It has been a busy month in April. The big news, for those living or investing in Auckland, is the release of 2 reports on the lack of rental accommodation and the increased need for additional accommodation in the next 10 years - great news. The Reserve Bank has increased the Official Cash Rate and we are now seeing floating mortgage rates in excess of 10%.

Being the end of the tax year this is Valuits busy time of the year. However it is NOT too late for us to complete your chattel valuation.

We hope you had an enjoyable Easter. In the meantime Read, learn, enjoy ...

... and happy investing!
 

Mid April saw the release of a business survey that indicated businesses were facing a very tight labour market and as a result wages are increasing. In addition many businesses are looking at increasing prices to offset the labour cost, additional holiday pay costs and the increasing price of petrol.

At the review of the Official Cash Rate on 26 April the Reserve Bank increased the rate to 7.75%. This is an increase of 0.25%, and the second increase in as many months. New Zealand now has the highest official interest rate of any developed country. The Statement accompanying the increase did not give any indication as to the Reserve Banks future intentions. Economists believe the Reserve Bank will take a "wait and see" approach and see how the economy reacts. The economists do not believe the Reserve Bank is likely to consider raising the rate again until July.

The Investor Confidence quarterly survey by ASB Bank, for the period ended 31 March, found that 25% of investors were expecting their investment returns to be better this year than last - indicating a continued optimism amongst investors. This is the highest level since the survey began in 1999. Residential property investment is the most favoured asset - with 21% of investors saying it provided the best return. This was followed by managed investment funds at 14%.

Building consents. House building is continuing at a quick pace. While there was a small reduction in the seasonally adjusted figures for March (when compared on a month by month basis) there were 334 more consents issued to the year ended March when compared to the previous year (a total of 25,740 new consents were issued nationally). These latest figures indicated that the sector was on target to meet its 10 year average of 25,235 new residential consents per year.
 

Since the increase in the OCR a number of banks have increased their interest rates on Floating Mortgages - with some rates now in excess of 10%. This is the highest interest rates have been for almost 10 years. Short term mortgage interest rates have also increased. The OCR funds both the floating and the short terms rates whereas longer term fixed interest rates are funded by international funding/ deposits (to take advantage of our high interest rates). Consequently the longer terms rates are lower than the floating and are currently between 8.5% and 9.0%.
 

The big 4 Trading Banks have confirmed that they are reviewing the commission that they pay mortgage brokers - with a view of decreasing the amount they pay to the brokers. It is thought the banks are looking at reducing the rate to 0.8% of the value of the loan. This is the second cut to broker's income within 2 years with the banks stopping the payment of annual trail commissions in 2006 (a commission for every year the mortgage is in place).

This has lead to a number of announcements from the mortgage broking industry including 2 larger brokers joining forces and forming a new joint venture entity focussing on mortgage and insurance broking. The joint venture makes the combined entity the largest mortgage broker in NZ. The objective of the move is to organise a substantial share of mortgages in NZ and negotiate a fairer deal based on size.

Meanwhile another large broker is considering obtaining its own financing for lending of mortgages.
 

Statistics New Zealand has released more figures from the 2006 Census. These are summarised as follows:
- Rents are lower in the South Island
- While more houses are being built - fewer Kiwi's on low to medium incomes can actually afford the housing
- The biggest group of renters is those under than 40 and earning less than $50,000 pa.
- There are more women than men that own homes.
- There were 388,722 households paying rent at the time of the census.
- Home ownership rates were generally higher in the South Island. The places with the highest ownership rates were Tasman (62.7%) and West Coast (61.9%). The lowest ownership rate is Auckland (50.7%).
- The average household size is 2.7 people (2.8 people in 1996)
- The three bedroom house is still the most common dwelling but the number of 4 and 5 bedroom houses, as a proportion of all houses, is growing.

The Government has confirmed that it will trial a shared equity scheme to help people purchase their first home. It is likely the Government would purchase 25% - 30% of the home. When the property is sold the government reclaims its share at that stage. The trial looks likely to be conducted in Auckland next year.

Currently it is more affordable for people to rent than it is to own with the cost of housing being substantially more than the cost of renting. While rents are increasing they need to increase by approximately 20% for investors to obtain the yields that they were obtaining in the early 1990's of 6% to 7%.
 

Figures released by QV show that the value of houses continues to rise. QV bases its figures on the last three months of sales compared to the same three months on the previous year. They have found that nationally house prices have increased 9.8% for the year ended March (9.3% in February). The average sale price was approximately $363,000. As at the end of March 2007 some of the figures were:

Urban Area.	Growth Rate (annual)	Average. Sale Price
Auckland	7.5%	$462,028
Hamilton	12.2%	$338,226
Tauranga	2.4%	$414,165
Wellington	13.5%	$479,487
Christchurch	10.7%	$349,121
Dunedin	7.3%	$261,388

 

At the end of April there were 2 reports issued concerning the supply of housing.

In the first report, released by DTZ, the demand for rental property in Auckland is expected to boom and by 2006 with approximately 58% of the Auckland population living in rental accommodation (particularly young families and the elderly). It believes 55,000 new houses and flats will be needed by 2016.

In the second report, by MOTU, it found that there were 2 main contributory factors to the shortage of housing supply in Auckland. These are:
i. High land costs and
ii. Council's not processing building consents fast enough.

The report also called for Councils to have financial penalties for not processing building consents within the required time frame and for district plans to be simplified. Its also suggests removing the artificial city boundaries to make new land available for development.