You will learn: 
  • Misleading Stat: Near-Record Number of Home Consents (a 44-year High)
  • Does NZ Really Have a Housing Shortage? (Updated Migration Rates)
  • My Highlights of REINZ February 2019 Report
  • Why the Official Cash Rate to Be Kept on Hold Until 2020

Quote of the week: If you do something wrong, the government will fine you; if you do something right, it will tax you. — Unknown
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Misleading Stat: Near-Record Number of Home Consents (a 44-year High)

🕑 2-minute read

New dwelling consents are now at the highest level since 1975, but economists say that it’s likely they have reached their peak. A total of 33,576 new dwellings were consented nationwide in the year ending January 2019, according to the latest data from Stats NZ.

The record was in February 1974 when 40,025 of dwellings were consented nationwide.

“However, the population was only around 3 million in the 1970s, compared with nearly 5 million today," says Melissa McKenzie, the construction statistics manager.

“That means that while approximately 13 new homes were consented per 1,000 New Zealanders at the 1970s peak, around 7 per 1,000 were consented in the year ended January 2019. “ 

The growth in new dwelling consents was driven by an increase in large multi-unit projects such as apartments, especially in Auckland.

In Auckland alone, 13,272 new homes were consented in the year ended January 2019. 

Keep in mind that only about 70% of consented dwellings increase the net housing stock the same year because you have to demolish the old buildings.

Therefore, we increased the net NZ housing stock by about 23,500 dwellings (instead of 33,576 consented) while Auckland increased by only around 9,500 dwellings (instead of 13,272 consented). 

That seems like a big number anyway. Are we out of the woods yet? Are we building enough?

Auckland’s housing shortfall is at least 46,000 dwellings as a result of exceptional population growth and few new dwellings being built in the wake of the Global Financial Crisis.

Only in late 2018 did annual new dwelling consents begin to balance with population growth, and it has yet to eat into the shortfall, says Auckland Council Chief Economist David Norman. 

Constructions companies are not performing well, to say the least. Think of Mainzeal, Arrow International, Alexandra Park Village developer the Auckland Trotters Club etc.

ASB senior economist Jane Turner says Auckland’s housing shortage has spread beyond Auckland and is now resulting in tight housing markets in many of the regions. 

The average household size in New Zealand is 2.7 people per household (3 people in Auckland), according to Stats NZ.

NZ enjoyed extra 43,000 migrants in the last year, and nearly half of them (21,500) would live in Auckland.

Therefore, we have to double the number of consents and achieve 13 new homes to be consented per 1,000 New Zealanders as at the 1970s peak.

How do we do it? That's a 5 million dollar question!

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Does NZ Really Have a Housing Shortage? (Updated Migration Rates)

🕑 2-minute read

In the last newsletter, I mentioned the updated method of counting migration by Stats NZ. The net number (inbound migration less outflows) went down by roughly 30% to 43,400. 

You would think that NZ doesn't require that many extra properties to accommodate new people.

However, I'm pasting below the numbers by Tony Alexander who pointed out that you may be wrong. 

Some online commentators have been saying that because the estimated net migration inflow in the past year was 43,000 and not the over 60,000 estimate using the old departure cards that there is far less pressure on the Auckland housing market than thought. Not so fast.

The new migration data are available from the start of 2001. They show on average an annual net migration gain of 28,208 people. The old method shows an annual average gain over the same period of 27,356.

The new method shows migration driven population growth since the start of 2001 of 506,233 people. The old method shows 486,785. The population boost is bigger, not smaller!

There is no basis for claiming that the new migration data imply less of a housing shortage in Auckland than previously thought.

What do you think is the perfect migration number for New Zealand? Let me know by replying to this email.

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My Highlights of REINZ February 2019 Report

🕑 1-minute read

Auckland attracts nearly 50% of new immigrants, and it is the engine of the NZ economy. Also, I happen to live there.

Therefore, I will mainly present the numbers related to the Auckland region which consists of 7 areas (Auckland City, Franklin District, Manukau City, North Shore City, Papakura District, Rodney District and Waitakere City).

January 2019 saw the median number of days to sell a property increase by 6 days from 45 to 51 the highest number of days to sell since February 2009.

The current Days to Sell of 51 days is well above the 10-year average for January which is 41 days. 

The median price in the Manukau area was $821,000. It has increased by 9% since January 2018. It shows you that Hamilton, Tauranga etc. are not the only places to invest.

People that follow a specific strategy can do well in any location at any time.

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The Official Cash Rate (OCR) to Be Kept on Hold Until 2020
🕑 1-minute read

The Reserve Bank has indicated it expects to keep the OCR on hold until mid-2021, given the balance of risks it sees around the growth outlook.

Inflation remains contained close to 2%, and economic growth is moderating. Offshore volatility is keeping the Reserve Bank cautious as to when it tightens monetary policy.

NZ Institute of Economic Research (NZIER) expects the central bank to raise the OCR from mid-2020 because they believe that inflation will pick up at a faster pace.

I noticed that most economists say that interest rates are NOT likely to go up in the next 18-24 months. Therefore, I would personally be OK to re-fix the mortgage for 1 or 2 years taking advantage of the lowest possible interest rate. 

HSBC currently displays home loan offer: 3.69% p.a. fixed for 2 years. I'm sure some other local banks could match if you have enough deposit and good serviceability.

Thank you for taking the time to read it! If you know anyone who would benefit from this email, you are welcome to forward the newsletter to them.

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Talk soon,
Maxim Sherstobitov

P.S. What did you like (or did NOT like) most about this newsletter? I'd be glad to see your feedback and thoughts! Just hit the reply button. 

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