We pulled 6 gems from the torrent of property news this week to keep you abreast of the most important insights affecting investors. 1-6 Dec 2019
Auckland Continues to Intensify – Urban Fringe Land Not Needed
Statistics NZ issued an odd assertion with its monthly building consent figures on Friday, that consents for standalone houses have made a comeback over the last year after falling slightly during the previous 2 years.
Bob Dey used Statistics NZ’s own data to show that Standalone houses’ share of new residential building consents has fallen 11 percentage points in 3 years, from a 70.7% share of the new homes market to 59.7%.
In Auckland, many critics of land policy argued that the council-imposed metropolitan urban limits should be abandoned and more land on the urban fringes released, thus releasing pressure on land prices. But Auckland Council’s unitary plan, introduced in November 2016, made far more land available for housing and also made subdivision for intensification easier. The data cited in the article supports this approach.
Click the article link to read the full article and dig into suburb-by-suburb data.
Houses Available For Sale in November Down 19% on 2018
Property website Realestate.co.nz reported that housing stock (the total homes available for sale throughout the country) in November was down 19.4% compared to November 2018. New listings were also down 7.6% nationally. Only two regions (Nelson & Bays, and Otago) had more new listings than November 2018. The rest were down by 2-28%.
The restricted supply is supporting prices, although pricing signals were mixed.
COMMENT: This follows REINZ stats for October that showed seasonal sales volumes had picked up as expected, but were still down on 2018. On a 12-month moving average basis, sales volumes for the whole of New Zealand were down 0.4% and flat in Auckland at 0.0% change.
Twyford’s Tricky Scheme Keeps Debt Hidden From Voters
Urban Development Minister Phil Twyford has come up with a sneaky way to pay for infrastructure while keeping debt off local and central governments’ books, and therefore hidden from voters.
Rather than the Government issuing bonds at 3% to pay for the infrastructure, Twyford’s solution is for a Crown company to borrow money from a Crown entity at 5.37%, thus keeping the debt off Government books.
Property owners will pay off the debt by way of a levy collected by their local council on behalf of the Crown company. This means local government doesn’t have to borrow the money (at 3% from the Government) and have it on their books, and can appear to be keeping rates down.
But it comes at a big cost to the affected property owners who will pay roughly twice as much in interest over the term of the loan. It puts a whole new spin on ‘user pays’ when users have to pay twice as much just to make the Government look good.
Rents Hit New Record High
The national median rent has now reached a new record high of $454.50/week, up +5.7% on 2018. Median 3-bedroom house rents have jumped to $492/week nationally, a rise of +9.3% in one year. Auckland and Wellington both hit new record highs – Auckland is up +5.5% and Wellington +11% in a year.
Rent increases have risen steeply in a short time period, supporting our prediction that increasingly onerous building standard obligations and the ‘war on landlords’ would push many investors out of the market, thereby reducing supply and increasing rents.
RBNZ’s Bank Capital Requirements Not As Bad as Expected
After much anticipation (and hysterical scaremongering by the banks) the Reserve Bank announced its new capital requirements for banks. Banks must increase their total capital to 18% for the four large banks and 16% for the smaller banks. The average level of capital currently held by banks is 14.1%.
But they’ll now have a 7-year transition period rather than the initially proposed 5-year one, and can fund nearly half of the increased capital requirements by issuing redeemable preference shares to investors.
The RBNZ calculates that during the 7-year transition period, banks will have annual credit growth of 5.08% but without the new requirements it would have been 5.1%. And mortgage rates might be affected to the tune of 0.2%.
The end result will be a safer banking system. If we have another economic crisis, banks will be much less likely to collapse. They’ll hold more money related to the lending they do. During a crisis, it means they’ll lose investors’ money, rather than depositors or taxpayers.
Only One OCR Cut Expected Next Year
They have therefore changed their OCR call to only one further 0.25% cut in May next year, taking the OCR to 0.75%. This follows a softening of Reserve Bank proposals for bank capital, combined with a more positive domestic outlook (and in particular upside to government infrastructure spending).