Labour and National jointly announce they will change the Resource Management
Act so that three homes up to three stories can be built on most sites
and the five fastest growing cities without the need of resource consent.
What's going on?
Hey everybody, it's Blandon here again from mortgagehq.
This is the second part of our three part series on the three major influence
on the property market.
Now it's all over the news.
Property prices have surged upwards.
Building consents are at the highest level that they have ever been.
And with these current market conditions, should you still invest in properties?
So a quick recap on the three major influence of the property market.
We have short term demand,
which is affected by the monetary policies such as interest rates.
Medium term, we need to consider what the housing supply is going to look like
and for the long term growth, we want to consider economic and population growth.
In this video, we're going to cover
the second major influence, which is the housing supply,
and we'll break this down into three parts as well.
And if you stay till the end?
I'll share a little bit of my thoughts on what is going on
with the market and whether or not you should still look at investing
and remember if you find value, to smash the like button for the YouTube algorithm.
Now, Economics 101 states that when supply decreases,
where demand stays, the same prices will increase.
This is exactly what we have been seeing in the property market.
There is a massive shortage in listings dampening the overall supply
and because of lower interest rate, we have actually seen demand go up.
And if you put the two together with low supply and high demand,
you have the perfect storm for massive price surges.
Across the board for major cities.
We have seen 20% plus in capital gains in the last twelve months,
with Southland, Hawke's Bay and Manawatu actually experiencing 30% plus in gains.
The low interest rates actually further lower supply,
since it's a lot cheaper for people who own properties to actually
just keep holding onto them and buy more properties using that same equity,
or just hold onto an investment because it's
now cheaper and they've got a higher cash flow.
In saying that we can expect that the supply will go up
because interest rates have now gone up really quickly.
It's sort of sitting in the middle 3% and it's gone up
from the low 2%, in just the span of the last eight months.
Government, along with the central banks,
have also implemented new rules to make it harder for investors,
such as taking away the tax deductibility rule on investment property mortgages.
Now, this will effectively increase
the risk taken when you take on an existing property as an investment.
Because the cash flow is going to be lower.
And along with the increase in supply, this will effectively increase
the risk of taking a property investment that is highly leveraged because it's
going to increase the cost and decrease the cash flow that you get from it.
Because of this,
I expect there will be more listings on the market increasing overall supply,
and we could potentially see a slowdown in the property market prices.
Now, the second aspect that we need to consider are the new planning rules
to be implemented.
The two major political parties have agreed that
they want planning to allow for more houses to be built.
A PWC report done with Sense Partners estimated that we could see
between 50,000 to 100,000 of new houses
being added to the market in the next five to eight years.
They forecast that the house inflation will definitely be significantly lower
due to this.
This is great for first home buyers and also great
for property investors that own a lot of land.
Because we'll definitely see an increase on a lot of this land
that will allow for new houses to be built on.
But of course, not everybody is getting an upgrade,
since they're only making some of the less
developable land to be more viable for building land
that can already build three stories won't be getting much of this benefit.
In fact, they now have more competition.
It might slow down the growth of those properties.
However, and saying that the bigger challenge at hand that we have
is that there is a lack of infrastructure because I have personally seen
a whole street where there are lots of good parcels of land,
but no developers want to pick those up because you can't
get stormwater or wastewater connections to develop that land.
And that sort of leads us into the third point of housing supply.
It's very important to pay attention on where the government
is spending money on infrastructure
because where the money goes, the capital gains will follow.
And historically, there is a high correlation
between government spending on certain suburbs, on amenities
and infrastructure, and the future capital gains it experiences.
Just to give you an example, if you're from Auckland,
you can check out websites like Panuku Development to find out
exactly where the council is going to be spending money to expand.
And on this website, you'll be able to find
that there is a bit of money being spent in Panmure, and it has experienced
a massive capital growth in just the last five years.
Now Panmure, if you're not from Auckland, is not known for it's school zones.
In fact, it is right next to two of the biggest suburbs
that is quite dominant by New Zealand housing.
What it does have going it though is the transport, such as a train station,
and it's very close to Sylvia Park, one of the biggest malls in New Zealand.
Now also, there's a work in progress bus way
that directly connects to East Auckland, and on the Panuku website,
you'll find that there are also an upgrade
coming to the major town center and a community hub itself.
A recent property that was sold and Panmure, 19
Dunkirk is just slightly under 1000 square meter.
It's on a flat piece of land, and it's sold recently
for whopping $3,750,000.
And if you look at the 2017 CV, it was only 1.7 million.
Now, a good chunk of this
capital gains would definitely have come from the inflation we have experienced
due to COVID and the massive money printing that we have seen.
But I would say a good portion of this growth and be attributed
to the future growth of this whole suburb itself
and the government spending that is about to be poured in.
Saying that what should we make of all this?
It's a little bit about my thoughts.
Supply is about to increase significantly due to RMA changes
and interest rate increasing so that people are more likely to sell,
with the government allowing for a lot more high density
housing and the Reserve Bank putting a brake on the economy.
We are very likely going to see a slowdown
in property prices, but I don't believe there will be a price drop,
but we won't be seeing the gains that we have experienced in the last 18 months.
And when you think about inflation, property is actually
one of the better vehicles to hedge against inflation. It's
also a great way for you to borrow money and allow it to just erode over time.
So if you decide to invest, cash flow management is still going to be key.
And if you could choose suburbs
where you understand there are future money to be poured in
to expand it's infrastructures and amenities.
This will definitely reduce your liquidity risk.
So there you have it folks.
If you found value, definitely smash the like button for the YouTube algorithm
and subscribe, hit the notification bell if you want to see the third parts
of the series.
Where we are going to explore the topic of population and economic growth.
Until next time? I'll see you guys in the next video.