The CoreLogic Buyer Classification series has shown that ‘movers’ (i.e. existing owner occupiers who are moving house) are relatively quiet at present, accounting for just 26% of NZ-wide property purchases in Q2 – the norm for this buyer group is closer to 30%. Around key centres such as Auckland and Wellington, the figures are even lower (23% and 21% respectively).
So what’s going on? As always, there are multiple drivers at play, but a key one at present is simply the lack of listings on the market – some movers are currently fearful to put their property on the market, because they’re not confident that they’ll find the ideal next house. And this creates a vicious circle of even fewer listings.
At the same time, we suspect that many would-be movers are also choosing to sit tight because of the high costs to shift house (e.g. legal fees, estate agents, furniture removals) and potentially already-high debt levels. Indeed, given that trading up from say a three-bedroom house to a four-bedroom house can involve an extra $100,000 (at least) of either equity or debt across the main centres, it’s certainly not a decision to take lightly.
In some cases, the bank simply may not be willing to advance that money either. After all, although the loan to value ratio (LVR) speed limits have been removed by the Reserve Bank, it’s still prudent for banks to ensure that LVRs remain well controlled and that borrowers could continue to service their debt in most economic conditions.
Regardless of the reasons why, the end result is that many would-be movers are facing a choice: to relocate or renovate? And consistent with the Buyer Classification data showing that fewer are relocating, the mirror image is evidence showing that renovation activity is rising. Statistics NZ figures show that in the year to May, $1.8bn of consents had been granted for alterations & additions to residential property, as high a level of renovations activity as ever before.
It’s also interesting to note that Auckland accounted for 38% of that national figure – higher than its share of population (33%). This indicates that the renovations boom is especially strong in Auckland, where house prices are higher and the average mortgage is likely to also be larger than elsewhere. These affordability pressures will be a reason why Aucklanders are renovating instead of moving, or to use the modern catch-phrase – loving instead of listing.
Meanwhile, it’s important to note that the figure of $1.8bn only includes consented renovations – there will be a large amount of smaller work going on too, which doesn’t require consent. This volume of non-consented work may well become even more important over the next few years, given the recent changes to the law which allow a wider range of renovations be done without consent (e.g. a new car port or sleep-out).
So where to next? If we’re right and house prices only fall modestly (5-7%) as a result of the recession, then the incentives to renovate rather than relocate will probably stay quite strong. However, we also get the sense that for some people who just simply ran out of space during lockdown, upsizing by moving to a bigger house (or even a lifestyle property) will prove the more attractive option than a major renovation or extension.