The year ahead

2015 is shaping up to be an interesting year, mainly influenced by what was a very significant 2014. I can’t remember many other years where there were such huge (+50%) variations in world commodity markets across a range of markets. Motorists are benefiting at the petrol pump from an increase in the supply of oil and reduced demand from China. The Dominion Post has estimated the average motorist will save $400 a year in fuel costs, but when the lower fuel costs flow through to air travel and freight charges the gains will be more significant.

The effect will be lower than expected inflation (perhaps deflation) and more spending money in consumers’ pockets. Low inflation will remove the imperative off the Reserve Bank to increase interest rates. The general view is that the Official Cash Rate will remain at current levels for most if not all of 2015, which has promoted a number of banks to cut their fixed mortgage rates. In the last week or so the BNZ has cut its three-year fixed home loan rate to 5.59% from 5.99%, and Kiwibank has cut 20 basis points from its two-year fixed rate, to 5.55%.

That’s great news for property investors and home owners, many of whom will benefit as their fixed rate mortgages come up for renewal.

The bad news for the provinces is the dramatic fall in dairy prices, again linked to lower demand from China. In December Fonterra slashed its forecast payout for this season to $4.70 per kilogram of milk solids; compared to$8.40 last year. That represents a massive loss of income to regional economies and potentially a softening in demand for property in an already unspectacular property market. For example, Whangarei District residential property values increased just 0.7% in 2014.

The Auckland property market is likely to remain the outstanding performer in 2015, as it was in 2014 with average property values increasing 9.8%. As the gap between Auckland’s property values and those in the rest of the country widen more Aucklanders are likely to  move to places north and south. Being able to sell an average home in Auckland and buy two average homes elsewhere (with change) is an attraction more people are beginning to appreciate.

Making that transition more feasible is the reality that the internet has made working from a home in the back-blocks or beach is not only more feasible but a reality for many. Online conferencing, online accounting, online almost everything means earning a living and living at the beach becomes an alternative to fighting traffic and the lack of privacy and space of a big city living.

It is inevitable that the IT revolution will change lifestyle patterns and that can only benefit holiday destinations like Northland or the Bay of Plenty. The issue is how long it will take for those trends to become mainstream. The better the schools for the kids and the faster the broadband for the business the quicker that transition would take place.

Meanwhile in Wellington, the re-election of the National lead government has created a stable political environment at central government level. The long-awaited reform of the Resource Management Act is expected to come early in 2015 calendar. That, one hopes, will bring much needed balance back to environmental planning and free land from the senseless “Smart Growth”  planning policies pursued by misguided ideologically planners. Unfortunately, the extent to which the self-serving planning industry is embedded within our regulatory framework  means it will be decades before the economy and homeowners can recovery from their adverse effects.

Unfortunately the regulation of landlords in response to a vociferous and relentless anti-landlord sector is likely in 2015. Their latest call is for regulation requiring landlords (but not private homeowners) to fence driveways, and their campaign to control landlords via a compulsory Warrant of Fitness scheme for rental properties will continue.

As for property price predictions for 2015, CoreLogic Director of Research, Jonno Ingerson predicts, ‘Given strong migration, continuing low interest rates, a shortage of housing and good consumer confidence, values are likely to keep increasing in Auckland throughout this year. There may be modest increases in some of the other main centres, but most smaller centres are likely to remain steady.’ That seems like a fair prediction.

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