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New Zealand Property Prices Continue To Soar

New Zealand has grown from strength to strength during the past 6 months. Last year saw the country declare itself free from coronavirus, which has in turn seen a rise in economic growth, including soaring property prices.

The increase in New Zealand’s property prices can be attributed to its currently low interest rates, which is expected to continue for at least another year. Data released during November 2020 has indicated that property prices in New Zealand rose at their fastest monthly rate in 16 years.

Although hot property prices are excellent for property owners, the New Zealand government is also faced with a severe shortage in housing supply. As such, the struggle remains to maintain a strong economy whilst also addressing the widening equality gap in New Zealand.

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New Zealand property performance in 2020

2020 saw median property prices in New Zealand rise by 20%, data from the Real Estate Institute of New Zealand. During October 2019, median property prices stood at NZD 605,000 (New Zealand Dollars) rising to NZD 725,000 in October 2020.

Westpac say that the rising prices are down to low cash rates, which are currently at the lowest that the Reserve Bank of New Zealand (RBNZ) has ever set, with the rate standing at 0.25%

Stephens highlighted that New Zealand’s low interest rates have lured investors into the property market, making property more attractive to potential buyers. Comments made in 2020 from RBNZ governor, Adrian Orr, indicated the potential for interest rates to dip below zero in the near future, which is likely to have prompted further buyers into the market.

Given Jacinda Ardern’s aim to make New Zealand property more affordable, it’s unlikely that there will be any further interest rate cuts in the near future.

New Zealand property forecast for 2021

Its forecast that the trend of high property prices will continue into 2021, with predictions that property values in New Zealand could see 12% growth.

Dominic Stephens, Chief Economist at Westpac says “all of the usual indicator dials are now redlining, indicating ongoing rapid house price inflation for at least the coming few months. We think the current episode of house price inflation has a way to run yet. We are forecasting a peak of 16% annual house price inflation in June 2021, and a full-year increase over 2021 of 12.2%.”

Whilst soaring New Zealand house prices can be positive and reflective of overall improved wealth, it has become somewhat of an issue for the New Zealand government, as Prime Minister, Jacinda Ardern is looking to make housing more affordable to New Zealand citizens, attempting to close the equality gap.

In a bid to tackle this issue, finance minister Grant Robertson has suggested that it could be more beneficial for New Zealand if interest rates were higher.

Ben Udy, Australia and New Zealand economist at the consultancy Capital Economics, however, believes that interest rates are not integral to rising property prices. Instead, Udy has stated that shortage of supply is the key driver and until there is greater supply, prices will remain high.

The New Zealand government has been warned that additional homes need to be built in order to address the shortage in property supply. Cameron Bagrie from Bagrie Economics stated that the New Zealand government must find a way to balance economic strength with a social conscience.

The RBNZ has confirmed that it will reintroduce loan to value ratios from March 2021 in a bid to cool property prices, limiting risky lending as well as requirements for a 30% deposit.

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