in new housing supply. They anticipate elevated rent inflation in the coming year, fueled by strong household income growth, which enables landlords to pass on higher costs.

The report also acknowledges that first home-buyers continue to face affordability challenges. However, anecdotal evidence suggests a pent-up demand with the relaxation of loan-to-value ratios, the Reserve Bank’s decision to halt OCR hikes, and predictions of prices beginning to rise again.

On the other hand, investors remain cautious and hesitant due to tight LVR restrictions, uncertainty surrounding interest deductibility rules and bright-line test settings, high mortgage rates, and unattractive rental yields.