Marlborough Property Investors' Association

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Alexander: House prices will keep rising

Government moves to improve housing affordability have been slammed as weak by BNZ chief economist Tony Alexander.

The Government has pledged to ask councils to make more land available within and outside cities, set a maximum six-month limit on council processing of residential building consents, consider rezoning all land as residential, look at how to fund infrastructure and hold an inquiry into construction sector productivity.

But Alexander said there were many reasons why Auckland’s house prices in particular would continue to rise regardless.

These included a property shortage: Auckland did not enter the recession with an over-supply of property and construction has been constrained since then. Last year, building consent levels were at a four-decade low.

He said removing LAQCs and depreciation deductions had not made a difference to prices nor encouraged investors to sell. Interest rates would likely remain low for some time, he said, because of the poor growth prospects in global economies.

A turnaround in migration would also support house prices, he said.

“The migration cycle appears to be on the cusp of turning and if the housing market has performed so well with net outflows over 3000 in the past year, the implications of positive gains are clear.”

Alexander said unemployment was likely to fall quite quickly and the ageing population would mean a need for more houses because of a decrease in average house occupancy.

“Any credibility people may have assigned to those who have been predicting big price declines simply because prices have risen a long way and now fallen sharply in some other countries has gone out the window. Few people will now listen to their price decline views.”

He said he did not think a capital gains tax would make any difference. “Australia has a capital gains tax and their house prices are very high, plus their housing market moves in cycles like ours. New Zealand investor interest in housing has risen, not fallen, since the LAQC and depreciation rules were changed.”

He said a CGT would likely dissuade people from building and push prices up.

Alexander recommended borrowers keep their mortgages floating but keep an eye out for a lender offering a five-year rate near 5.5%.

Tags: laqc - cgt - housing affordability