RBNZ Survey: 64% Of Experts Say The Government Should Do More To Slow Property Price Growth

News highlights:

• 77% of experts and economists believe the OCR will increase in October
• Average prices expected to increase by $45,000 in some areas by end of 2022
• 3 in 5 say Kiwis should be able to buy property with just a 5% deposit

As property prices continue to soar, the government should be doing more to tackle the affordability crisis, according to the majority of experts in a new poll from Finder.

In this month’s Finder RBNZ Official Cash Rate Survey, 13 experts and economists weighed in on future OCR moves and other issues relating to the state of New Zealand’s economy.

The majority of experts surveyed (77%, 10/13) predict that the OCR will increase in October to 0.50%.

Angus Kidman, Finder’s editor-at-large in New Zealand, said the rapid rise in property prices was seemingly unstoppable.

“In the past 12 months, property prices have been a runaway train, increasing by more than a third. This has been a boon for home equity, but terrible news for first home buyers.

“An increased cash rate could slow the train, but it won’t totally get things under control by itself,” Kidman said.

The general consensus among experts is that an increase in the OCR will result in fewer house sales, higher mortgage and savings rates and also a bit of support for the exchange rate.

Alfred Guender of University of Canterbury said, “A small increase would signal that conventional monetary policy is back on the front burner, albeit on low flame.”

Average prices to increase by $45,000 by end of 2022

According to the experts, Hamilton is expected to see the largest price growth by percentage by the end of 2022, with a 5.8% increase.

Based on current property prices from REINZ, this would be an increase of $45,240.

Christchurch property is tipped to rise by 5.4%, followed by Tauranga and Wellington (5.2%), Dunedin (5.0%) and Auckland (3.6%).

If predictions are correct, Wellington home values would increase by $45,000, followed by Auckland at $43,200.

Experts split on 5% deposit to buy property

With property prices on the go and experts tipping further appreciation, more than half who weighed in* (58%, 7/12) think Kiwis should be able to buy a house with a 5% deposit.

Jarrod Kerr of Kiwibank said the issue was personal for him.

“I purchased my first home with a 5% deposit and mortgage insurance. It got me on the ladder,” Kerr said.

Debbie Roberts of Property Apprentice was in favour of a 5% deposit but said this right should be reserved for first home buyers only.

Kelvin Davidson, Chief Property Economist of CoreLogic disagrees with the idea altogether.

“It probably just puts too much risk on that potential homeowner. If prices fell 5% and [the homeowner] then dipped into negative equity and perhaps [that homeowner] also lost a job, the consequences are not great.”

Negative sentiment on housing affordability continues

Two thirds of economists who weighed in* (64%, 7/11) believe that the government should be doing more to curb the issue of rising property prices.

Brad Olsen of Infometrics said this was because house prices are rampant.

“Current efforts to tinker with demand have not made sufficient headway, nor are the changes long-term enough to make a fundamental difference to house price growth over the longer-term.”

Finder's Economic Sentiment Tracker gauges experts' confidence in 5 key indicators: housing affordability, employment, wage growth, cost of living and household debt over the next 6 months.

Over half of the experts (55%, 6/11) are feeling negative towards both housing affordability, and cost of living, due to rising property prices.

Vaccine passports an essential tool for economic recovery

With the nation’s most populated city placed into a strict lockdown for parts of August and September, the majority of experts (60%,6/10) agree that vaccine passports will be a necessity for the economy to recover.

Kidman said public life will require a new normal.

“Most Kiwis are now used to signing in with the Covid Tracer App at venues. I’d expect this to remain in place for the foreseeable future.”

When it comes to travel, all respondents are expecting an Australian travel bubble to return in 2022.

Half of experts (50%,5/10) expect it to return in the first quarter of the new year.

For travel beyond Australia, just 1 in 10 expect international travel to be back on the cards before April 2022.

*Experts are not required to answer every question in the survey

Here’s what our experts had to say about the OCR and why:

Sharon Zollner, ANZ (OCR will rise to 0.50%): "Inflation pressure."

Ashley Church, ashleychurch.com (HOLD): "The re-emergence of Covid lockdowns appears to have tempered the Reserve Bank's appetite for an immediate increase - for now."

Kelvin Davidson, CoreLogic (OCR will rise to 0.50%): "The case is still pretty clear - employment is high and inflation rising. It's best to get 'ahead of the curve'."

Michael Reddell, Croaking Cassandra economic commentary blog (OCR will rise to 0.50%): "Labour market has been tight (and will rebound quickly as Covid restrictions ease) and core inflation has finally moved above the target midpoint."

Donal Curtin, Economics New Zealand (OCR will rise to 0.50%): "(a) The data on inflation and the labour market (even though hard to read at the moment) support moving from very easy monetary policy (b) they were all set to go in August but had to hold off temporarily, now freer to move."

Brad Olsen, Infometrics (OCR will rise to 0.50%): "Economic pressures are building further, and won't have gone away even though Lockdown 2.0 hit New Zealand. The labour market remains tight, and inflationary pressures are sustained at a higher level. Strength across the board for various indicators already made it clear that RBNZ would need to increase interest rates, and Q2 GDP only further reinforces this course of action."

Jarrod Kerr, Kiwibank (OCR will rise to 0.50%): "The RBNZ has made it pretty clear that they intend to hike the cash rate, starting in October. It will be the beginning of a long and slow grind higher towards 1.5%, and maybe higher."

Debbie Roberts, Property Apprentice (OCR will rise to 0.50%): "It is highly likely that the RBNZ will increase the OCR this month as they indicated that was their intention to do so at the last MPS in August, until the Delta outbreak. Now that the majority of the country is in Alert Level 2, and Auckland is hoping to go to Alert Level 2 in the very near future, there is little reason for the RBNZ to keep the OCR at it's current level."

Dr Oliver Hartwich, The New Zealand Initiative (OCR will rise to 0.50%): "It is obvious the RBNZ wants to increase the OCR because it has said so. The question is whether it now believes the timing is right when last time, just at the start of the new Level 4 lockdown, it wasn't. I would not be surprised by a 25-point increase this time - but if it does not happen now, then it almost certainly will in November."

Robin Clements, UBS (OCR will rise to 0.50%): "'Considered steps' to remove monetary stimulus."

Alfred Guender, University of Canterbury: "RBNZ halted its monetary stimulus by ending purchases of government bonds in July. Eventually, the OCR will be raised to continue the move back towards normality. It is far from certain, however, that now is the time to make such a move. The blips in prices are due to shortages and bottlenecks in the supply chain and not due to a liquidity overhang."

Mark Holmes, University of Waikato (OCR will rise to 0.50%): "But for the sudden alert level announcement in August, the OCR would almost certainly have been increased last time around. There are now grounds for caution over an adverse economic impact from a strict prolonged Auckland lockdown. While this might lead to some easing of inflationary concerns, there might still remain sufficient concern and appetite to nudge the OCR upwards."

Michael Gordon, Westpac (OCR will rise to 0.50%): "Demand has rebounded strongly this year and price pressures are building. Ultra-low interest rates are no longer appropriate."

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