PHOTO: FILE
In the analysis of the New Zealand housing market for 2024, three major forces and several minor factors come into play. Firstly, there is a notable decrease in the supply of new houses entering the market, with a 21% decline in consents issued for new dwellings over the past year, potentially reaching only around 30,000 consents this year. However, the actual increase in housing supply may be significantly less due to a smaller proportion of consents leading to construction, increased demolitions, and houses becoming uninhabitable, resulting in a mere 1% net gain to the housing stock.
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The challenge for those anticipating an improvement in housing affordability is that, concurrently, demand levels are on the rise. A key contributor to this demand is the record net migration surge of 129,000 people in the past year, causing difficulties for potential tenants in securing accommodation. This surge is likely to sustain rent growth even as overall inflation slows, potentially driving individuals towards purchasing houses as investments.
The second major factor influencing the market is the anticipated drop in interest rates throughout the year. While the magnitude and timing of these declines remain uncertain, easing inflationary pressures suggest that the Reserve Bank may have maintained the Official Cash Rate at a higher level for an extended period. As mortgage rates decrease, new home buyers are expected to enter the market, further stimulating demand.
The third significant factor is the policy change scheduled for April 1, allowing investors to deduct 80% of their interest costs from rental income for tax obligations. This change, approaching the full deductibility returning a year later, signals a slow reversal of the withdrawal of investor buyers witnessed in 2021 after the rule changes took effect.
Additional demand factors include the removal of properties from the rental pool for returning foreign students and tourists. However, potential demand containment may occur due to a projected rise in the unemployment rate from 3.9% to around 5% in the coming year, causing some individuals to exercise caution in the property market.
In summary, the average pace of house price growth in 2024 is likely to exceed that of 2023, with the greatest gains expected in cities due to pressure from net migration flows. Nevertheless, historical trends suggest that even if cities or Auckland lead, the rest of the country will eventually experience rising prices as individuals, including investors, seek favorable purchase prices elsewhere.
SOURCE: ONEROOF