Mark Lister: Reserve Bank in tight spot on house hikes

The Auckland average house price is now a staggering 51.1 per cent higher than five years ago. Photo / Peter Meecham

Migration, jobs and low global interest rates put upward pressure on Auckland prices.

Despite it being only March, we've already seen 17 central banks around the world reduce interest rates this year.

With more than half of the world's population having experienced an easing of monetary policy in barely two months, it's no wonder the Reserve Bank of New Zealand (RBNZ) has backtracked on previous plans to keep increasing interest rates. However, this has created other problems for the RBNZ.

Migration in January hit a new record with 5530 net arrivals, and the annual tally increased to more than 50,000. That's a population increase of about 1.2 per cent, which is huge.

The fact that our unemployment rate is still generally tracking downward given such strong migration, as well as a record high participation rate (which points to growing confidence from job seekers), is testament to just how solid this economic expansion is.

The problem is that falling global interest rates, migration at a record high, a solid economic expansion and declining unemployment rate all point to more upward pressure on Auckland house prices. With interest rate rises seemingly off the table for some time, the RBNZ has given the green light to a pickup in momentum, whether they like it or not.

According to QV, Auckland house prices increased 5.1 per cent in the past three months, which is a much faster pace of growth than we saw last year.

Compared with five years ago, the average Auckland house price is now a staggering 51.1 per cent higher. Only Christchurch comes close to this, having seen a 28.1 per cent rise over the same period, but there are obvious reasons for that temporary supply/demand imbalance and the pace of gains in Christchurch will slow.

But go anywhere else in the country and at best you'll find house price stability. There's certainly not a boom, and there most definitely isn't a crisis. If we look at our 10 largest cities and exclude the top two (which are Auckland and Christchurch) average house prices have increased just 4.2 per cent in the past five years, on average.

Inflation over this period has been 9.5 per cent and of the eight cities in question, Hamilton is the only one that has outpaced this (with a 9.7 per cent increase). In inflation-adjusted terms, average house prices in places like Wellington, Dunedin, Tauranga and Napier are lower than they were five years ago.

Maybe we do have a housing crisis (or as many would suggest, a bubble) in Auckland, where a third of our population lives. However, elsewhere the difficultly of getting into your own home doesn't appear to have changed much in recent years. If your wages have kept pace with inflation, it may have even got easier.

This backdrop puts the RBNZ in a difficult position this year. Record migration looks set to continue, with a lot of those people heading for Auckland. The supply response will occur, but it will take some time. Meanwhile, borrowing costs could go lower still and economic confidence will probably remain high, suggesting prices will continue to rise.

It seems inevitable that more macro-prudential tools will be rolled out in due course, in addition to the loan-to-value restrictions that are already in place. Maybe the RBNZ will take a second look at making these regional, given the widening gap between the Auckland housing market and the other two-thirds of the population.

Mark Lister is head of private wealth research at Craigs Investment Partners. His disclosure statement is available free of charge under his profile on www.craigsip.com. This column is general in nature and should not be regarded as specific investment advice.