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By Tony Alexander, BNZ
Supercity Soars: Symptoms and Causes of the Auckland Housing Fever
Auckland is a polarising city. But love it or hate it, there’s no disuputing the pace of change it has undergone in recent years. The dynamic Auckland housing market has been prolific in that transformation.
The average sale price of a house in Auckland is now nearly double that in the rest of New Zealand. Auckland house prices have risen 190 per cent since 2000, compared to 140 per cent elsewhere in the country; this has been amplified over the last six years, when prices have risen 61 per cent versus 18 per cent for New Zealand as a whole.
So why has Auckland outperformed? There are a great number of reasons but here are the ones we feel are the most important.
Since 2009 Auckland house prices have been catching up after a lull during the six-year period from 2003, which saw Auckland prices gain 54 per cent while the rest of the country rose by 81 per cent. This was an aberration from the long-term trend.
Auckland’s population growth is outpacing the rest of New Zealand. In the 1996 census Auckland accounted for 30 per cent of New Zealand’s population. By 2001 that had risen to 31 per cent and it now sits at 34 per cent.
Residential housing construction has been at low levels in Auckland since at least 2006. Between 1992 and 1996 Auckland accounted for 53 per cent of all dwelling consents issued in New Zealand. Between 1997 and 2001 this was 66 per cent, and from 2002 to 2006 it dropped to 56 per cent. But since 2007 this proportion has fallen to 36 per cent. While this huge change has produced a surplus of dwellings in some parts of the country, it has resulted in a shortage in Auckland.
The proportion of Asian migrants to New Zealand has risen significantly, from 4 per cent in 1978 to 20 per cent in 1990, 31 per cent in 2000, and 35 per cent now. New Zealand’s tough migration criteria mean we welcome in literate, largely English speaking migrants with jobs arranged. Those people leaving the rapidly rising economies in Asia have tended to be early benefactors in wealth terms of that growth. They have placed a high priority upon property ownership and getting their children into favoured school zones, and property purchases by Asians (including the 23 per cent of Auckland’s population already classified as Asian) anecdotally appear to have been strong.
Auckland’s median household income is the highest in the country, at $76,500, compared with $74,300 in Wellington, $65,000 in Canterbury, and less than $60,000 elsewhere according to the 2013 census. It has also grown the fastest since 2006, with a gain of 15 per cent compared with 13 per cent in Canterbury and near 6 per cent in the rest of New Zealand.
There is high awareness of the property shortage in Auckland and this has driven expectations of price rises, which have encouraged investors and owner-occupiers to buy sooner rather than later.
But are any of these factors likely to change in the near future? We don’t believe they will.
Auckland continues to gain more from international migration flows than the rest of New Zealand, although the region does tend to lose residents to other parts of the country through internal migration.
This steady population growth is running up against a still worsening supply situation. Since 1992 an average 7,500 consents were issued each year in Auckland for new dwellings to be built. The annual total has only just recovered to that level, which produced the shortage in the first place, when the population was below current levels. Therefore the housing shortage in Auckland is still getting worse, not better, in spite of the efforts made to free up land and speed up the consenting process.
More than that, as each month goes by, more and more young people who might otherwise have bought a house try to enter the market only to find that they do not yet have a large enough deposit to meet the loan-to-value rules introduced by the Reserve Bank in October 2013. This growing stack of frustrated young buyers will act as a strong supporting force if and when the market does eventually undergo a correction – enhancing investor confidence around price security and encouraging those investors to buy.
Add in retiring baby boomers looking for rental returns to compensate for lower incomes from bank term deposits, especially as they contemplate more years in retirement than their parents, and the outlook for the Auckland property market continues to look strong.
Evidence is emerging of investors and some young people looking outside Auckland for yield and a home, and the rule changes proposed by the Reserve Bank on May 14 for effectiveness in October will enhance this flow. But past cycles tell us that this development driven by the rising Auckland market tends to do little to suppress it, and few true investors will be prevented from buying by the coming 30 per cent deposit requirement. For the next two or three years, while New Zealand economic growth remains firm, Auckland’s property market is expected to remain extremely well supported.