Australia is expecting a record 650,000 new arrivals over 2023-24 set against falling house construction because of high financing and materials costs.
It has been called a “perfect storm” and the RBA has warned it could put upward pressure on inflation and therefore interest rates. An immigration-fuelled inflation breakout is not what it had planned.
Loss to gain
New Zealand is experiencing its own immigration bounce. The country has gone from a loss of 20,000 people a year ago to a gain of 52,000 in the past year.
Alexander says that gain means 1% more people in the country and it looks like it is going to get bigger.
“More people mean more demand for housing and mortgage advisers will have to work harder. It also means prices and rents being higher than would otherwise be the case.”
He says at some stage tens of thousands of people who have sat on their hands waiting for prices to fall further will realise what is happening with the pace of population growth and what it means for house prices.
“We are not quite at that point yet,” he says. Australia has been there for the past three months.
Before getting too excited about the migration boom, Alexander says between 2014 and 2019 the average annual population gain was 58,000 people a year. Adding in 2020, 2021 and 2022 the net gain over those three years plus the first two months of this year was 67,000.
“Had the pandemic not arrived the net gain might have been 184,000. We are some 117,000 people short of where we might have been.”
He says by some rough calculations the country is on track to have about 18,000 extra houses beyond what would have been built without the pandemic and resulting boom in prices.
Growth easing off
Alexander says after people eventually realise what is happening with housing demand and financing costs, there will be a third realisation – the pace of growth in new housing numbers is easing off.
“While we are not facing a repeat of the GFC when building consents fell from 26,000 to 13,500, a decline from 51,000 to about 30,000 consents is on the cards as more builders and contractors fall over. At the middle of last year 25% of liquidations were contracting and building companies.
Buyers will refrain from new builds because losses are about to be boosted,” says Alexander.
Because house prices have fallen so such – 20% in Wellington and 16% in Auckland, with more falls expected – he says there are many people who signed up for a house off-the-plan with a deposit of between 2.5% to 20%, who will now not get the finance their bank offered them at the time.
“A bank simply can’t make a loan of $800,000 on a property which has fallen in price to $750,000.
“Some people face losing the deposit they had laid down 18 months or so ago and once the growing problem is highlighted, the unfortunate aversion of buyers towards new builds may grow to the detriment of all.”
He says in reality what is likely to happen is developers will have to discount their original selling prices under pressure from their bankers.
Some signs of this have already started appearing in the market.
At some stage, says Alexander, awareness of falling growth in housing stock will occur and people will consider what that means for house prices over the next five year – just as is now happening in Australia.
Against all logic and decades of previous experience, housing prices appear to have not just stabilised but turned the corner, across the ditch.
Coming off the back of the most punishing series of interest rate hikes in Australian history, every capital city, bar Darwin, had a rise in real estate prices last month, with Sydney leading the way. The regions eked out minor gains as well.
Some commentators believe the pause in interest rate hikes might have sent the wrong message through the economy.
Alexander says for the first time in a few years the Australian house price cycle has shifted to be in advance of our own.”
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