Would the new immigration policy affect house prices?

Immigration Minister Michael Woodhouse made an announcement this week:

Fewer residence approvals would be decrease for the next two years: the new target for residence approvals over the next two years will be 85,000-95,000. This is less than the current target of 90,000 -100,000 approvals.

Additionally, those under the skilled migrant category have to meet a higher standard. The new standard being 160 points. This increases the chance NZ gets the best of the skilled immigrants and marginal applicants don’t just get approved.

In a previous post on Why house prices keep on rising? I stated population growth was a key contributor to house price growth. With the influx of immigrants and local people to key cities, the demand for housing increased and pushed house prices higher. If you are trying to predict when house prices will peak, watch out for changes in population and immigration policy.

So now the government has started to limit immigration, what affect would this policy have on house prices?

Firstly, remember house prices are a function of supply and demand.

Immigrants are a component of demand. Fewer immigrants would mean housing demand will be less strong. This puts less pressure on house prices.

On the other hand, a number of apartment projects have been cancelled. This reduces the supply of housing in the market. This is putting more pressure on house prices. Plus the recent negativity on the Victoria Street apartments are also turning some potential buyers off buying city apartments in New Zealand. Instead, it encourages buyers to purchase single or two storey dwellings instead. This puts pressure on those types of dwelling properties.

These two forces of supply and demand are working in opposite directions. The net effect will probably mean there will little impact on the house prices.

Secondly, the Government plans to have a reduction of 5000 immigrants over 2 years . To put this into perspective, this is just a 5% reduction in approved residency applications. In other words there will be still another 85 000 to 950,000 residency applications granted over the next 2 years. This is still a big contributor to demand.

What next?

If you are speculating in the property market, you are advised to buy carefully. Be careful of overpaying for properties. Yet, don’t let a small change in immigration policy scare you away from investing in property.

Just stay tuned to any further updates on changes in immigration policy and restrictions on foreigners buying property in NZ. This will be key to understanding the property price trends.

 

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