Residential Investment Update – October 2023

Landing fresh in a new country, migrants tend to spend the first week or two in commercial accommodation, before quickly transitioning into privately rented dwellings. That’s encouraging news for the residential investment property market in Christchurch – with the rental market overflowing with tenants needing houses.

New Zealand had a record net migration gain of 96,200 people in the year to July 2023, according to figures released by Stats NZ. The previous net migration peak of 91,700 in the March 2020 year was partly due to many travellers who arrived in late 2019 and early 2020 prolonging their stay in New Zealand as COVID-19-related border and travel restrictions came into effect.

The recent upward curve in the migration cycle has been extreme – caused in part by the international borders reopening after the Covid-recovery period, and partly by the lagging overheated domestic economy, which we acknowledge is now tailing off quite rapidly but is still pulling in those migrants who filed for necessary paperwork in 2021/early 2022 to get into New Zealand.

That figure of 96,200 new people to our country is equivalent to the population of a decent-sized New Zealand city. All of those people need a place to live – either in their own home or by renting someone else’s. While the net migration total is off its peak recorded in March, the level is still very elevated, and is expected to remain above its long-term average well into next year.

That’s a reassuring scenario for residential property investors and is a common theme in the feedback that Bayleys Canterbury residential property investment team have been tracking in conversations with our network of landlords.

The impacts of migration on housing tend to start first with rents, and subsequently house prices, as migrants eventually, and generally, look to buy at the lower and middle price brackets of the property market. Higher-than-expected net migration inflows help balance out the supply/demand seesaw in the context of a cooling economy and higher mortgage rates.

The supply of housing stock is relatively fluid for ‘normal’ levels of migration – as new migrants are able to move into existing vacant homes, or new build dwellings as they come onto the market for let.

But the recent surge in migration is enormous – so it remains to be seen whether this plays out in the usual way for house prices. Certainly for residential property investors in Canterbury though, the increased demand for somewhere to live at a time when building activity is contracting, is certainly good news. Independent property economist Tony Alexander notes in his latest monthly survey of residential property investors, that:

• Landlords are increasingly reporting that it is getting easier to secure good tenants
• Fewer investors are contemplating selling because of loss of interest expense deductibility
• For those residential property investors looking to buy, the preference for a new property is declining.

A report by Wellington-based economic and public policy research agency Motu – entitled HOUSING MARKETS AND MIGRATION – EVIDENCE FROM NEW ZEALAND – substantiates what many residential property investors in Canterbury already know from first-hand experience… “that higher shares of new residents (including new immigrants, and returning New Zealanders) are associated with higher average rents.”

“We do find rents are positively related to higher shares of recent movers,” added the Motu report, which calculates that a 10 percent increase in a localised area’s population is associated with four–6.5 percent higher house prices.

This pattern is also reflected in Trade Me’s latest Rental Price Index which shows a tightening of the residential property market – in favour of those owning investment stock. Rental listings were down 16 percent year-on-year in September, while enquiry numbers about rentals were up 11 percent. Trade Me Property sales director Gavin Lloyd said: “We have seen a drop in rental listings when compared with last year but an increase in demand, so I think we are very unlikely to see landlords drop (rental) prices anytime soon.”

As we enter another evolving stage of the property market, please get in touch with our Residential Investment team if you’d like to understand more about the impact of migration or the incoming changes to legislation on your property decisions.