By David Hargreaves
The conflict around attempts to bring more ‘densification’ into Auckland's housing mix highlights once again how difficult it will be find a long-term fix for the city's rising prices.
There will be frustration felt within the Government and the Reserve Bank that, just as some signs are there that the Auckland market has lost a bit of steam (for now), then so reasons to believe that future upward pressure on prices will resume are emerging.
I'm actually increasingly of the view that unless it becomes possible to structurally overhaul Auckland (which would entail the 'stripping out' of 'leafy' central-city suburbs such as Parnell and Herne Bay and entirely replacing them with densified inner city accommodation - and let's face it that ain't going to happen) then the geographically constrained nature of the city will ensure (notwithstanding the odd external shock) onwards and upwards for house prices in the foreseeable future.
Auckland, and the people attempting to buy houses in it, are paying the price for the abysmal non-planned way the city developed historically. A rambling village still searching for a proper centre is attempting to become an international city.
Against this backdrop, a variety of measures are now being employed. The jury is out on the Reserve Bank's latest weaponry, the 70% of LVR lending limit for Auckland housing investors. This measure, deployed from November, followed on from the October introduction of new taxation measures.
The long-term impact of these taxation measures on foreign buyers is difficult to read. But beyond the febrile anecdotal tales, it has been reasonably difficult (because of the lack of data collection) to tell just how much the Auckland market has been pumped up by money pumping directly from offshore anyway. And the other point is, as long as we keep a hands-off approach (and it looks like we are stuck with it now) to barring offshore ownership, then as one group of buyers - okay let's say Chinese investors - perhaps step back then so they could be replaced by buyers from other places.
Anyway, yes, at the moment, there have been signs of slackening in the Auckland market.
The Real Estate Institute's stratified measure, which regrettably REINZ no longer releases publicly (it sells the information), shows Auckland prices have apparently fallen 8.3% since the peak in September.
Last year I picked that Auckland house prices may register an annual fall between 5% and 10% in the first 12 months of the new RBNZ rules for investors.
Many were happy to call me wrong at the time, and I think, already, I'll fly the white flag and say I will be.
First, it is early days for the new RBNZ measures. Second, nobody should take too much heed of what the market's doing in December/January.
The Reserve Bank's said it wants to see what's happened in February/March before forming a view and I agree.
When the RBNZ initially introduced a 10% 'speed limit' for the banks in terms of new lending in excess of 80% of LVR in October 2013 there was a sharp reaction from the market. But there's a couple of things worth remembering about that. Already by the time those LVR limits had been introduced in late 2013 there was an expectation that the RBNZ was going to start hiking interest rates. This it duly did with the ill-starred four hikes in 2014. My view is that the RBNZ now, when talking about the success of those initial LVR measures, rather understates - to say the least - the impact those rate hikes had. The other thing is that the LVR measures were a very 'new' thing for the banks to handle - and they were super, super cautious in their approach and so slammed the brake on high LVR lending rather harder than they arguably needed to.
I think its reasonable to think that every subsequent measure of this type that the RBNZ introduces might have a weaker and less lasting impact as both the banks and the punters find ways of better adapting their behaviour, effectively getting around the rules.
The RBNZ is not at this stage publicly breaking out Auckland borrowing stats, but the nationwide figures for November and December suggested that housing investors were finding ways of meeting that higher threshold of needing 30% equity to borrow rather more easily than I suspect the RBNZ might have hoped.
I think what we might be seeing at the moment is that quite a lot of people got in with house transactions before the November introduction of the new measures and the slackening we've since is a combination of indigestion from that rush and summer. Come March/April I think there might already be signs that the impact of these investor rules is lessening.
Of course with the way the global economies have started out this year, the possibility that some big external shock hits our housing market this year is very real indeed.
But if we take the fingers-crossed view that such an outcome doesn't occur, I think the Auckland housing market's likely to start pushing up again quite soon.
According to Statistics New Zealand this country had a net population gain through migration of 65,000 people in 2015, and 30,000 of them settled in Auckland.
Stats NZ figures also show there were 9251 building consents for new dwellings in Auckland in 2015. If you take the Auckland average of three people to a house this means they didn't quite start building enough houses just to accommodate new migrants - let alone any natural population growth or people moving to Auckland for work from other parts of the country.
Now, efforts are being made on the building front. Just four years ago only 3772 consents for new dwellings were issue. In the past three years the numbers of consents in Auckland have, on a year-by-year basis, increased by 1700,1300, and 1600. You take a rough average of that rate of increase and it suggests another increase in the region of 1550 or so will be well possible this year, taking the number of new dwellings for this year to perhaps 10,800, which would break the 10,000 mark for the first time since 2004 when more than 12,000 consents were issued.
Despite the efforts though, it still only looks like playing barely-catchup. These are not figures that suggest the appetite for Auckland houses is going to be sated.
The only question to my mind is how long the Reserve Bank will wait before it needs to take further action. I think matters are likely to be clear by mid-year, so some sort of further response will likely occur in the second half.
At this stage the RBNZ would appear most inclined to dip again into the goodie bag called 'macro-prudential tools'.
What I fear though is that we are just going to see a proliferation of these things (macro-prudential tools). And the more of them we get, just possibly the less effective they will be and there's also the concern that each new one might create its own specific set of problems.
The Government needs to get more involved in dampening the demand side - and reining in migration would be a start - but it's not shown much inclination so far.
82 Comments
Don't really want to debate whether our current record high levels of immigration might be effecting house demand. But you would think, with Auckland being one of the most ethnically diverse cities in the world, a debate could be had without thinly veiled allegations of racism/xenophobia such as yours Neven911
"...then the geographically constrained nature of the city will ensure (notwithstanding the odd external shock) onwards and upwards for house prices in the foreseeable future...."
http://www.bloomberg.com/news/articles/2016-02-15/hong-kong-land-price-…
70% land price fall in HK
Look at HK, cant get more constrained land wise then that - crazy property price growth last few years, but massive slide recently - Fundamentals only count provided the price increases were originally based on fundamentals (not illegal chinese $ and/or irrational speculation)
To say most of the immigration are NZ ers returning from Australia is the political spin we are fed.
I know at least 60% of immigrants are NOT NZers returning home.
The only reason National put controls on foreigners buying property is because China told them to.
Most of the houses bought in recent years by Chinese was money laundering.
Even now we see Chinese living in NZ buying property well in excess of the CV, sometimes double the CV .. They do not care how much they spend as long as they get the money out of China.. What is happening is simply people living in China and who want to by pass the regulations simply send the money to Chinese friends living in NZ.
You're missing the point. There is a lack of a workforce to build and the likes of Fletcher's have cornered the bulk of government funding who then control the market. Need to re-prioritise the funding mechanism. Stop the bulk funding of a multi national company that holds cities to ransom. Ch-Ch & Auckland.
to quote another commentator from another thread - They are not asking the appropriate questions so they can say "there is no problem". To state it specifically clearly the current principal Government policy is that due to a lack of credible information, there is no problem!
Barfoots auctions yesterday 10.30am and 1.30pm sessions - total of 23 offered 10 sold, 9 passed in, 4 no bids. 43.5% under hammer sell rate was around 74% better than the 25% under hammer sell rate of Nov/Dec. A clear sign that activity has picked up and perhaps bright line and higher deposit rules are not going to make any difference. Looks like Unitary Plan under threat and even the SHA special housing area designations expire in October so no chance of building enough to meet demand. Even if the UP and SHA areas were activated there is not enough Labour force to build the properties and Fletcher's now looking to take over more of the supply chain can only lead to higher prices.
Prediction - 20% house price increase for the Auckland Super City in 2016.
I'd have to agree .. Maybe not the full 20% but certainly mid 10's. There are some bargains (for want of a better word) out there at the moment and the minute investors get a hint that they are missing out, they will be all over it ... Good opportunity for FHB's really as they will be buying a home, not a house. So what if it goes down one year and up the next. If i was as FHB, i would take the risk and go for it while there is some leeway in the market ...
untrue unless they are going in with enough equity to make it cash flow postive from the start.
that end goal may be tfor the rental income to supplement their retirement, but most would start out requiring the capital gain to offset the amount they are tipping in to make the property a worthwhile investment.
would you buy shares the same way? or would you invest in any other products in the same way?.
Spoken like a true Real Estate Agent. However I doubt that prices will increase, since it is more likely that NZ resident buyers will realise that they don't need to spend crazy amounts of money to purchase their homes, since there isn't the same pressure on the market that there was six months ago.
The only reason they are improving is because not every new listing is going to auction, only the tidy places in good locations that they know will do well at auction - Last year even the bad ones went to auction first as everything was getting snapped up - then the bids dried up.
So dont look to closely into the improved clearance rate as your not comparing apples with apples - look at the number of listings by neg, or even with a price (bad areas or shore, south auck) these didnt exist last year
For the record, my prediction is 20% decline in auckland property prices from Oct 2015 to Oct 2016. We are 8.3% down already so actually not that far to go.
Measure used: REINZ or QV index (+2 months for QV data, so Dec 15 to Dec 16 for QV index to drop 20% in auckland). Will call back in November. Good luck.
Yes very much agree on a property price decline, people are not stupid. As I've been saying for a while now - you can't have 40% of property purchasers (Overseas buyers for Asia) who have exited the market to not have any impact on AKL's property prices.
Now what would be crazy, is if we poor old Kiwis go on buying at these idiotic, over inflated house prices. Which are simply not worth it!!!!
Man, a 43.5% clearance rate and you interpret that as "a clear sign that activity has picked up again"? Just because there were some even worse clearance rates in Nov/Dec? PS. I'd check the figures instead of relying on your memory. In the week of December 11, Barfoot clearance rates across Auckland ranged from 31-65%, which at the time was considered dismal. We're squarely in the exact same territory.
Just goes to show how you can make statistics say whatever you want them to say. A 74% improvement in clearance rates, oh my sides.
The notion so readily tossed around of three people per home in Auckland means x number of new residences needed and therefore the housing shortage has increased by x number is so flawed. Its similar thinking that an influx of new migrants in the past two years are to blame for rising prices , yet the very same migrants who would majorly be first home buyers simply do not appear in the stats
We used to have a robust, efficient apprentice system. These people are at retirement age now, and the last thing they need is all "the experts" with protocols telling them how to do it. Don't know of many problems have arisen from their diligence. (Maybe I'm fortunate).
Most were chunned out by government departments, MOW, railways, Air NZ, telecom they were the major training ground for many many tradesman.
then it was decided that they should run like private enterprise and a couple of decades on suddenly we don't have the tradesmen we need and have to import them.
another in many short sighted decisions from up high that did not look at the future only the now
Auckland transport are estimating $91k per sprawl house just for new transport costs: http://transportblog.co.nz/2016/02/18/transport-for-future-urban-growth/
Maybe Auckland needs a NIMBY tax to pay for this - why should everyone else pay through the nose just so certain people don't have a three story house next door?
Most of the submitters for upzoning were individual property owners. It is conceivable that some of them were neighbours or could convince their neighbours that they would both benefit if they could maximise the development potential of their properties by allowing each other to build up 3 stories to their common boundary.
So 91k for transport and 1/2 that again? for the other services seems a not un-realistic guess. So $140k? in upfront bills per new house. The thing is who front loads these costs? The total billion is 10billion just for the transport, so 14billion? just where does that money come from?
My thoughts are that AKL property has reached saturation point. Baby Boomers in particular who have retired have seen their main asset appreciate well beyond their wildest expectations 10 years ago so why not release capital by downsizing and moving out of central Auckland? Makes sense to me. What else has caused a near 6 fold increase in migration out of AKL?
Actually not a fair point, as the 8% drop is based on INDEX move, so it accounts for a changing mix of properties sold (based on GVs etc). Median goes up and down and all over the place due to mix of places sold, the index tells the true story, which is 8% drop in last quarter, possibly the sharpest rate of decline in history (dont think 2008 move was even as sharp) - Just the media get paid millions in advertising from real estate companies and banks, so you won't see them warning of the true story.
From as long ago as January 2011 - don't say you weren't told
Memo to Messrs Hickey, Vaughan, Chaston
Here is a serious suggestion for you all at interest.co.nz to consider .. be original .. get out from behind your keyboards for a couple of days and go and interview a half-dozen old-timers, third or fourth generation aucklanders who grew up there, and have been pushed out, sold-up, and moved to less over-crowded places, slower-paced places, and ask them why, what happened. Ask them what has happened to auckland or nz, and whether they or their offspring like it. For a lot of people, auckland has become a safe-haven from the Sitiveni Rambuka coups (ethnic cleansing) and the Frank Bainimarama coups (ethnic cleansing) and the when sovereignty over hong kong reverted to chinese control, the huge inbound suitcases full of cash into new zealand ..
http://www.interest.co.nz/node/52033/rural%20news#comment-599029
At present , watching a unit adjacent to my elderly mothers being staged for sale in a leafy suburb this weekend. In a group of three , the homes could be bulldozed with tonka toys. The adjacent land filled in with cookie cutter homes,including a couple of leakers both have combined land values approaching 3.5 million. This parcel of land is fifty percent larger, I question the sanity of what the auction may bring.
The RBNZ LVR measure was deployed November 2015
That followed on from the October 2015 introduction of new taxation measures
Remember that government wallah who was the public face of selling the tax measures was adamant the data arising from the October 2015 measures would be published quarterly
Wonder how that is going
No aspect of our collective predicament is in any way improved by having more people' (or by having more houses and roads and sewage systems) -Professor Albert Bartlett.
The 'monkey trap' has been built, a million-plus 'monkeys' have been caught in the Auckland version, more 'monkeys' are arriving, and there is no way out -well not within the current dominant paradigm*.
https://www.youtube.com/watch?v=UTX7Cxq8aGc
* a halt to immigration and a mandatory limit to procreation would ameliorate the problem to some extent, but no one is going to even suggest such 'radical' ideas, let alone attempt to implement them. Hence, it will all get rapidly worse from now on. '
"radical ideals" Well its interesting but the Greens policy is delightfully vague on this,
https://home.greens.org.nz/policy/summary/immigration
So it could mean zero ppl, or BAU.
but this suggests they get it,
"Give priority in the skilled migrant category to skills needed for a sustainable society and economy."
Of course growing population is a powerful factor but so is uncertainly. Last year people were real estate obsessed and there was a real confidence. This year people are talking differently, are more tentative, more concerned about the economy, want to wait and see. And certain types of houses aren't shifting at high prices. I suspect a buoyant summer will be followed by a slower winter.
Hello, a week or so ago I asked the question as to who is responsible for regulating immigration: the RBNZ or the government. I didn't receive an answer but I seemed to be roundly rebuked for asking such a 'disturbing' question. But I see that today, from this article and its associated comments, that all of a sudden the question of immigration has been outed and at long last is out of the closet.
I am still seeking an answer to my above question. If you know the answer please speak out because the subject from today is no longer taboo.
If a significant part of the increase is due to speculation (or reflexivity), how is increasing supply going to help? Increasing the supply of tulips wouldn't have helped the tulip mania. If this is the case, wouldn't it be better not to encourage people to commit the bulk of their capital to an illiquid market which is bound to tank?
Trade Me listings in Auckland have been very slow over the December-January period. I have been watching out for two bedroom brick and tile units in Central and out West and there is hardly anything for sale anywhere. I'm not surprised there is an increase of 21%, in fact that figure probably translates to a low actual number. An auction of a single bedroom unit in Royal Oak this week had good turn-out and sold above 500K to a phone bidder.
I just did a Trade Me search for two bedroom units in Central Auckland. Roughly 54 freehold listings with 28 going to auction and 26 by negotiation. 15 had a price that was typically 100-250K over 2014 CV. There are even a couple there that look to be cashflow positive at today's interest rates. Situation looks fairly normal.
I think it is very likely we will see the seasonal upswing over next couple of months then as we go into winter it might be a different game. Global economic news is getting worse and the property markets in places like Singapore and HK are going down. Oil SWF's are liquidating assets on a daily basis to fund their budget deficits. The Aussies still have their head in the sand property wise and that won't be pretty when that goes pop. That will probably crack over next year.
We are entering unchartered waters on a global economic basis.
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