Update on the Auckland property market

With the new year upon us, speculation regarding the Auckland property market's performance is rife, but what happens next is the $500 billion question.

Just which Auckland the city’s population resides in seems to change daily. However, the shrill sound of conjecture has recently grown louder amidst slowing property sales, fewer new listings and changeable buyer confidence.

Wind back 10 years to the Global Financial Crisis (GFC): the warnings that dominated property discussions in Auckland between 2008 and 2010 are eerily similar to those we are reading now. Back then, pundits warned that the bubble was about to burst; house values would crash by up to 30% - and not recover until 2016. If you paid heed to advice that investing in the Auckland property market wasn’t worth your time, you’d be seriously out of pocket now.

Bayleys managing director Mike Bayley says of Auckland, “Without a doubt, Auckland’s property market has changed over the last 18 months, but that doesn’t mean the market has lost its appeal. Property across Auckland still represents significant value despite its higher prices (from a local perspective) because the fundamentals underpinning it are strong.

“The local economy is firing on all cylinders, contributing to 38% of the country’s economic output. Employment levels are high and population growth continues to outstrip growth in housing supply. In addition, mortgage rates (although a fraction higher than a year ago), remain low by historical standards and are unlikely to jump - with the Official Cash Rate (OCR) projected to remain flat to mid-2019.

“The property market is a lot more complicated than the doomsday scenario requires. To get a housing crash - say a fall of 20% or more, you’d need much higher unemployment, much higher interest rates and/or a big oversupply. It’s hard to see any of these in the near future,” Bayley adds.

In Auckland, the property industry is the region’s largest, accounting for around 13% total economic activity. Figures from Statistics New Zealand show that house values in Auckland have grown 90% since the GFC. This, compared with 33% growth in Wellington, 51% in Hamilton and 43% in Tauranga. Auckland’s growth also closely mirrors the performance of other highly rated global cities; Sydney, for example, 114% while Toronto and Vancouver have jumped more than 100% respectively.

John Tookey, professor of construction management at Auckland University of Technology (AUT) says cities like Auckland will always hold value from both economic and social perspectives, and offers a very straightforward answer to why there are radically differing views of the city we live in - residents respond differently to the shifting definition of the quarter-acre dream.

It’s an attitude echoed by ASB Bank chief economist Nick Tuffley who says that although Aucklander’s confidence (in terms of price growth expectations) has waned, the current climate can hold more opportunities for buyers - and opportunities for increasing market activity.

“The Reserve Bank’s plan to further relax the loan-to-value restrictions should also encourage new activity in Auckland, as should the easing of lending rules for property investors,” adds Mike Bayley.

As of 1 January 2018, banks have been permitted to lend up to 15% of total mortgage lending to customers with a deposit of less than 20% - up from its existing 10% of lending.

The fiscal changes signal a shift in attitude as there’s little doubt that Auckland has experienced a certain amount of growing pains in the last four to five years. Despite this, better coordination between local and central government, with an emphasis on housing, infrastructure and development has emerged at the forefront of council and Government initiatives - evident in the number of transport projects and housing developments taking place across the city.

With so much to look forward to, and positive signs paving the way for greater opportunity for a number of buyer classes across Auckland’s residential property market, the year of the dog is shaping up like its namesake - steadfast, resilient and ready to work.

Thanks for reading. (KAREN SPIRES)

All up, the value of Auckland’s residential real estate - including land and buildings is $500 billion - about 50% of the total figure for New Zealand.

Karen Spires AREINZ, M 027 273 8220,
E karen.spires@bayleys.co.nz