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Decoding the Housing Market Surge: Why Are There So Many Houses for Sale?

May 13, 2024

The housing market in New Zealand has recently seen a surge in property listings, leaving many landlords and property investors curious about the reasons behind the increase and how it might affect the rental market. As more properties become available, landlords may need to adapt their rental strategies to stay competitive and profitable. 

The early months of this year have seen the number of houses listed for sale up nearly 30 per cent, reaching levels not seen since 2015. In March, the Real Estate Institute of New Zealand (REINZ) said there had been "a substantial rise in listings nationally, indicating heightened activity in the housing market. New Zealand's stock levels saw a year-on-year increase, resulting in a growing inventory of available properties for sale. " 

There are a number of reasons contributing to this surge. Here is why it has occurred and what it might mean for Kiwi landlords.

Economic Factors Driving the Surge

Various economic factors have contributed to the increase in the number of homes for sale across New Zealand. Some of the main drivers are changes in interest rates, employment trends, and economic indicators that influence homeowner behaviour.

Lower interest rates often stimulate increased borrowing and buying activity as prospective homeowners can access more affordable mortgage options. Conversely, recent interest rate hikes have shifted this dynamic by making borrowing more expensive and increasing monthly mortgage payments for existing homeowners. As a result, some homeowners may be prompted (or even forced) to sell properties they can no longer afford due to the higher cost of servicing their mortgages.

Data from Centrix shows that the proportion of mortgages reported in arrears increased to 1.51% in February, with 22,600 mortgage holders behind on their payments, the highest level since January 2020. Homeowners experiencing financial stress may be compelled to sell their properties before being pushed into a mortgagee sale. This trend is indicative of growing financial pressure among certain segments of the population, which may prompt a further surge in the supply of houses for sale.

Employment trends have also substantially impacted the housing market. Economic uncertainty and job instability can lead homeowners to sell their properties as a means of managing financial risks. This could include people who have lost their jobs or face unstable employment conditions, leading them to seek a financial cushion by liquidating their assets.

Another significant factor is the outflow of skilled workers overseas, driven by job opportunities elsewhere. As an indicator, Stats NZ reported a provisional net migration loss of 21,100 people to Australia in the year ended June 2023. This migration of talent can lead to more properties being listed for sale as individuals and families relocate overseas in search of better employment prospects or lifestyle changes. However, recent record migrant arrivals have lessened the impact of this factor.

Societal and Demographic Shifts

Population growth, driven by natural increases and migration, plays a central role in shaping housing demand. As the population expands, the need for housing grows, prompting homeowners to list their properties for sale to meet and take advantage of the shifting demands of new residents. Additionally, migration patterns can impact the market in various ways. For instance, incoming migrants may seek rental accommodations initially, while long-term migrants may aspire to purchase homes, influencing both the rental and sales markets.

Changing housing preferences also contribute to the current surge in property listings. Different age groups have varying needs and expectations regarding housing. Younger generations, such as millennials and Gen Z, may prioritise smaller, more affordable homes or prefer renting over buying due to flexibility or financial constraints. Meanwhile, older generations may seek to downsize their living arrangements or relocate for retirement, leading them to list their properties for sale. These shifts in preferences, combined with other demographic changes such as population growth and migration, can lead to fluctuations in housing supply and demand dynamics, impacting the availability of homes on the market and influencing pricing trends.

Government Policies and Regulations

Government policies and regulations play a significant role in shaping the housing market in New Zealand, influencing both buyers and sellers. Policies related to taxation can affect property ownership costs and the decision to sell. For instance, changes to the Bright-Line Property Rule, or Bright-Line Test, may lead homeowners to sell their properties to avoid higher taxes, while adjustments to interest deductibility for landlords can impact the profitability of rental properties, prompting some landlords to offload their properties.

Housing affordability is another critical area affected by government policy. Initiatives aimed at making housing more affordable for first-time buyers, such as grants and subsidies, can encourage homeowners to sell older properties in favour of newer developments. This increased turnover can lead to more homes being listed for sale. Additionally, regulations around housing development, such as zoning changes and building code adjustments, can also impact the housing market by influencing the construction of new homes or the renovation of existing ones.

Recent legislative changes have also played a part in the increased number of properties for sale. For example, updates to rental property standards and tenancy laws may have led some landlords to sell their properties rather than invest in costly upgrades or deal with more stringent regulatory requirements. These changes can make owning rental properties less attractive, leading to an increase in the number of properties for sale. 

Impact on the Rental Market

The surge in property listings can have big implications for the rental market. As more homes become available for sale, rental prices may experience fluctuations. Landlords might face increased competition, leading to lower rental prices and higher vacancy rates.

While the surge in property listings may initially seem challenging, it also presents potential opportunities for landlords. More properties on the market might attract more tenants, particularly if housing prices remain high and renting becomes a more attractive option. This could balance the market by providing more options for tenants while allowing landlords to adjust their rental strategies and potentially increase the tenant pool, offering a silver lining in the current market conditions.

It's crucial for landlords to stay informed about these changes and adapt their rental strategies as needed. This may include offering more competitive rental prices, providing incentives to tenants, or making property upgrades to attract and retain quality tenants. By staying proactive and responsive to the market, landlords can be better positioned for ongoing success.

Looking ahead, the future of the housing market in New Zealand is likely to be influenced by ongoing economic changes, shifts in population and migration patterns, and further government policy adjustments. Monitoring trends such as interest rate fluctuations and their impact on borrowing and buying behaviour, as well as changes in employment conditions that may affect the demand for rental properties, can be helpful for landlords. Additionally, keeping an eye on government initiatives related to housing affordability and rental property regulations can provide insights into potential shifts in the market.

To stay competitive and adaptable, landlords may want to consider diversifying their property portfolios and exploring opportunities in emerging housing markets. They should also be open to adjusting rental strategies based on changing market conditions, such as offering competitive rental prices or making property improvements to attract tenants. Expert advice from a property management specialist, like The Rent Shop, can help you stay informed and be proactive. If you'd like to discuss the evolving housing market and how you can position yourself for long-term success as a landlord, talk to The Rent Shop today.

Shiva Sharma
Property Manager