Economist says developers may be cautious about building in a slowing market
The government recently announced a $3.8 billion fund to scale up building activity and increase housing supply, which it estimates will help green light “tens of thousands of house-builds in the short to medium term.”
However, Westpac economists believe that a “weaker house price track” may have a “dampening impact” on residential property building, as developers may take a cautious approach to building in a slowing market.
Acting chief economist Michael Gordon said that this drag on building activity is likely to be “modest,” but a lot will depend on whether the government decides to make interest costs deductible on new builds.
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Senior economist Satish Ranchhod said that changes in migration have also had a strong effect on housing supply and demand, and added that the impact of closed borders may be more significant than any policies the government can implement.
“The issue with supply is a bit more complicated than what the changes which the government has been pushing out can address,” Ranchhod commented.
“A lot of the supply issues that we’ve encountered over recent years have come about as a result of very strong migration, and half of that is New Zealanders choosing to return home and remain onshore.”
“What we now need to see on that supply front over the coming years is a very different picture,” he said.
“We’ve seen net migration fall to zero because the borders have been closed for over a year now, and at the same time we have very large amounts of new homes being consented. I think that is going to change the supply tightness that we’ve had, but that’s also something that has already occurred without the government implementing any policy changes.”
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When it comes to economic activity, Michael Gordon said the changes to housing policy have come “on top of an economy that was already running below its full capacity.” He anticipates that the long-awaited Trans-Tasman bubble will be a welcome boost, though he said the impact may nonetheless be ‘muted.’
“The confirmation of a ‘travel bubble’ with Australia will be a welcome development for some local businesses, but the net impact on GDP is likely to be muted as we see a bounce in both inflows and outflows of tourist spending,” he said.
“A more complete rebound in activity is not likely to happen until next year, once the COVID-19 vaccination programme is substantially completed.”
