Tired of scrolling through endless articles trying to figure out how the economy will impact your investment? If you’re a landlord or property investor, understanding the economic factors that drive the property market is more important than ever. However, this information is often inaccessible, vague or surrounded by jargon. At The Rent Shop, we’re committed to providing you with a secure foundation of knowledge. From interest rates to GDP growth, we’re breaking down key economic indicators and explaining how they shape the number of houses listed for sale. Our end goal? Ensuring you have the insights you need to make informed decisions, stay ahead of trends, and maximise your investments.
Key Economic Indicators Affecting Property Listings
Interest Rates
Interest rates are the heartbeat of the property market. When interest rates rise, borrowing becomes more expensive, leading to higher mortgage payments. This often discourages potential buyers, resulting in fewer property sales and a potential increase in rental demand. Conversely, when interest rates fall, mortgages become more affordable, encouraging more people to buy homes, which can lead to an increase in property listings as sellers try to capitalise on the buyer interest.
Inflation
Inflation affects more than just the cost of groceries. When inflation rises, the purchasing power of money decreases, meaning it takes more money to buy the same goods and services, including homes. This can push property values higher, but it also raises the cost of living, which can dampen consumer spending power and reduce housing affordability.
As of April 2024, inflation is at 4% which is the lowest we’ve seen in years. This means landlords might experience some relief in operational costs. However, with improved affordability, more potential buyers might re-enter the housing market, leading to a possible increase in property listings as homeowners feel more confident in selling.
Employment Rates
Employment levels are a critical indicator of economic health. High unemployment rates usually indicate economic distress, which can lead to a decrease in housing demand. The maths here is simple: when fewer people have stable jobs, fewer people can afford to buy homes, leading to fewer property listings.
As of the March 2024 quarter, New Zealand's unemployment rate stands at 4.3%, a slight increase of 0.3 percentage points from the previous quarter. The effects of this aren’t significantly impactful at the moment but we recommend landlords and investors keep an eye out and take action if unemployment rates continue to rise.
Gross Domestic Product (GDP) Growth
GDP growth reflects the overall economic performance of a country. A growing GDP usually means a healthy economy with more disposable income, higher consumer confidence, and increased property investments. When the economy is booming, more people are likely to buy homes, increasing property listings. New Zealand’s GDP growth trends are a valuable indicator, as they offer insights into broader economic health and potential shifts in the property market.
The Role of Housing Affordability
All the above economic factors impact property listings because they all in some regard, relate to housing affordability. Housing affordability has been a significant concern for everyone over the years, especially Kiwis. As of 2024, the average house value in New Zealand is seven times the average household income. Moreover, the proportion of household income required to service a mortgage has also seen dramatic changes. In 2024, 49.5% of the average household income is needed to service a 20-year mortgage on the average house value.
These statistics mean that fewer people can afford to buy homes, leading to increased demand for rentals as potential buyers stay in the rental market longer. Consequently, property turnover slows down because homeowners hesitate to sell when buying a new home is financially straining. For landlords, this creates an opportunity to attract and retain long-term tenants, though it also places pressure on rental prices and tenant affordability.
Consumer Confidence and Property Sales
Consumer confidence is exactly what it sounds like - it reflects the general public’s sentiment on buying and selling. The Westpac McDermott Miller Consumer Confidence Index in New Zealand rose to 93.2 in the first quarter of 2024, up from 88.9 in the previous period. This increase marks higher morale levels indicating easing concerns about financial pressures among households.
As confidence grows, homeowners are more likely to sell, anticipating a favourable market, while potential buyers feel more secure in making significant investments like home purchases. However, it’s important to consider consumer confidence in the grand scheme of things. For example, even if consumers are more confident, unaffordable housing means they might not be confident enough to make such significant purchases. This makes it important to weigh up the other relevant factors mentioned above.
Government Economic Policies
Recent government policies have had a notable impact on New Zealand's housing market, particularly in addressing affordability and supply issues. One significant policy is the restoration of interest deductibility for residential property investors. This policy will fully restore deductibility by 1 April 2025 which is anticipated to ease financial pressure on landlords and renters by making residential investments more attractive.
Another impactful policy is the adjustment of the bright-line test, which taxes the capital gains on investment properties sold within a certain period. The government plans to reduce this timeframe from 10 years to two years. This reduction is expected to encourage more property transactions as investors can sell properties without incurring significant capital gains tax earlier than before. As a result, an increase in property listings may occur as investors look to capitalise on this more favourable tax environment.
Expert Insights
Ed McKnight, a Resident Economist highlights the mixed landscape for property investors. He notes that while high interest rates are challenging, the recent bottoming out of property prices offers potential opportunities. McKnight predicts that although the market is slow now, house prices are expected to rise about 5% per annum over the long term, particularly as interest rates stabilise.
Tony Alexander, another respected economist, also emphasises the long-term upward trend in property prices. He suggests that despite recent fluctuations, property values have historically increased by around 7% per year, and a similar growth trajectory is likely to resume, albeit at a slightly slower pace of 5% per year going forward. Looking ahead, both experts advise landlords and investors to stay informed and adapt their strategies to current market conditions.
Practical Tips for Landlords
If there’s one thing we want to emphasise, it’s that understanding the impact of economic factors on property listings is a balancing act. While issues such as unaffordable housing and unemployment might indicate a lull in property listings, the expected effect of this can be overshadowed by consumer confidence and new government regulations. Essentially, when assessing economic factors it’s important to take everything into consideration and weigh them against each other. Often different economic indicators contradict each other so we recommend looking at the big picture. Here are some practical tips to ensure you stay on top of things:
- Stay Informed about Economic Changes: Regularly monitoring updates from reliable sources such as the Reserve Bank of New Zealand will help you make timely and informed decisions.
- Mitigate Negative Economic Impacts: Diversify your property portfolio to include different types of rental properties and locations. This strategy can help spread risk and minimise the impact of negative economic factors.
- Timing Sales and Rentals: Use the above economic indicators to gauge the best times to list or rent out properties. For example, listing properties when consumer confidence is high can increase the chances of a quick sale at a favourable price. Similarly, renting out properties during periods of high rental demand can ensure a steady income.
Conclusion
From understanding economic indicators to leveraging expert insights, you should now have a solid economic foundation to navigate the property market effectively. For the latest updates, keep an eye on The Rent Shop’s blog. If you’re looking to tailor your strategies and stay ahead of the curve, book a consultation with one of our experts today. Let The Rent Shop help you navigate the complexities of the property market and maximise your investment potential.
