Robert Kitchin/StuffPublic sector cuts are a drag on Wellington’s economy.
ANZ has revised its house price forecast for this year, expecting prices to fall 0.4% over 2023, rather than the 0.2% rise its economists had expected earlier.
It said house price growth was weaker than expected in October and the indicators of sales and new listings showed more softness to come.
“If momentum doesn’t recover after the election-related dust has settled, our 2024 forecast is on thin ice for a downgrade, too.”
ANZ economists said that house prices ticked down in October across all major markets, and they would be watching closely to see if this resumed 2022’s trend of a weakening housing market, or whether it was just related to political uncertainty.
“New listings are (just) above year-ago levels for the first time this year. All else equal, this extra supply will make it more difficult for house prices to rise meaningfully over the next few months.”
But they said things were looking especially weak in Wellington, where house sales were at multi-decade lows, excluding lockdown periods, and house prices dropped 2% month-on-month. Days to sell rose by five.
“The city’s economy is highly reliant on demand from the public service. Some government ministries have already begun the process of downsizing to achieve the outgoing government’s 1%-2% baseline cuts across the public service, with others implementing hiring freezes. We suspect these are already having a negative effect on the Wellington housing market, with potentially more to come.
“The coalition agreements didn’t outline specific targets for headcount reduction, but the direction was clear.”
Economist Andre Castaing said population growth in Wellington had been slower than in the rest of New Zealand recently.
“While this data isn’t exactly timely (the latest read is for the year to June 2023), it wouldn’t be a surprise to see this gap maintained, or possibly widen with the new government’s public sector job cuts.
”The Wellington labour market is also starting from a tighter starting point than the rest of New Zealand, suggesting the looming softening in labour market conditions could be quite sharp. It’s likely that Wellington will catch-up to its long term average as the whole economy cools next year, and that would likely weigh on housing demand.”
But Castaing said Wellington was also consenting fewer dwellings per 1000 people than the rest of New Zealand. “Limited housing supply is likely to provide a floor under Wellington’s housing market at some stage, but that has the potential to be a while away, given the long time required to build dwellings and all the other factors at play in the short term. “
Gareth Kiernan, chief forecaster at Infometrics, said historically there had been an average gap of almost eight percentage points between the performance of the Wellington housing market when a Labour-led Government was elected compared to a National-led one.
“The rhetoric around public sector employment from the new Government this time around appears to be even harsher than it was in 2008, so it seems reasonable to expect a more pronounced and possibly quicker effect on Wellington’s housing market.
“Furthermore, prospects for house prices nationally are reasonably positive over the next year, which potentially creates conditions for the Wellington market to be left behind – as opposed to a nationwide market that is in downturn, which would require even larger falls in the Wellington market if it was going to underperform.
“We could have a situation where Wellington’s house prices remain fairly steady over the next year, while prices elsewhere rise, particularly in areas where the current influx of migrants is boosting demand.”
ANZ economists said house prices were still a long way below their peak and it could take years to return to Covid highs.
But a period of weak house prices and strong wage growth thanks to inflation had improved affordability back to pre-pandemic levels, they said.
“We certainly wouldn’t characterise house prices as ‘affordable’, especially given serviceability constraints. But strong wage growth has provided a material offset for some and we’ve undone the damage done to housing affordability during the Covid period.”
They said the correction had happened with “very little blood on the floor” and only a modest proportion of buyers put into negative equity, compared to the situation if prices had fallen when income growth was steady.
“That’s the dirty little secret of high inflation – it does grease the wheels of relative price adjustments, and an adjustment in house prices relative to wages was most certainly needed.”
On Tuesday, data from Trade Me showed average asking prices up 2.4% month-on-month across the country. Hawke’s Bay led the increase, up 4.1%, followed by Auckland and Marlborough, both up 3.2%.