Welcome to the Bloomberg Australia

podcast. I'm Chris Burke coming to you

from Melbourne. Australia's housing

market may be cooling in some corners,

but it's nothing compared with the

property downturn that's unfolding

across the Tasine after one of the

world's biggest housing booms. New

Zealand is now grappling with falling

prices, weak demand, and real

uncertainty about what comes next. So,

what lessons does it hold for Australia?

To unpack that and more, I'm joined this

week by Ansley Thompson, Bloomberg's

Wellington Bureau Chief. Angelie Kiora,

>> Kiora, Chris, how are you?

>> I'm good. Welcome back to the podcast.

Always a pleasure to to have you on. Um,

you have a great story out this week um

about the uh what what I've just been uh

talking about. Um, there's a great

opening line in your story, uh, saying

there's an old joke in New Zealand. You

know, you're at a Kiwi barbecue when

someone brings up house prices before

the sausages are cooked. So, I take it

that's that's the uh that's your

equivalent of the Aussie barbecue

stopper, which is how we refer to to uh

house prices.

>> I totally agree. I mean, that joke could

be could be said in Australia, too,

couldn't it? It's absolutely applicable

to both countries, but in New Zealand,

far less so at the moment.

>> Yeah. So, let's let's talk about that.

Um, for a long time, buying buying a

house over there, uh, really was a

one-way bet and prices just kept soaring

to to stratospheric levels, it seemed

like. What's happened?

>> You're absolutely right. For I mean, it

was almost three decades, prices just

went up and up. There was the occasional

little fall like in the you know the

global financial crisis but otherwise it

was just this upward track and everyone

thought of it as you know a sure way to

get maybe not rich but you know

comfortably wealthy at least was through

property

in the co period and so from 2020 to

about 2022 house prices just bmed at one

point in 2021 they were up about 30% In

one year alone

>> 30% in one year.

>> In one year unfortunately for me I

bought a house in 2020 but anyhow we

won't we won't discuss that.

>> Take that offline.

>> Yeah.

>> They were absolutely booming.

>> Then interest rates started rising and

the economy just kind of slowed down. At

first it was it was gradual. Prices

started sort of dipping a bit but they

just haven't stopped. And now, you know,

four years later in Wellington, we're

down 27%.

As the in the country as a whole, we're

down about I think it's 16% is the

latest the latest figure. And it's

really not showing any any signs at all

of picking up. It looks like for the

rest of the year, it's going to be at

the best flat, but probably more likely

to be falling.

>> Yeah, that's um that's really uh quite

amazing. A 16% slump. I mean, that's a

lot, but 27% in Wellington, that's

that's massive. Um, what's what's been

the impact on on the economy?

>> It's been brutal. That's the best way to

describe it. I guess the main drivers of

the economy here for for years and years

and years really has been rising

property and immigration. And in the

last few years, we haven't had those two

big drivers. So, it has been painful.

the wealth effect that you get from

rising house prices when that evaporates

it's so so blatant. Suddenly people, you

know, they don't feel wealthier. They

haven't got that little dopamine hit for

looking at, you know, their house value

and seeing it's risen by 10,000 or

whatever since they last looked. They're

less likely to go out for dinner.

They're less likely to to put in a new

kitchen. So all that kind of stuff just

drops away. For the construction

industry, it's been particularly

painful. We've had more than 2,000

construction companies liquidated since

2022. For architects, I think they were

saying it's the worst it's been in 50

years for architecture firms. It just

kind of keeps rolling on through the

economy, these effects.

>> Yeah. and and your uh your feature this

week um examines that in terms of like

offers the the example of New Zealand as

as a cautionary tale, I suppose, in

terms of what happens when uh a housing

boom unwinds cuz we haven't really seen

that happen um elsewhere in in in these

hot housing markets yet. Um, so what

kind of warning does this offer to to to

other to those other countries which

have those seemingly unstoppable housing

markets?

>> I mean, the first warning is, and we're

told this always, but none of us believe

it, I think, is that, you know, they

house prices aren't just guaranteed to

go in one direction. They they can, of

course, fall as well. But I think the

other thing that we're really learning

here in New Zealand is when house prices

are almost in an uncontrollable state.

Nobody wants that. You know, it's it's

not good for anyone. It's hard for

people to get on the property ladder.

It's unsustainable. And we're certainly

seeing that here now.

But to make house prices more

affordable,

falling prices is extremely painful. and

the effect it has on the wider economy

is profound. And so I guess you know

many countries want to have affordable

housing. It's it's a thing that everyone

looks for. Um President Trump has been

saying it a lot as well in the US. And

in the article we look at what's

happening in the US. Trump says that he

doesn't want this to happen through

house prices decreasing because he knows

the pain that comes with it and he knows

that he'll lose voters if that happens.

>> Yep.

But it's very difficult for it to happen

without prices falling. So yeah, I mean

I think the only real way is if if you

increase supply and on a on a sort of a

slow basis and also if borrow borrowing

costs are lower but it's very hard to

achieve those things and I don't think

many if any countries have managed to do

it.

>> Yeah, it's um it's a big debate

unfolding. Well, it's it's always been a

big debate in Australia. um the the

housing market kind of demand versus

supply

um which uh what what the best solutions

are. It's Australia's housing market is

looking a bit precarious right now I

would say. Um you know you've seen that

auction clearance rate uh in Sydney

slumping to its lowest level since the

pandemic recently. Um, and look, you

know, we've also reported this week that

that banks are starting to re in

mortgage lending criteria because of

those uh changes in the budget uh uh in

in May when um the government scrapped

negative gearing for for home buyers

except on new builds. And that's, you

know, that's that's that's

already starting to have uh an effect um

on auctions. And um you know, I was just

uh looking at something last night on

telly when uh you know, and investors

are no longer uh well investors were

certainly not turning up to to many

auctions over the weekend anyway. Um so

how do our two markets compare in that

respect? Are they are there is there a

combination of factors that's unique to

New Zealand or can you actually compare

the two markets?

>> I think you can to an extent. Certainly

a few years ago when they were both

really strong, we were comparing them

and we were almost talking about them

not quite as if they were one market but

they they had very similar

characteristics and then since then New

Zealand has diverged considerably from

from Australia. Um here investors

haven't really come back into the market

to the extent that they they used to be

the sort of mom and dad investors

uh scared off. I would say it's it's

rents are falling. So, you know, that

makes it very difficult to to you know,

want to invest in in property if you if

you can't even cover the mortgage, you

know, that's makes it a difficult

proposition.

>> Yeah. But, you know, um uh on the other

hand, I guess this could be some people

could look on this as a buying

opportunity. Um could uh could

Australians kind of potentially get in

the act? a nice a nice Victorian villa

overlooking Oriental Bay in Wellington

or or a getaway on those those golden

beaches on on the north shore of Oakland

maybe.

>> Well, absolutely. And Australians and

Singaporeans are free to buy in New

Zealand. You don't have to um spend at

least 5 million like other other

nationalities do. So, you can come over

here

>> easily and buy property for sure. And

there are some bargains. I mean, it is

worth remembering that when we talk

about the New Zealand property market,

there is pockets that have continued to

do okay. And the main one, and it's

probably the place where people want to

live, is Queenstown. Queenstown has held

up relatively well compared to other

parts of the country. But some of the

beaches, absolutely, there's bargains to

be had on the beaches for sure. Um, and

yeah, Australians are welcome. They can

come over, spend their money.

>> Might have to get my credit card out.

There's also that uh that strong

Australian dollar which uh which which

works in our favor as well. Well, or

should I say weak New Zealand dollar.

>> Isn't this also potentially a good thing

for first-time buyers in New Zealand? Is

this offering a chance for younger Kiwis

to to get on that ladder?

>> It is. At the moment, firsttime buyers

are at close to the highest level

they've ever been. So that over 27% of

the market is firsttime buyers. There is

one big caveat with that and that's the

fact that the market activity is low. So

there's not a lot of there's not a lot

happening in the market. So there's not

necessarily a huge number of first home

buyers, but they are making up a bigger

portion of the buyers that are there. In

places like Wellington, and it has been

particularly bad in Wellington um the

market,

>> I think they're making up 37% of the

market, which is quite extraordinary.

So, yes, absolutely. The firsttime

buyers who are willing to take the

plunge um definitely have got a much

better shot of getting the house that

they want. But one really interesting

thing that is happening in the New

Zealand market is that younger people no

longer see real estate as this shorefire

way to win, you know, win in life. They

um are looking at other investments. are

much more likely to be invested in um

shares and overseas equities in

particular um in their Kiwi saver, which

is the equivalent of the Australian

super funds, etc. Um then they are to to

buy property. They've been put off.

They've been a bit burnt. They've seen

some of their friends lose considerable

sums of money and they are much much

more hesitant to get involved. And

there's also the sense that prices could

keep falling. So if they just hang on a

bit longer, they might get a a better

deal.

>> Yeah, that dynamic um you mentioned is

really interesting and it's also um

apparent here. It's become more apparent

especially after the budget when um I

think um almost an um or unexpected um

uh fallout from the budget was we

suddenly learned that young people um

are bigger investors than maybe we

assumed um for those same reasons. uh

and uh they've been getting pretty angry

about the government's uh changes to

capital gains tax laws um on things like

um uh shares etc. Um but look, how much

does all this actually matter in the

long run? Are prices just couldn't

prices just potentially go back up? I

mean and also are we likely to see an

impact on the election? You've got one

coming up um towards the end of this

year.

It's the long-term impact of what has

happened is really interesting and it

will take some time to play out. Some of

the people I spoke to did um talk about

it almost in the terms of the share

crash in in the late 80s that really

affected people in New Zealand and put a

generation kind of like our parents'

generation. It put them off investing in

the share market because a lot of them

lost their kind of their nest eggs and

so they were very hesitant. They're

saying that the same may happen with

real estate in New Zealand. It's just

sort of putting off that younger

generation from investing

certainly from investing maybe to you

know buying a place to live is a

different story and that is I think what

the policy makers want to see the

property market become in New Zealand

that people buy a house to live in not

necessarily buy a house to invest in. So

therefore, it's it's easier for everyone

to buy a house rather than just a few.

And also means that people will

diversify their investment. So they

won't solely be in property. They'll

also be invested in Kiwi Saver and have

equity funds and all sorts of things,

you know, and invest directly in

businesses. even it will I think the

idea is that it will financially

strengthen the New Zealand economy if it

plays out the way they would like it to.

The other question you asked was about

the election and this is this is so

interesting because prices at the moment

are lower than when the current

government came in and that is a really

uncomfortable position for a government

especially a centerright government.

They don't want that. But interestingly,

some of the politicians have been making

noises about or not making noises have

been stating outright that they don't

necessarily want prices to keep rising.

So, or go back to that that path that

they were on. So, it's it's very

interesting as to what is going to

happen. We were expecting something to

kind of happen this year to maybe try

and spark a bit of a recovery in the

housing market. One thing that did

happen was in Oakland there were plans

to increase the densification and

especially in the sort of inner city

wealthy suburbs and that was partially

rolled back partly because people were

conscious of the fact that it would

lower um house prices in those areas and

that was you know pressure on

politicians um from their from their the

voters. So yeah some things are

happening. whether or not they'll have

prices back higher than when they came

in. I mean, it's very unlikely unless

there's some big rally in the next few

months. And yeah, it is difficult when

people's main source of wealth is is

diminishing.

>> Hley Thompson, thank you for joining us

on this week's Bloomberg Australia

podcast. I look forward to seeing you on

my next trip to Wellington.

>> Absolutely. I can take you around some

open homes and find your bargain.

>> I look forward to it. If you found

today's conversation insightful, be sure

to follow the Bloomberg Australia

podcast wherever you listen and check

more reading on Australia's economy,

politics, and people at bloomberg.com.

This episode was recorded on the

traditional lands of the Warandre

people. It was produced by Paul Allen

and edited by Hinsley Chandler. I'm

Chris Burke and we'll see you next week.