Why do property always grow? The short answer is inflation and if you dived deeper, there are a few key indicators that drive property growth.
Low interest rates
The average interest rate in New Zealand historically has been around the 7% mark. When interest rate are low, it stimulate the demand for debt and consumption. More demand for goods & services usually means more income and more servicing for the bank to lend them money. Driving up company prices as they expand as well as property prices from the ease of credit. In the past few years, rates have hit rock bottom and property prices soared, the reserve bank’s response is tampering with lending policies to ease first home buyers and limit investors. There is a lot of room for improvement but in general the 40% LVR rule proved to be a good decision to stabilize property prices.
Immigration & Population growth
Second factor that you might need to keep in mind is immigration & population growth. This one might be a bit more obvious, more people living in the country means more demand for housing. According to statistics New Zealand,34% of New Zealand’s population resides in Auckland population growth have averaged around 1% in the last 20 years which is around 40,000 – 50,000 people. This is 55% of New Zealand’s entire growth since 1996 and projected to be over 60% over the next 20 years.
Wage & job growth
A leading indicator, which means a predictor of property prices is wage & employment growth. Increased wages means higher demand for consumption again would increase the demand for housing. We also need to keep in mind of wether it is organic or government stimulant. Organic meaning that the economy is doing better and it will contribute to the growth of the city long term. There is also stimulant such as government spending to create roads and other development projects which sometimes can be a short term solution to economic stability.
As population increases, the government need to keep an eye out on development as well as property supply. Infrastructure advancement is important for New Zealand population to continue to grow. If housing supply lag behind net migration numbers too much it could push the property prices up significantly. This is what we have seen in the past year.
Where would you look to keep an eye on these indicators?
Keep an eye out for commentary coming from the major bank Economist such as Tony Alexander from BNZ and Satish Rachhord from Westpac. They are constantly looking at these figures and producing good content on market updates. Of course you can also talk to your iRefi Adviser as they will stay current with these indicators and keep you informed.