What to expect from property prices over the next three decades

Property price growth over the next 30 years is unlikely to be as high as over the previous 30 years, according to a property researcher.

That's because the two main factors that drove strong property price increases in recent decades have largely run their course, according to CBRE Associate Director of Research Tamba Carleton.

The first driver was the increase in the share of women in the workforce, which increased household incomes and the ability of buyers to pay higher prices.

However, there is now “limited potential” for the female participation rate to further increase, which means “the structural shift in the gender makeup of the labour force has largely materialised and the flow-through impacts are now status quo”.

Ms Carleton said the second main driver of price growth over the past three decades was the “remarkable downward trend” of interest rates during that time, with variable rates falling from 20.5% in 1987 to 4.37% in 2021.

This had “a profound impact on the interest component cost of repayments”, which again gave buyers more capacity to bid up prices.

While interest rates may very well decline from their current levels, any reduction is unlikely to match the steep decline that occurred in previous decades.

Therefore, Ms Carleton said, “the historic house price growth drivers … have largely run their course” – although she acknowledged that bearish price growth predictions in the past had “been proven wrong time and time again”.

“House price growth could very well be similar to past performance, but we expect that this would require the emergence of a new driver such as a greater level of productivity in the economy. Until something like this emerges the quantum of growth could potentially be more akin to the 4% long-term average growth observed in rent prices rather than the 7% long-term house price growth observed in the past,” she said.

Whatever happens to property prices in the next three decades, one near certainty is that the Kiwi dream of home ownership will remain alive and well. Please introduce me to any of your clients who want to buy a home, so I can help them finance their purchase.

 

 


Published: 28/1/2024