Buyers hold out for new homes, and is a recession on the horizon?

It seems  some first-time home-buyers could be holding out for a new home rather than buying an existing one.  There   may be a few reasons for this: they can be cheaper to buy  and I expect they’ll be warmer, drier and cost less to maintain than some older homes that have  single-glazed windows and near-zero insulation.

According to economists at the ANZ, while existing homes have risen in price by about 50 per cent since 2012, the cost of a new build has gone up by “only” 30 per cent (annual inflation is currently 1.1 per cent).

Likely reasons for the difference in home price inflation between old and new will be smaller plots of land for new builds and an emerging glut of apartments. People’s ability to pay has also been stretched to the limit in Auckland.

There’s certainly plenty going on with new builds, particularly in Auckland where more than 12,000 new home consents were  issued last year. In the year to February, more than 31,000 new homes were consented in locations such as Taupo, Thames-Coromandel, Western Bay of Plenty, Greater Wellington,  Nelson-Tasman and Queenstown. But as impressive as that is, it is below the 2004 peak of 33,200 consents.

Economists writing in ANZ’s latest Property Focus  say price  increases for building materials and credit constraints are  hampering  builders’  ability to increase house building.

The report says: “Construction cost inflation is high relative to the general rate of inflation. Firms are reporting that cost pressures remain acute, and continue to increase, especially for projects that are yet to be started.   Delays do not necessarily increase costs, but they can make projects riskier from a cash  flow  point  of view and make financing more difficult.”

But for companies that do have the money, attracting skilled labour from offshore to Auckland is becoming a problem because of the  high cost of buying or renting a home.  It’s a chicken and egg situation and everyone’s scrambling.

The Ministry of Business, Innovation and Employment predicted that construction-related employment will need to increase by  about 49,000 people between 2015 and 2021, with 32,000  builders needed in Auckland.

And while  the Labour-led Government has promised to build 100,000 new homes over 10 years. It means   the people working on  these homes could theoretically occupy half of them.

The bottom line is that population growth has outstripped housing growth with 100,000 people having moved to New Zealand last year. Migration has slowed though, down to   4000 people in March.

Recession

There has been a recession in New Zealand every 10 years since 1968.

According to an ANZ survey of business owners in April, 23 per cent are pessimistic about the year ahead, 3 points down on its March survey. So are we hearing the first splutters of the economic engine stalling?

My rule of thumb is that when I see firms offering up to five years’ interest-free credit, it’s prudent to prepare for  rainy day.