The housing market has gone quiet, triggering the biggest sales slump in nearly 40 years.
CoreLogic NZ’s new Housing Chart Pack indicated 60,859 properties were sold in the year to February, which was the lowest 12-month total since October 1983.
There were about 4100 sales in February, which was the lowest number for that month since 1981, with 16 percent more listings than the same time last year.
CoreLogic NZ chief property economist Kelvin Davidson said the figures reflected recent interest rate hikes and tighter lending rules.
“Few vendors are in a hurry to sell, given that unemployment remains low. And those buyers who have secured finance know that they can take their time too, with listings abundant and prices falling.”
First time buyers pull back
“This is a recipe for low levels of sales,” Davidson said, adding there were indications that first-home buyers were beginning to retreat from the market.
“There may now just be signs of their interest rate limits being reached. Of course, it may also be that they’ve actively pulled back while they wait for prices to fall further. Either way, their share of purchases edged lower in February so it’s definitely something to watch.”
First-home buyers accounted for 24 percent of the market, with relocating owner-occupiers accounting for 27 percent.
Interestingly about 15 percent of last month’s purchases were made by cash buyers with multiple properties, which was a record share for this type of buyer.
Prices still falling
Property values fell 1 percent in February on the month earlier, 1.5 percent in the past three months, and 8.9 percent over the year before.
Davidson said the forecast recession suggested house prices could find a floor late in the year.
“If mortgage rates start to edge lower, net migration continues to rise, and investors start to see value again, the case would be building for this house price downturn to find a floor in 2023,” he said.
“A key part of that will be the labour market. If employment can stay high with unemployment only rising because of a larger labour force, this should insulate property values to some degree. But outright job losses would be a fresh headwind for the housing market.”
Wellington continued to be the weakest of the main centres, with values down nearly 20 percent from the peak, while Christchurch was down just 4.7 percent since its peak.
Rents were also down an annual 0.8 percent in Auckland to $583 a week, while Wellington was down 3.7 percent to $595 a week.
Rebounding international tourism is buoying optimism in the hotel property sector, as prices remain steady.
Commercial real estate firm JLL said deals worth more than $100 million had been completed this year, including the recent purchase of the 253-room Mount Cook Hotel Collection, comprising hotels in Twizel and Omarama, by Distinction Hotels Group.
JLL hotels and hospitality director Nick Thompson said there was a mix of local and foreign private, corporate and private equity buyers, with strong interest from Australia and Asia.
“While other commercial sectors are still encountering headwinds, hotels continue to perform strongly with rebounding international tourism fueling their desirability both domestically and internationally,” Thompson said.
“With the recovery coming quicker than some may have expected, we’re seeing prices hold quite well and in some cases, even looking at a bit of a lift in pricing.”
Some of that activity had been tempered by rising interest rates as rising hotel costs, but as hotel property in Aotearoa was typically a stable long-term investment, OCR rises did not tend to scare buyers away, Thompson said.
“Offshore money is more focused on major centres, mostly because they know that and they understand that more, but there is local money and even sort or regional money that’s coming in that is very open to looking at some of the regional locations around the country.”
JLL debt advisory head Mark Farrands said the hotel and accommodation sector had gone from strength to strength in the past year.
“At the end of 2022, we received a very strong response from the funding market for a well-occupied student accommodation asset, with 15 lenders providing attractive indicative terms across a range of banks and non-banks, both onshore and offshore.”
Houses are taking two months to sell amid the residential market slow down, but stock levels are returning to normal.
The Real Estate Institute’s (REINZ) house price index for February, which measures the changing value of properties, fell 14.2 percent from a year ago.
The median house price fell a seasonally adjusted 13.9 percent from a year ago to $772,200.
Auckland’s median house price fell a seasonally adjusted 15.2 percent from a year ago, but increased 3.2 percent from January 2023, to be just over $1 million.
REINZ said houses took an average 60 days to sell nationally, up 18 days from a year ago.
The number of property sales eased 30 percent compared to February last year, and new listings fell by 30 percent.
The total number of properties for sale across the country was just over 29,000 at the end of last month – up 25 percent from a year ago.
“Even though new listings are down as communities respond to the weather and the anticipation of economic adjustments ahead, inventory levels are now showing a return to standard levels after a few years at historically low levels,” REINZ chief executive Jen Baird said.
Cyclone Gabrielle resulted in slower activity in the affected areas, Baird said.
In Wellington, the median price fell a seasonally adjusted 5.2 percent to be $790,000, with properties taking 69 days to sell.
“Despite there being more interest from prospective buyers, many are still cautious about the current economic conditions and rising interest rates,” Baird said.
Canterbury bucked the trend, with the median price increasing 1.2 percent and a median price of $668,000.
“Whilst the disruptive weather events in February did not directly impact Canterbury, the connections are extensive with more buyers from the North Island showing interest in the region – similar to the earthquakes in Christchurch when locals began to look elsewhere to live,” Baird said.
The National Party leader unveiled two dove-tailed policies in last weekend’s State of the Nation speech – pumping up childcare subsidies while cutting down on consultants to cover the cost. Mediawatch looks at how the media ran the rule over these – and talks to the author of a timely investigation into the lucrative childcare industry.
Luxon set to take aim at Hipkins’ govt consultant ‘gravy train’ said a Sunday Star Times headline last weekend.
“Christopher Luxon will use his State of the Nation speech today to announce he will hit the brakes on government consultants and the contractor “gravy train” if elected in October, Stuff understands,” the story said.
They understood right.
“Labour has created a gravy train for consultants through its obsession with working groups, ideological pet projects and expensive public sector restructures that are a boon for partners at the big consultancy firms, but are not delivering better results for Kiwis, Luxon is expected to say,” the paper reported.
And that’s what the National Party leader said – almost word-for-word – at the end of his address last weekend.
“The size of the public sector and what it achieves could well play as some of the mood music for this election year,” wrote Stuff’s political editor Luke Malpass.
That seems certain, with political parties supplying the tunes for the political journalists’ playlists, as National did last weekend.
After the speech, plenty of other outlets seized on Luxon’s claims of a runaway gravy train.
“Do you believe the public service is a gravy train?” PM Chris Hipkins was asked on Stuff’s new daily podcast Newsable the next day.
But Christopher Luxon had targeted consultants in his speech – and “big-time, big partners at consulting firms” in later remarks to reporters – rather than public service staffing and efficiency.
Is consulting all gravy?
National’s estimate that $1.7bn of public money was paid to consultants last year was widely reported by media too.
The government has been accused of failing to consult on things like transport policy and Three Waters before setting policy – so what is the gratuitous ‘gravy’ and what is sensible spending?
In the New Zealand Herald, political reporter Thomas Coughlan pointed out there were two parts to it.
“There are government departments contracting in expertise the public service does not have – often for major projects or reforms,” he wrote.
But he also said ordinary core public service work is being done by consultants and contractors too, because of staffing shortfalls or sudden lurches in workload. Red and blue governments down the years had failed to curb spending on that, he said.
For Stuff, Esther Taunton wrote a ‘cheat sheet’ called What is a consultant anyway?’ – and Stuff’s Anna Whyte set out where $1.2 billion on consultants and contractors went last year, according to the Public Service Commission’s stats.
The Herald’s Audrey Young also explained the Commission lists “only ministries and departments in the core public service, not Crown entities such as Waka Kotahi and Kainga Ora, which also report to Parliament on their expenditure.”
But last Sunday, Christopher Luxon said he wasn’t derailing the gravy train just to save some of that money.
He said $249m a year in savings would fund ‘Family Boost’ – his party’s plan to lower the cost of childcare for lower and middle income-earners.
“Swing-voting young families – the National Party’s made a play for your vote by promising childcare will get more affordable,” said Newshub’s Amelia Wade. Plenty of other analysis zeroed in on the vote-grabbing potential too.
But some reporters also questioned the effectiveness and consequences.
The Herald’s Thomas Coughlan said the childcare policy could push up the price of childcare and the profits of the providers, and extra regulation might be required if even more taxpayer funds were committed.
“We can only hope that National’s policy was motivated by lobbying and donations from owners of ECE centres because, if it is a genuine attempt to help parents, that suggests the blue team has the same problem of ignorance of even high-school economics that the red team has,” said pundit Matthew Hooton in a self-published column.
Newsroom’s political editor Jo Moir was unconvinced by Luxon’s claim childcare fees wouldn’t go up because it is a “competitive market”.
“That seems a tad naive, especially considering reporting from Stuff on the same day as National’s policy was released, which revealed $450m a year of taxpayer funding goes to for-profit early childhood providers – and into the pockets of private investors,” she wrote.
In that well-timed investigation – Raising children, rising profits – Stuff national correspondent Michelle Duff found two-thirds of New Zealand’s early childcare centres are run by businesses now.
Twenty years ago, more than two thirds were still community based and for profit, but these days almost a fifth of the funding goes to just five private ECE providers, Duff found.
In the last of a series of Stuff articles about childcare, Duff showed how the cost of it has steadily risen in recent years. Fees are now as high as they were when the Labour-led government introduced the ‘20 hours free’ policy.
Duff concluded it was hard to tell just how much increased public subsidies had improved the standard of childcare or the availability of it across the board.
While the Sunday Star Times quoted what Luxon was “expected to say” about the consulting gravy train last weekend, it said nothing about the childcare policy unveiled in the same speech that day – even though Michelle Duff’s analysis of the childcare industry was on the paper’s first three pages.
“That was a complete coincidence. I’d been working on it for about six months and it was meant to be out the week before,” Michelle Duff told Mediawatch.
“If it had been out then, who knows what impact it would have had. But . . . hopefully it will help shape a bit of that debate now,” she said.
“I wanted to find out where all the subsidies in ECE go – and to find out how much was actually going into children and their education. There’s no great detail there and even the government doesn’t know,” she said.
“Most people I spoke to in the sector . . . are saying the funding model is broken. There are historic funding gaps that mean for example under-three year-olds get hardly any subsidies. There’s no point putting more money in if we don’t know it is making a difference,” she said.
Duff says issues that are important to women and families but don’t make political headlines often get overlooked.
She cited the Te Mahere Whai Mahi Wāhine / the Women’s Employment Action Plan launched last year.
“I’ve barely read any reporting on that but there’s a vein of stories there. You can look at every topic with a gender issue and find about five more angles,” she said.
“Sometimes I feel some of the political reporting is really far removed from reality for people struggling to raise families. Childcare is in a mess because successive governments have failed to address it. Maybe that’s because whatever they would have to do would be politically unpopular, but just talking about it to score points isn’t helping,” said Duff.
“National has put it in the spotlight and said they’re going to do something about it so it’s good that people are talking about it and hopefully it will get us somewhere,” she said.
Finishing up – and switching to fiction
Michelle Duff’s timely investigation in last weekend’s Sunday Star Times was her last one for Stuff.
After beginning at the Manawatu Standard back in 2007, and spending the last six years as a national correspondent she has left to study creative writing at Victoria University’s International Institute of Modern Letters.
She plans to carry on freelancing, but why quit now with so many big national issues a national correspondent could tackle in election year?
“It’s been a dream job in that I’ve been given the freedom and the trust to spend months sometimes working on stories, analysing documents and talking to people. These are things that in the grind of daily journalism you usually have to do in the background – or you get taken off it to work on something else,” she said.
“It has become harder to be a journalist. Right now we are foot soldiers in this war against disinformation. With social media now and increased visibility – in particular for women journalists and journalists of colour – the amount of abuse and hate we get just for doing our jobs is unacceptable and designed to silence,” she said.
“If I write about a gender issue or anything to do with disinformation you wouldn’t believe what comes to my inbox. My personal address has been published in some of these channels too,” she said.
“The reason I have left is for this new project (creative writing), but I would be dishonest if I said that wasn’t a factor in taking a breather. It takes a toll,” she said.
“Under National, this gravy train’s gonna stop at the station,” – Christopher Luxon
Consultants and contractors are a favourite punching bag for opposition parties – of all colours – and National is just the latest to land a solid blow, leaving Labour off-balance.
The numbers show public service spending on consultants and contractors has recently surged, and the prime minister has largely left it to the sector’s watchdog to defend that.
When Labour took office in 2017, the annual spend on consultants across the core public service – 35 ministries and departments – was about $900 million.
At the time, Chris Hipkins as State Services Minister was describing the situation as unsustainable: a contracting blow-out he blamed on National.
He pledged to cut back that spending – and it did level off for a time – but in the last year the figure has surged, topping $1.2 billion in the latest update.
National’s leader Christopher Luxon, in his state of the nation address last Sunday, paired an early childhood education rebate policy with a $400m cost-saving plan to cut spending on consultants and contractors.
Crunching the numbers, the party added in spending by Crown entities like Waka Kotahi and Kāinga Ora not included in core public service numbers, calculating a total bill of about $1.7 billion.
Either way it’s up by about a third on like-for-like numbers – a sizeable increase. National reckons it can wind back the clock, returning the spend much closer to those 2017 levels.
National has been relentless in its attack, pursuing the subject every day in Parliament’s debating chamber, select committee meetings, and in media interviews. The focus is strategic: National sees the public service as a vulnerability for Labour and for Hipkins especially.
As well as being Public Service Minister from November 2020 until he took over as prime minister in January, Hipkins was Education Minister when it was the leading spender on contractors and consultants in 2021-22, forking out almost $240m.
He was also notably critical of such spending when in opposition. This Hipkins quote from 2012 could almost be mistaken for one from Luxon: “It’s a really bad look for them. I think they should be asking some very serious questions about why this increase in consultant fees has been necessary at a time when all New Zealanders are being asked to tighten their belts.”
This week, he’s stuck to that philosophy – acknowledging spending on consultants and contractors is higher than it should be – while defending much of it as justified and one-off, including projects like the Covid-19 vaccination rollout or IT upgrades. The education spend he linked to building schools.
Taking MPs through a deeper look at the numbers in select committee however, Public Service Commissioner Peter Hughes was quick to point out contractors play an important role – particularly if a government, like this one, has a large reform programme.
Expecting questions on the consultancy spend, he came armed with his own data. He stripped out major spending on capital, and targeted operational spending as a percentage of the total workforce bill.
On that measure, the spend has trended down from 13.4 percent in 2017/18 to 10.4 percent in 2020/21. It spiked in the latest numbers to 14.6 percent – but Hughes sheeted that back to the pandemic.
National’s criticism has not been reserved for consultant spending alone, with repeated references to a growth of 14,000 public servants the party has promised to trim back on – at least somewhat.
However, the Public Service Association (PSA) union’s national secretary Kerry Davies says New Zealand’s public service is the same size as Australia’s but costs a lower percentage of GDP than Australia or the UK. The public service is also the same proportion of the broader public sector as it was in 2017, she says, and has kept pace with total growth in the New Zealand workforce.
She agrees with bringing more of the work now done by consultants or contractors in house – but says cuts to the core as National proposes would mean run-down services that would take years to rebuild.
Labour doesn’t escape blame either, with Davies saying the pay freeze policy Hipkins launched early in the pandemic – the government prefers “wage restraint” – incentivised workers to quit and earn more as contractors. She says some psychologists working for Corrections found they could earn four times their previous rate.
“It’s something that’s picked up through the pay restraint, yes.”
Hipkins disputes this is a significant problem, and Hughes says if it is happening it’s at the margins.
Problem or not, it’s likely to change: the policy is under review and due to be updated within weeks. Luxon seems to support change in this area, and Hipkins’ comments hint he may be gearing up for just that:
“I acknowledge that public sector wage growth has been lagging behind private sector wage growth, and there’ll be some anxiety about that.”
In this week’s Focus on Politics Deputy Political Editor Craig McCulloch drills into the public service consultant and contractor numbers, the policies and politics.
Listen free to Focus on Politics on Apple Podcasts, on Spotify, on iHeart Radio or wherever you get your podcasts.
House values continue to fall but are still well up on pre-pandemic levels, giving buyers and sellers reason to pause.
The latest QV House Price Index for three months ended February fell 2.7 percent on the previous three months, and were down 12.6 percent on the year earlier.
The average national house value dropped to $920,366, with Auckland region values falling 4 percent over the past three months and Rotorua District topping the list with a 5.5 percent drop.
Wellington was the hardest hit of the main urban centres with the region’s average home values down 21 percent on the year earlier.
Wellington’s average home values were still 14.7 percent up on pre-pandemic levels, QV spokersperson Simon Peterson said.
“The housing market is still an awfully long way from its pre-Covid-19 levels, even after more than a year of very significant reductions across the motu.
“If residential property values continue to fall at their current rate, it could still take up to two more years to hit their pre-pandemic level nationally. That’s a pretty big ‘if’, with the market expected to stabilise before then.”
The Reserve Bank’s latest increase to the Official Cash Rate would almost certainly see the market maintain its current downward trajectory for the time being, he said.
“Rising interest rates and credit constraints continue to have a tight strangle-hold on the market currently, as they have had for more than a year now.
“Many prospective home buyers are either unable or unwilling to purchase property right now while the cost of servicing a home loan is so high.
“Others are waiting to see when the market will bottom out, which obviously hasn’t happened yet.”
The number of people expecting house prices will decrease is close to the levels last seen during the global financial crisis.
The ASB Housing Confidence Survey for the three months to January showed a net 43 percent of respondents expected house prices to decrease in the coming year, compared to net 31 percent last quarter.
That compared to a net 55 percent of respondents expecting house price decreases at the height of the global financial crisis in 2008.
The quarterly survey spoke to 2962 people.
ASB senior economist Kim Mundy said compared to the 2008 crisis however, rapidly-rising interest rates were causing the housing market to fall.
“Sometimes when you’re looking at a housing cycle, say at the start of a recession, house prices can fall because people are losing their jobs and therefore they can’t service their mortgage and they’re having to sell their houses.
“This time around, just owning a house is getting so much more expensive, because interest rates are rising so rapidly.”
Mundy said sentiment was likely to fall further.
“Housing market activity is heavily linked to the interest rate outlook so it’s not surprising people’s price expectations keep falling given the Reserve Bank has signalled there are more official cash rate hikes to come.
“House price falls have already been higher on a percentage basis than what we saw during the GFC so we might see net price expectations drop down to a GFC low, if not surpass that, in the coming quarters.”
More than three quarters of respondents (net 78 percent) expected interest rates would continue to climb this year.
“The result is unsurprising, given the RBNZ made it crystal clear in it had more work to do at the November Monetary Policy Statement,” Mundy said.
“We do expect the OCR will move higher in H1 2023 to a peak of 5.25 percent from the current 4.75 percent.”
Demand for commercial property is picking up, with rents rising in the major centres.
JLL’s latest commercial property snapshots report highlighted a rebound in demand for retail space in Auckland.
“With the recent pedestrianisation of Queen Street, workers returning to the office and the restart of tourism, we’ve already seen retail vacancy rates steadily decrease,” JLL NZ’s head of research Gavin Read said, adding office vacancies also fell.
Industrial property demand was continuing, with South Auckland rents up 16 percent and similar demand in other major centres, including Christchurch.
“While Christchurch still has reasonable land for future development, a significant proportion of this is land-banked by developers, so industrial space is expected to become scarcer over the next few years,” Read said.
Wellington’s commercial rents were also up, despite an increase in vacancies with 5719 square metres of additional space.
Read said there was also a trend to renovate or repurpose commercial property, with investors motivated by net zero emissions targets.
“Most developers are now looking at how to refit or repurpose commercial property rather than demolish and build new.”
Houses are becoming more affordable as prices continue to drop, but are still expensive by most measures.
The latest CoreLogic Housing Affordability Report indicated continued rate rises and mortgage payments were eating up a large part of household income, but getting on the property ladder was becoming more affordable.
Residential properties were currently valued at 7.8 times the average household income, which was still well above the long-term average of 6.0, but better than the peak of 8.8.
“The falls in property values that we’ve seen in recent months will in part have helped the required debt servicing costs for a home-buyer, alongside higher incomes, but these effects have been outweighed by the rise in mortgage rates themselves,” CoreLogic NZ chief property economist Kelvin Davidson said.
The cost of servicing a loan to value (LVR) mortgage requiring a 20 percent deposit would cost more than 53 percent of the average household income, which compares the long term average of 38 percent to service a mortgage.
The amount of time it took to save a deposit was still high at 10.4 years, but an improvement on the peak of 11.8 reached in the first three months of last year.
“In other words, this measure is signalling that housing is still as unaffordable as ever,” Davidson said.
He said affordability as measured by mortgage repayments as a percentage of income should start to improve as prices are expected to continue to fall.
Most affordable region
Wellington City had overtaken Christchurch as the country’s most affordable main centre on the home value to income ratio, following a sharp 18 percent decline from the capital city’s pre-Covid peak prices.
“Incomes have been rising steadily in both markets, but with Wellington recording larger falls in home prices than Christchurch, the balance of affordability has shifted more significantly,” Davidson said.
Tauranga had the longest period of time required to save a deposit of any of the main centres, at 13.7 years, well above its long-term average of 10.8 years, and the national figure of 10.4 years.
However, it had improved from the peak of 15.9 years in the first quarter of 2022.
Rising interest rates and the cooling housing market are beginning to bite for homeowners looking to sell, as more houses are sold at a loss.
Property research company CoreLogic’s latest pain and gain report shows 4 percent of property sold in the final three months of last year went for less than the original price paid.
It compares to just over 3 percent for the third quarter of 2022.
CoreLogic chief property economist Kelvin Davidson said most of the properties sold at a loss were bought and sold within 19 months on average, which indicated rising interest rates had begun to hurt.
“A change in an owner’s financial situation could be behind a short hold period – and at the moment, rising interest rates would be a clear candidate for driving some of these sales,” he said.
Other factors such as divorce or death could also drive unexpectedly short hold periods, Davidson said.
The trend was most visible in Auckland, with nearly 7 percent of those who resold their homes in the fourth quarter doing so at a loss.
Despite the rise in loss making sales, Davidson said most people continued to make money from sales. Owner-occupiers’ median profit was $313,000, compared to $343,500 for investors.
The combined median resale gain of $328,000 was down from the peak of $441,000 in the fourth quarter of 2021.
However, Davidson said any gains would be quickly eroded – given the high prices for houses – unless owner-occupiers were looking to move somewhere cheaper or downsizing.
Looking ahead, he said it remained a buyers market.
“The housing market still faces significant challenges, especially with unemployment set to rise this year, and as new and existing borrowers face up to the possibility of mortgage rates up to 7 percent.”