Mark Lister: Property market slowdown may hit economy

The rampant housing market has had a big effect on the strength of the economy over the last several years, writes Mark Lister. Picture / Greg Bowker

Things have changed in the Auckland housing market.

Sales volumes are well down from a year ago and the number of days to sell has been creeping higher.

The number of auctions has more than halved, while price rises have ground to a halt.
Election uncertainty is probably a factor, likewise the last round of mortgage restrictions, and there is a growing acceptance that interest rates will likely rise from here.

We have also seen a tightening of credit conditions in China during recent months, and many would argue this has been a strong driver of the changing dynamic as well.
China has been on a credit binge for a while now, with money fairly easy to come by.

People have done their best to get those funds out of the country, bringing them to places like Auckland and parking them in residential real estate. But that's changed in recent months, with authorities turning the taps off a little and clamping down harder on capital outflows.

This is the slowdown we've all be hoping for, so maybe we should be thanking the Chinese central bank for doing their bit. Having said that, we should be a little worried as well.

The rampant housing market has had a big effect on the strength of the economy over the last several years.

This is particularly so in hotspots like Auckland and Queenstown, while Hamilton, Tauranga and Northland have joined the party more recently.

Many sectors and businesses have benefited from rising house prices, and this hasn't been limited to those involved in real estate, construction or trades.

Rising house prices boost confidence, which tends to increase activity and spending levels. Retailers, car dealers, professional firms and the hospitality industry are some of the numerous winners.

If the trend of recent months turns into a sustained decline, the stimulus from this wealth effect could reverse.

Falling house prices make consumers put their wallets firmly back in their pockets, and take a more risk averse approach across the board.

Businesses respond by shelving investment decisions, delaying plans to hire new staff or reducing overtime.

The economy could probably handle it, with tourism in great shape and the agricultural sector in a much stronger position than a year ago.

Low government debt gives us options, the currency has plenty of room to fall if required, and the Reserve Bank is in no rush to increase interest rates.

The housing boom has been a double-edged sword.

Many of us have enjoyed the rewards in the form of rising wealth, a strong economy and increased job security.

On the other side of the coin, the high cost of housing is almost entirely to blame for much of the inequality and poverty issues we face today.

If the price rises of the last several years continue to unwind, a different type of dilemma will emerge.

Modest price declines will be welcomed by many, but we might pay in the form of an economic slowdown.

Mark Lister is Head of Private Wealth Research at Craigs Investment Partners. This column is general in nature and should not be regarded as specific investment advice.