Key Facts

  • An increase in net migration surge could put upward pressure on rents and stimulate recovery in the housing sector from 2025.
  • The Reserve Bank of New Zealand has left the Official Cash Rate (OCR) unchanged at 5.5%.
  • This is due to anticipated inflation resulting from the migration surge, among other factors.
  • The NZ dollar is currently at lower-than-expected levels, contributing to higher import prices.
  • The migration boom has led to stronger household spending.
  • It is unlikely that the cash rate will increase again in 2024 due to several reasons, including potential governmental policy tightening.
  • The high mortgage rates will continue to affect home buyers negatively.
  • Opportunities for young home buyers may remain open for now but could decrease once the inflation outlook improves and interest rates decrease.

Article Summary

Renowned economist Tony Alexander foresees that a boom in net migration may drive up rental prices. This, along with additional house buying, could prompt a bounce back for New Zealand’s housing construction sector starting in 2025 or later. The Reserve Bank of New Zealand echoes this view, leaving the Official Cash Rate (OCR) unchanged at 5.5%. This decision was largely influenced by the Bank’s anticipation of inflation generated from the surge in migration.

A more relaxed labour market is underway, aided by the NZ dollar being lower than predicted increasing the cost of imports. This, in combination with a robust domestic consumer spend driven by migration boom, has prompted Reserve Bank to consider keeping the cash rate unchanged or even raising it. However, it seems unlikely that the cash rate will increase in 2024 due to a few factors. This includes the expectation that the new government’s fiscal policy might tighten, helping to slow economic growth.

High mortgage rates continue to put a damper on potential buyers, despite no evident frenzy or fresh demand from investors. With the rising costs of insurance, maintenance, and council rates, the numbers make property investment less attractive. However, for young buyers, the slow pace of the housing market may present an opportunity. This window of opportunity may not last, as the anticipated drop in interest rates alongside an improved inflation outlook could swiftly alter the market dynamics.

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