He notes that migration, a big contributor to the housing market’s current strength, contributed a percentage point, or 38,200, to last year's 1.6% population growth and that the average annual increase in residential investment was 19%.
Randall expects migrant inflows will abate this year, but notes that February’s inflow was a record.
He also notes that the Reserve Bank’s Official Cash Rate (OCR), currently 5.75%, is 0.75 percentage point below its 10-year average, which has also contributed to housing market’s strength.
Nevertheless, because the economic outlook is weakening, the market expects the OCR will fall to 5.25% by the end of the year, "which should assist affordability and ensure that housing activity does not fall off a cliff," he says.
The main downside risk to his view is that an oversupply of investment property, particularly apartments and particularly in Auckland, develops.
"The annual average change in apartment consents for the year to January 2003 was 34%, but given that Auckland also absorbs the lion’s share of migrant inflows, oversupply is seen as a possible but not likely this year," Randall says.
Another risk to his view is that the global economy recovers faster and stronger than expected, leading to a sharp rise in interest rates, although he doesn’t think that’s likely.
"A rapid rise in interest rates (or decline in house prices) could create a problem because household debt has more than doubled over the last decade and is now 37% of household assets," he says.
