NZ’s Housing Market: The Cold, Hard Facts

Today, we’ll discuss the mainstream position that it’s a great time to buy houses…and why that analysis may be biased. But first, a quick update on a budding company we introduced a few months ago, Hikurangi.

Hikurangi is a licensed medical-marijuana producer in rural Gisborne. Once they received the approval to cultivate medical cannabis for research purposes, the company took off.

They raised millions in a few rounds of crowdfunding, alongside heavy interest from institutional investors.

It seemed like everything was falling into place for Hikurangi to be one of New Zealand’s premier producers in this new industry…

But the National Business Review recently uncovered that a deal worth up to $180 million had fallen through. That Hikurangi and Seattle-based Rhizo Sciences had gone their separate ways.

A few days ago, we let you know that we’d keep an eye for any comment from Hikurangi’s managing director, Manu Caddie.

Sure enough, within hours, Caddie issued a release that they’ve separated from Rhizo. Hikurangi has instead signed a letter of intent to produce pharmaceutical grade cannabis for a company in San Diego. The new deal is apparently bigger and better than what they had before.

I’m excited for what Hikurangi could do here in New Zealand — a strategic alliance with a US company could be a great lifeline — but at the moment, this feels like a lot of non-binding, hypothetical chatter for a company that hasn’t started producing anything yet.

Until the ball gets rolling on their planned research facility…and the seeds are in the ground…we’ll hold off on analysing the company at a deeper level.

 

Elephant in the room

Speaking of deep analysis, perhaps nothing in New Zealand is over-analysed like the housing market.

We at Money Morning New Zealand certainly contribute our fair bit every week.

But, frustratingly, it seems like the mainstream media have only one side of the argument to offer — that houses have nowhere to go but up.

Sounds like a broken record.

Occasionally, I’ll see a headline like ‘Property Market Crash?’, and when I flip to the article, some housing expert will invariably assure readers that no crash is coming…or even worse, that the very very light softening we’ve experienced recently is actually the bottom of the cycle.

But I’m starting to understand why they hold to that party line…

New Zealand’s housing market has become such a central pillar to the lives of every Kiwi that it’s become basically ‘too big to fail’.

It’s part of the Kiwi dream. And suggesting that it could go away is akin to crushing the dreams of every New Zealander today.

You see, no one wants to be the bearer of bad news. It’s a heck of a lot easier to say ‘houses are going up’ than ‘houses are in a wildly inflated bubble’.

And if you’re the editor of a mainstream publication, you know that people like to be told what they want to hear.

At the same time, there’s a business interest for the market to stay afloat. Thriving real estate companies mean high advertisement revenue and lots of property-related article views. It’s a sub-industry that’s formed around the real estate market.

To add to the confusion, many of the ‘experts’ that the mainstream like to interview on the matter work for banks. To me, that could be a conflict of interest…as banks profit from large mortgage pipelines. If a bank-employed expert were to say that the ‘housing market is vulnerable — don’t buy now’, they would be acting directly against the interest of their revenue-generating mortgage department, right?

The point is, New Zealand’s housing market is a cryptic one.

 

Just the facts, ma’am

As we try to put the puzzle together, we’ve found some revealing statistics:

In four years, house prices have skyrocketed by 38.4%.

In the past decade, they’ve grown by over 100%.

In the same time, house prices in a stable market like the US have risen by just 30%.

The IMF puts New Zealand as one of the most unaffordable housing markets in the world.

Oxford Economics found New Zealand has the fifth most at-risk housing market in the world.

It also found that NZ is the second most over-valued market.

And that NZ is the third-worst country in terms of housing debt-to-GDP.

The OECD reports that house prices are New Zealand’s greatest economic threat.

Goldman Sachs puts a 40% chance of NZ’s housing market going bust in the next 13 months.

Researcher Hiliard McBeth found that New Zealand’s house prices are 65 times their 1970 levels.

At the same time, the heavily inflated Canadian market is up a mere 25 times.

The undeniable truth is that New Zealand is experiencing an abnormal bull run in housing. Prices have been skyrocketing for decades. And we’re now one of the most vulnerable outliers in the world.

Now, with those facts in hand, what conclusion do you come to?

Are things hunky-dory?

Or could a serious correction be in the cards?

Best,
Taylor Kee
Editor of Money Morning New Zealand


Taylor Kee is the lead Editor at Money Morning NZ. With a background in the financial publishing industry, Taylor knows how simple, yet difficult investing can be. He has worked with a range of assets classes, and with some of the world’s most thought-provoking financial writers, including Bill Bonner, Dan Denning, Doug Casey, and more. But he’s found his niche in macroeconomics and the excitement of technology investments. And Taylor is looking forward to the opportunity to share his thoughts on where New Zealand’s economy is going next and the opportunities it presents. Taylor shares these ideas with Money Morning NZ readers each day.


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