As National hints at overturning the ban on overseas buyers, there's reassuring early analysis that migration isn't driving up house prices much.
When 19 Platina St in Remuera went under the hammer last week, it was a sad farewell for the couple who had lived there for 45 years – but they were able to put their three-bedroom home on sale confident that buyers were returning.
Seventeen bidders registered for a paddle – the most in any Ray White auction last week. Some of the bidders were families, but most were developers, who real estate agent Steve Koerber says "are obviously out and ready to buy".
The winning $4,125,000 bid was from a family who intend to live in the house and may develop it down the track. The real estate firm says across 98 auctions last week, it recorded an all-sold clearance rate of 67.6 percent – up more than a quarter on the same time last year.
READ MORE: * Immigration isn’t driving inflation, new report concludes * Down $760k, this is the biggest house sale loss
CoreLogic published its housing affordability report today, which says high migration and population growth coupled with a generally insufficient supply response have created the housing affordability crisis – and new increases in migration will impact rents and house prices.
"Given the uneasy prospect that property values may start rising, albeit gradually, once again as we’re already starting to see in a couple of regions, this will only add to the strain on new home buyers," says the firm's chief property economist, Kelvin Davidson.
The upturn confirms New Zealanders are back in the market; developers are back and ready to buy – but the big gap is that left by new migrants and overseas buyers.
When the Labour-NZ First ban on foreign purchases of residential property came into effect in 2018, it had an immediate impact on the ability of migrants to buy homes. Even if they were New Zealand permanent residents, they had to have been residing in this country for the previous 12 months.
Those on residence visas bought 14,500 dwellings in the 12 months to June, Stats NZ says. That's well short of the levels before the overseas buyers ban was enacted.
When asked if he would scrap that ban on TVNZ’s Breakfast show, National leader Christopher Luxon said National would have more to say on that, very shortly. “Foreign investment is just a part of what we might need to do in terms of getting our economy growing again, alongside other things as well," he added.
Now, as National hints it will overturn the overseas buyers ban, the Reserve Bank has published reassuring preliminary analysis that migration isn't driving up house prices. It plans to issue its full results in an analytical note, before the end of the year.
The early analysis looks at the degree to which the recent surge in immigration is inflationary and how persistent its impacts will be. "Overall, immigration may no longer have a statistically significant positive effect on inflation," the bank says, in its August Monetary Policy Statement.
It signals caution about relying on its own previous assumptions – that net immigration is net inflationary to the New Zealand economy. "The inflationary impact of net immigration is highly uncertain at present."
It points to changes in the ages, countries of origin and occupations of recent immigrants, suggesting that the current big immigration upswing could have a different inflationary impact from past immigration flows. "It is possible that the net inflationary impact of migration is less than it was because of the tight labour market."
A record 195,000 migrants arrived in New Zealand in the year to June 2023, offset by 108,000 departures. That comes to a near-record 87,000 population increase due to net inward migration.
The Reserve Bank predicts that inflow will continue through the September quarter. "New Zealand is on track to experience its largest annual net immigration of the last century," its statement says. "This would be equivalent to around 1.9 percent of the projected working-age population."
But the make-up has changed since the borders opened after the Covid-10 pandemic. For instance, before the pandemic the largest numbers of migrants came from Australia, with almost as many from the UK.
Research shows arrivals from Europe and the UK have a greater impact on real house prices than arrivals from Asia, because they’re more likely to buy property.
Now, the biggest numbers are from India, the Philippines and China. “This implies a currently more subdued impact on house prices, and on demand generally, relative to before the Covid-19 pandemic,” the monetary policy statement says.
Reserve Bank chief economist Paul Conway says the early stage data indicates migration does still have an impact on house prices – but perhaps not as much as previously.
The first challenge is to build more more houses – the supply of housing in New Zealand has traditionally been pretty inflexible. Demand factors are more ephemeral, he tells Newsroom. "So you get a demand shock through migration, or FOMO, or lower interest rates – that hits the housing market, because the supply curve, due to regulatory constraints, doesn't move much as the demand curve moves up.
"I'm not telling a story about migrants bumping up the price of houses, that's not where we're at, at all. We would see less volatility in house prices, if we did have a more responsive supply side to the New Zealand housing market," he says.
"It's taken us many decades to get into the current situation of having some of the highest sales prices relative to incomes globally, and it's going to take us a while to get out of it. But there are some positive developments in that space.
"Migration brings all sorts of other benefits, so I would flip it the other way around, and say, get the housing market settings right, so that we can have the migration inflows that we need for other reasons."
Ray White economist Nerida Conisbee says foreign buyers (or at least, those who aren't excluded by the ban) are back in the fold. "Flexible policies designed to address capacity constraints in the economy and rein in rampant inflation have led to a significant reversal in the pandemic migration trend, and whispers of a further easing in controls should we see a change in government, come October."
The record migrant numbers are putting extra pressure on an already under-suppled housing market, she says. New Zealand is about 4,000 new dwellings short of current population growth.
"It's important to note that not all of these new entrants will look to buy but rather rent, placing additional pressure on already pressed rental supply."
Those migrants who are able to buy may often be willing to pay more, Conisbee says, because of comparatively higher wages overseas and often strong currencies. "But they also place additional pressure on buyers to act with urgency – a trend we are seeing picking up speed right now.
"Looking ahead, high levels of migrant arrivals are poised to compete with homegrown house hunters for a more limited pool of properties, with value uplift potential for residential properties across the country."
