Australian media have been filled for the last year with stories about the sharp decline in housing prices, and particularly in the apartment sectors of Sydney & Melbourne.
That’s led to speculation that a similar fate might befall the housing market in Auckland.
In a report out this week, Auckland Council chief economist David Norman has compared the 2 markets – and he’s produced a prognostication that’s much more upbeat for this side of the Tasman: “While housing markets in Auckland & Australian cities saw significant growth in values in the past, the 2 property markets are different.
“What is playing out now on the different sides of the Tasman is the result of supply & demand. The balance of supply & demand plus Auckland’s steady economic outlook mean a meltdown in the housing market here without a sharp rise in unemployment &/or interest rates is unlikely.
“Instead, prices are likely to bob around current levels. With Auckland’s economic outlook, prices will likely remain flattish and affordability will slowly improve.”
One reason for the difference is Auckland’s unitary plan, which mostly took effect in November 2016, with some sections still facing court action.
Mr Norman said that plan enabled 4 times the city’s previous housing capacity.
“Aided by tighter exchange controls in China and loan:value restrictions on investors in New Zealand, land prices reduced by about 6% in Auckland over the 2 years to 2018. The impact of this surge in development potential was immediate, and Auckland house prices fell about 4.5% from their peak in October 2016, staying flat since then.
“Fast forward to March 2019, the proposed capital gains tax took Auckland prices down another (small) step. But with capital gains now off the table, we’ve seen a small resurgence in house prices.
“Across the Tasman, Melbourne & Sydney saw their house prices peak between June 2017 & March 2018. Since then, prices have fallen 15% in Melbourne & 10% in Sydney. Perth prices have fallen 11% since the end of the mining boom. Brisbane prices have recently flattened out, while Adelaide prices have risen most modestly & uniformly.”
Mr Norman said the Australian cities had overbuilt relative to population growth over the last decade, compared to Auckland, meaning they didn’t have a housing shortfall like Auckland’s: “This puts them at far greater risk of the kind of price falls they are currently experiencing. It’s unlikely Auckland’s housing market will follow trends in Sydney & Melbourne.”
Supply & demand in Auckland
To understand what’s likely to happen to house prices, Mr Norman said you need to look at what’s affected supply & demand: “Here’s what we know.”
- We haven’t built enough houses relative to our recent growth or our trans-Tasman neighbours
- The Auckland unitary plan has stimulated a major boom in new dwellings being consented, so the gap is unlikely to widen, but we do have a shortfall of at least 46,000 dwellings.
Housing demand, or who is willing & able to buy houses:
- Auckland’s population continues to grow rapidly as net migration remains near record levels
- Unemployment remains exceptionally low, and household incomes are rising
- Interest rates are at record lows and are likely to fall further
- The threat of capital gains tax is gone
- The effect of foreign buyers being removed from the existing home market is baked into prices.
This balance of supply & demand plus Auckland’s steady economic outlook mean a meltdown in the housing market here without a sharp rise in unemployment &/or interest rates is unlikely.
“Instead, prices are likely to bob around current levels. With Auckland’s economic outlook, prices will likely remain flattish and affordability will slowly improve.
“This is good news for first-homebuyers, even though prices remain high. But those who have bought for capital gains in the last 3 years will be least happy with the outlook.”
Insights paper: House prices – A factual antidote to doomsday ailments
Attribution: Council release, report.