Property Institute of New Zealand CEO Ashley Church has spoken out that recent indications of price softening in Auckland's housing market most likely won't offer much respite to first home buyers and will probably make the housing supply problem in the city worse than it already is.
His comments follow those of ANZ
chief economist Cameron Bagrie
who said, earlier this week, that 'the game is over' for the Auckland housing boom due to rising interest rates and higher borrowing costs. Bagrie concluded that the cost of borrowing would 'trump' the supply shortage and that the market is undergoing a fundamental shift.
Church agreed with Bagrie's assessment but says that this latest development isn't good news for the market.
"The Reserve Bank loan-to-value restrictions have been slowing the market for some time - and it's entirely possible that rising interest rates will consolidate that slow-down and reduce price pressure by scaring some people out of the market - particularly those who were chasing capital growth, such as property investors," said Church.
"But that's not necessarily good news. Auckland still needs over 40,000 new houses and we've long been of the view that the way to get those built quickly was to divert property investors away from existing dwellings and into investing in new homes. Unfortunately, it now looks even less likely that that will happen".
Church says while there is some debate over the extent to which investors have been a factor in the Auckland property market - with figures ranging from 25% to 45% - their impact on the market has been significant.
"Depending on which figure you believe - property investors have represented between a quarter and almost half of the market. With the right incentives, those are people who could have been diverted into investment in new dwellings - but instead, most of them will now disappear from the market".
Church says that there has been too much focus, particularly by the Reserve Bank, on strangling speculation rather than increasing supply and he says that the 'chickens are now coming home to roost'.
"Congratulations - you've almost killed off market activity. Now there's just that small matter of the 40,000 housing deficit that still needs to be resolved".
He also said first home buyers will have little to gain over softening prices.
"Although rising house prices have been a problem - the lower cost of borrowing has meant that some first home buyers could still enter the market. That small advantage will now be largely offset by rising interest rates which will also start to quickly erode the amounts that banks are prepared to lend to those borrowers," he said, concluding the situation is an unsustainable one.
"We have Reserve Bank restrictions and rising interest rates restraining growth in a market where we need 40,000 new homes. Anyone who remembers Muldoons wage-and-price freeze in the early 80s will know what happens when you try and constrain pent up demand. Sooner or later the bomb explodes and something, somewhere, breaks".