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Major housing shortage looms – New Zealand

13 September, 2011

Major housing shortage looms – business | Stuff.co.nz.

This was totally predictable given the lack of new development over the last few years. This may be a strong signal to potential investors that now might be a good time to invest. However, as always, there will be certain areas and properties that are better than others. As such, it is important to “do your homework” and research the options. Check out the web link http://www.nzpbi.co.nz/welcome-to-your-nz-property-investment-resource  for market information, useful links and a sample of selected investment opportunities.

2 Comments leave one →
  1. 14 September, 2011 2:59 am

    Why are you not building more homes? Dave Arizona

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    • 14 September, 2011 10:49 am

      Good question Dave – after 2008 GFC most of the finance companies here in New Zealand went bust. This caused a domino effect resulting in a large number of developers and developments in financial distress. On top of that, the government of the time tightened up on the tax benefits available to property investors. This caused a perfect storm – virtually no construction funding available, no developers to develop and if there were then they couldn’t get funding. And the numbers no longer stacked up because of the change in tax rules.

      The interesting thing is that the current housing shortage situation was totally predictable – simple supply and demand dynamics. However, the market is now behaving in line with typical systems theory where the supply and demand sides are out of synch, and supply is then provided in a reactionary manner. We will inevitably now see some political posturing about how to address the supply issue, maybe some government input and incentives, and rentals and prices will inevitably increase – starting with the areas where people are less price senstive and that inevitably that will flow thru to the rest of the market over time. Given that it takes minumum 3-4 years to plan and construct a development, we will have a huge ‘bow wave’ of demand building up and accelerated price increases, then if people repeat the mistakes of the past (as they always do – again; standard systems theory) there will be an ‘oversupply’ which will result in a reduction of the rate on creases. However, my observation is that developers and financiers etc are a low more ‘gun shy’ now and will be more reflective / risk averse on oversupplying the market.

      Also, here in New Zealand we have the backdrop of the Canterbury earthquake – the largest natural disaster ever to hit in ‘modern’ New Zealand – with an estimate 10,000 houses having to be rebuilt (refer http://www.beehive.govt.nz/release/around-10000-houses-will-need-be-rebuilt) plus a huge number of commercial buildings. The we have the recent floods in Queensland (Australia) and the Japan earthquake and Tsunami all creating massive damage that will take years to rebuild. Common sense suggests that this will put pressure on building costs – labour, concrete, steel etc – throughout New Zealand – which will again have a domino effect on the price of existing properties. Also, because the N.Z. goverment has pressure on its finances to rebuild Christchurch, it is highly unlikely that they will be able to faciltate state owned housing to relieve the supply crisis. My bet is that this will have to revert largely to the private sector.

      Top that up with an estimated $30 Billion of insurance funds (for Christchurch) coming into the New Zealand economy from off-shore insurers (total nominal GDP for N.Z. is approx $190B) that most economists predict will be inflationary and everything points toward a property shortage in many areas and increased market prices (again – its important to understand what areas will be most affected). The only ‘offsetting’ factors I perceive are the ongoing global economic issues (most recently the Eurozone issues) that will continue to dampen confidence, reduce liquidity and raise cost of capital, together with ageing baby boomers selling property to release retirement capital – however – even if they are not owners they still have to live somewhere and they then become tenants.

      We are living in very volatile times, but volatility does create opportunity and, while none of us have ‘crystal balls’, sometimes the indicators are so strong that it is hard to ignore them. Again, the key in this market is to do your homework.

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