Property Report: Shamubeel Eaqub - The big picture

Wellington is slowing. The Government is spending less, which translating to job losses and this will intensify, Photo / NZ Herald

The big picture for New Zealand housing remains sobering.While there has been some improvement recently, it has been modest. Auckland house sales fell from 35,000-40,000 a year at the peak to a low of 20,000 in 2010. We had 23,000 for 2011, so nothing to get too excited about.

My biggest concern is that house prices are very unaffordable. Unlike the USA or UK, our house prices have not really fallen during this recession and are still extremely high relative to our incomes and rents. We may want to buy more houses, but only if we can afford them. Is there a shortage of housing? There is a shortage of housing like there is a shortage of a gleaming and brand new Ferrari in my driveway. It is not there because I can't afford one yet. The housing market will not repeat the spectacular growth of the last decade.

The big themes keep me in a cautious mood. These are de-leveraging, a soggy job market and a menacing global outlook.

After a decade-long debt binge, we have only just started to pay it back. It will be years before we revert back to our foolish debt-stuck ways. Until then the housing market will not get the fuel for another housing boom.

We are three years into a so-called recovery. But it is jobs and wages that matter and we have had few new jobs in recent years. There are as many of us employed today as a share of the population, as there were in the depths of the recession.

The recession was particularly disruptive for the housing market. Many of the job losses were for the young, typically first-time flatters, those under 25. Job losses were also intense for those with growing families, those in their 30s to 40s.

So, the nest didn't empty of teenagers for many parents. As for those in their 30s and 40s with growing families, they couldn't upgrade to a larger home during the recession either, so that usual demand hasn't been there.

The world economy meanwhile remains an uncertain place, no matter what deal they may hatch over the weekend in yet another summit. We feel insulated here, in part because we are so far away. But we are very connected to the world.

A slow global economy matters for us, because it means there are fewer jobs at home and it affects how much we can borrow and at what interest rate. Interest rates are meanwhile low and will stay low for some time. They are unlikely to rise quickly again, at least not until late 2013.

AUCKLAND
Auckland is a tale of two cities. The well-heeled areas like Epsom and Mt Eden are doing very well but areas such as Manurewa are languishing. In Auckland, more so than other parts of New Zealand, poor affordability is a strong headwind. Prices are very high relative to income.

In good school zones and other desirable postcodes, professionals whose jobs and incomes are generally less affected by the recession are still buying houses and paying spectacular prices. The lower skilled tend to be hit harder during recession and are unable to pay over the odds for property.

WELLINGTON
Wellington is slowing. The Government is spending less, which is translating to job losses and this will intensify.

Wellington rode through the recession well, buffered by government spending, but it is now feeling the pain the rest of New Zealand felt couple of years ago.

CANTERBURY
A year on, after the earthquake in Canterbury, little new construction has been done. The properties that are in good shape are selling for good prices and rents are also picking up. This is even before the reconstruction really ramps up, which will see a flood of workers into the region, potentially in the tens of thousands. Unless temporary accommodation is set up, rents and house prices in Canterbury will rise even further.

INVESTMENT PROPERTY MARKET
Few investors have the appetite for property right now with rents low relative to house prices. The investment case does not stack up without massive price gains. We are therefore seeing little investor activity, which is typically debt-funded.

Mortgages are barely growing at 1 per cent a year now, down from 15 per cent at the peak. The changes to depreciation rules have also made it harder for investors.

* Shamubeel Eaqub is principal economist at the New Zealand Institute of Economic Research