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The property market's 'Golden Numbers': net immigration and inflation

The property market's 'Golden Numbers': net immigration and inflation

In our last blog we promised you two “Golden Numbers”. These two golden numbers are the figures you should take into account when you’re assessing the future direction of the property market here in New Zealand.

So, why will this heated market continue (and probably for some time)? There are two main ingredients that need to be considered – things we at Iron Bridge Property Group hold very firm as market indicators, and always have: 

  • Steady net immigration gains – 10,000 per annum would keep the market steady – the current 50,000pa net immigration gain is huge.
  • Some small inflation – For gradually increasing rent. Even1% inflation will see rents DOUBLE in 72 years. It took less than 20 years to double rental rates in the last cycle.

These golden numbers greatly influence the property market –  the laws of supply and demand coupled with inflation on rent will be the recipe to see real estate values continue to firm. Sure, interest rate rises and even another Global Financial Crisis (GFC) would see the market flatten off but really it is only delaying the influences of 1 & 2 above.  And in the case of the last economic recession, the influence of immigration and inflation saw the property market go to new heights – well past the previous highs set in 2007.  Even changes to lending ratios and their temporary impact on first home buyers has not stopped the market.

After nearly 20 years of local and central government in Auckland failing to address the massive lag in housing supply and not addressing the steadily increasing demand, we reap what we sow – house price inflation.

Christchurch on the other hand has another set of unique issues. There’s much more availability of residential land. The housing shortage is being reduced with a massive rebuild of earthquake damaged homes, but the 6,000 per annum net immigration growth into Christchurch in 2014 certainly has added to the challenge.

Reserve Bank Governor Graeme Wheeler recently spoke about over supply concerns in Christchurch, but with these kind of new arrival numbers, we see any oversupply issues being some way off. An early sign that the Christchurch market is starting to return to steady progress from the manic last two years is that new stages released in subdivisions are not all being snapped up immediately by the big building companies. Individuals now have some chance to choose a section for themselves and select their own builder. And that’s how it should be.

If you want to know more about my opinions on property, why not have a chat? I’ve helped many property investors make their way over the last 11 years with Iron Bridge and I’d be happy to help you too. 

Download a PDF of this blog here.

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