Gareth Kiernan says the housing market failure has caused a large undersupply in some regions, especially Auckland, but a surplus in others, especially Christchurch, and the surplus regions are vulnerable to a sharp price correction

Gareth Kiernan says the housing market failure has caused a large undersupply in some regions, especially Auckland, but a surplus in others, especially Christchurch, and the surplus regions are vulnerable to a sharp price correction

New Zealand’s housing market isn’t functioning as well as it should be, with higher house prices, rising rents, falling home ownership, and a lack of housing options. But just how large is the housing shortage that we continually hear about? New estimates from Infometrics point towards there being a shortage of about 40,000 homes.

Others have attempted to quantify the undersupply of housing. In July, Kiwibank published a report asserting that New Zealand has a housing shortage of 130,000 homes – a shortage so large it represents almost 7% of the current stock of dwellings. And earlier this month Colliers put out a report about their own thoughts on New Zealand’s undersupply, although their confusion of mixing different population data makes their analysis harder to interpret.

A housing shortage of 40,000, but a lower net undersupply

Our modelling suggests that New Zealand might have a housing shortage of around 40,000. This shortage refers to the cumulative total of all areas in the country that are currently undersupplied.

However, at a net undersupply level, the nationwide undersupply of housing might be as low as 2,500 dwellings. The large gulf between the housing shortage and the net undersupply is due to the oversupply of housing in parts of New Zealand, notably Christchurch.

Both results are heavily dependent on a key assumption about the number of people per dwelling. Importantly, though, there is significant regional variation in housing supply relative to demand. Our estimate of a modest undersupply of housing nationally should not overshadow our view that there is still a sizable shortage of housing in some areas such as, ironically, Auckland.

Auckland shortage, Christchurch surplus

A severe shortage of housing in Auckland is apparent in our modelling, with nearly 30,000 homes needed to meet the current shortfall (see Graph 1). Auckland contributes the major share of the overall shortage of nearly 40,000 dwellings in 2019.

Graph 1

Meanwhile, Christchurch appears to have a surplus of housing, as do several South Island areas, with Christchurch alone contributing over 11,000 of the nearly 35,000 surplus dwellings we estimate might be out there in New Zealand (see Graph 2).

Graph 2

It’s not easy trying to interpret the results. For example, Auckland’s rapidly expanding undersupply between 2013 and 2018 appears reasonable, although if the city still has an undersupply of more than 29,000 homes, why aren’t rents and house prices coming under significant upward pressure? The large oversupply in Christchurch (and, to a lesser extent, surrounding areas such as Selwyn and Waimakariri) makes it look like our model has not made a big enough allowance for the loss of dwellings in the 2011 earthquake. And Waipā is representative of many provincial areas that appear to have had a persistent undersupply during the 1990s that has switched to a persistent oversupply by this decade.

In our view, an estimated oversupply of housing in an area points towards a lack of fundamental reasons why prices should have risen strongly and, in some cases, continue to do so. By implication, it also suggests that house prices are vulnerable to a decline when economic conditions deteriorate. This conclusion carries extra weight for areas where the oversupply has not been shrinking in recent years, even with strong population growth, such as Waipā, Tauranga, and Queenstown-Lakes.

And then there are other areas that appear to be genuinely undersupplied at the moment, including eastern Bay of Plenty, parts of Manawatū-Whanganui, Wellington, and Hawke’s Bay. For these areas, it is easier to justify outperformance in terms of both house price inflation and residential building activity over the next 1-2 years.


*Gareth Kiernan is chief forecaster at Infometrics. This article was first published here and is reposted with permission.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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130 Comments

There must be something drastically wrong with these calculations. When I search for places to rent on TradeMe in Auckland I get 4173 results. Houses for sale 10801. Canterbury has 1439 rentals available and 5206 for sale. Canterbury would appear to have fewer rentals available per head of population and more houses for sale than Auckland, possibly because houses are more affordable to purchase there.

"Drastically wrong " could have been in caps.. I would say the level of analysis is PATHETIC

Wow, you know better than Infometrics and Kiwibank! Companies must be fighting each other to get your services.

Well, you would fall for anything thrown in front of you, you wouldn't know the difference

The analysis above makes no mention of empty homes numbers nor of the excess supply of CBD apartments and new builds in the commuter belt.

As other commentators have said many times. It's not under supply per se, it's a shortage of quality builds and affordable property.

FYI, I know several people who own 'empty' homes in Auckland.

Their main residence is out of Auckland and they visit Auckland regularly. When they visit Auckland, they have a their own place in which they stay.
1) a couple of owners come to work in Auckland a couple of days per week
2) another owner works in the Waikato, but has grandchildren in Auckland, so comes to visit their grandchild every few weeks or so over a weekend.

Just to clarify, for clarification and avoidance of talking at cross purposes here:

1) The article above is talking about underlying supply vs underlying demand - there is no allowance for current market prices in their calculation. This information is useful for town planning, and not useful for developing future property price expectations.
2) Zachary Smith and DGM are referring to effective supply vs effective demand.

Looking on trade me rentals available in Cambridge (waipa) there's five 1 and two bedroom houses available.Three of them have been taken.so there's two available.that's for a town of twenty thousand.fair to say though there's twenty five three and four bedroom places available.talking to the property managers they say there is still strong demand for them and usually filled in a week or two.

Fewer for sale in Auckland primarily in bracket over $1m.
This is because vendors have tried and found that buyers will not pay at that level, or that there are not enough buyers, which in turn deflates price Agent puts on it. So vendor withdraws it or does not put on market following CMA from Agent.
Not enough buyers above $1m because buyers ban and AML law means that cash flow channels are damned up.
Trade wars aggravate this and corporate buyers from abroad are being pressured not to export capital.

What's even crazier is that we have the supposed housing short fall of 40,000 homes, Yet we have 191,646 unoccupied homes in NZ! Of those in Auckland are 39,393 empty homes - Umm wait a minute are there since there are 30,000 homes needed for Auckland technically we have an over supply of homes. Darn what to do about all those parasitic Speculative Investors that leave their homes empty in large cities? I know let's tax them at 1% of their property value each year and earn generate $460,000,000+ in tax revenue to build new homes. Sorted!
Article: 2018 Census shows 191,646 homes unoccupied in NZ: https://www.interest.co.nz/property/101855/2018-census-shows-191646-home...

CJ099 - I have already explained to you in other post where you said we had 39x the vacancy number than Vancouver, that based on the methodology used and nett numbers, this is factually incorrect. For example the figure is based on census data which also includes homes where the owner wasn't at home that night and houses unoccupied during renovations.

The best that can be said is we might have 2x (7.8%) the vacancy rate of Vancouver (4.2%), but as the NZ lowest in Nelson is (5.2%), then it would seem that a higher vacancy rate might just be a NZ thing, due to maybe a large bach ownership.

There is no $460,000,000 in revenue unless you are going to tax people for leaving a house empty at anytime, like going away for the night.

@DaleSmith: Have I even mentioned Vancouver in my post here? No, I haven't so you appear to have egg on your face mate! :P
My post relates to the 2018 NZ Census where I have attached a link, of which taking an average value for unoccupied home in Auckland of $1,170,000 due to most of these homes being in the more expensive parts of Auckland according the the latest census figures. So a 1% tax on home value = average yearly tax of $11,700 per vacant property x that by 39,393 unoccupied homes = $460,898,100 in tax revenue per year.

You obviously don't understand what a long term vacant home is Dale. It's not a Holiday let or Airbnb or even a property that's under construction work. It is simply a property that is vacant for collectively longer than six months in a year. Now go and troll someone else and stop being silly.
Or better still try recommending a way to make revenue to build homes rather than just sitting on it! :P

The reference to Vancouver relates directly to your other post re your use of Gross numbers (the 39,000 plus you use for Auckland) and the net numbers (2,000 plus you use for Vancouver), and then your continued misuse of this gross data like it is a net figure in this article.

The 39,393 number you are using is a Gross Census number of empty houses which includes: Unoccupied dwellings include baches, holiday homes, ordinary homes from which the usual residents are away, investment properties (both foreign and domestic) in which nobody lives at all, and homes that are being renovated where nobody is living.

?

LOL You're a joke DaleSmith with no evidence. Go on then disprove our recent Government 2018 Census. How about you PROVE your point and send us your data to disprove our Government official figures for unoccupied homes including the 39,393 empty homes in Auckland. Remember you have to stick to real facts otherwise YOU are just a TROLL. At least I can provide data where YOU can not, you're just spouting dribble and trying very desperately to confuse this very large Empty Home issue. :)

I'm not trying to disprove the Census, I'm just pointing out you are conflating Gross with net and are effectively wanting to tax houses under renovation, bachs and people who are away for a couple of nights who are all included in the 39,393 figure you use in your calculation.

http://archive.stats.govt.nz/methods/classifications-and-standards/class...

Unoccupied dwelling
A dwelling is defined for census use as unoccupied if it is:

unoccupied at midnight and at all times during the 12 hours following midnight on the night of the data collection.
Unoccupied dwellings may be classified as 'empty' or 'residents away'.

An unoccupied dwelling is classified as 'empty' if it clearly has no current occupants and new occupants are not expected to move in on or before census night. Unoccupied dwellings that are being repaired or renovated are defined as empty dwellings. Unoccupied baches or holiday homes are also defined as empty dwellings.

A dwelling is classified as having 'residents away', where occupants of a dwelling are known to be temporarily away and are not expected to return on or before census night.

Yes you are and that still doesn't disprove the Census figures does it Dale! All it would mean is that the Empty Home would receive a tax bill for being unoccupied and if the owners can not prove that it has been in use for longer then six months (In total for that year) or exempt in some way. Then they simply pay the tax bill for the empty home. And it can generate a huge amount of revenue for new builds. Really Dale, shame on you, you're going to have to try much harder than that! This same model and similar is in use in several other countries around the Western world and it's long over due in our cities. :)

Whose trolling now! But here is some more rope.

The Vancouver model you have previously mentioned uses net figures, and it allows recipients to voluntary state whether their house is a long term vacancy or not, whereas you are wanting to use Gross numbers and have an automatic option in, in effect guilty until proven innocent.

What cities in the Western world as you state, use the Gross figures and guilty until proven innocent model you are proposing for auckland?

"Whose trolling now!" LOL, I think you'll find it's still you Dale who is trolling me. Though I do think you're funny, with your chocolate teapot rambling argument. Try and do some research or maybe you're not bright enough to do that. Here I'll trow you a bone; Paris also introduce a similar scheme around the same time as Canada did. Now don't you look silly. :) Better Dwelling article: Vacant Homes Are A Global Epidemic, And Paris Is Fighting It With A 60% Tax. https://betterdwelling.com/vacant-homes-global-epidemic-paris-fighting-6...

Ah - it all makes sense now.

In an earlier post you accused me of voting National because I pointed out how you were confusing Vancouver Net figures with Auckland Gross figures. The insult being that because it does not support your potential $460,000,000 per annum tax grab, somehow that makes me a capitalist.

But your point to Paris reveals your true intent and political affiliation. Although each passing post gave us more of a hint of your true colour.

https://parispropertygroup.com/blog/2017/paris-seeks-to-reduce-empty-dwe...

'The communist front on the city council has long pushed for such a measure........... It would take the average surcharge from €600 to €2500 for second homes, while unoccupied, unfurnished homes would face a tax bill of €4000, up from the current €1000.'

Good luck getting those Gross numbers through in Auckland - Comrade.

At this point I feel like both of you are missing the point. Who cares about how much tax it generates. The less tax it generates the better, as that means the homes aren't empty, either because they weren't empty in the first place, or because they were and now the owner has decided to rent them out or sell them.

The revenue generated is just a secondary consideration to the actual point, which is to force owners to actually use their assets in the way they are meant to be used, or dispose of them. If they do neither, then at least some money is dragged out of them to help offset the harm they're doing.

CJ099 cares about how much it generates that is why is is using Gross figures - that's my point.

Included in this Gross Census figure are bach, holiday homes, homes under renovation and people that are away at the time of the Census, plus those owners who own speculative investment property and choose to keep them empty. CJO99 wants to tax everyone in this group by using the figures he is. Do you think that is right?

If we said it was only the speculative owners, then they are made up of resident Aucklanders (voters), otherNZers not based in Auckland (non voters) and foreign owners (non voters).

Do we only tax the foreigners, or maybe also those ex Auckland NZers that can't vote?

But this speculators are only systematic of the real reason they are empty in the first place, that is restrictive housing policies that allow demand to be greater than supply thus the speculative capital growth is high enough to give the required return on investment without having the running costs.

If they really wanted these speculators to go away, they would free up building restrictions (as well as look at our immigration policies) and these speculators would soon sell and take their cash. The real benefit of better housing policies is that they would go across all housing.

And there is then the ideological issue that is being presented here. Which is cause the upfront problem to begin with and then try to find a solution by council taxing it at the back end.

And the revenue is not a secondary consideration. For starters in grows the council bureaucracy, which once started they will not allow to fall below its breakeven, ie there will be a sweet point at which they will be able to maximise revenue while having minimum houses empty. But their goal will never be to up the rate high enough so all houses are used, otherwise where is the revenue coming from? The beast once born will always require feeding.

It is not the homeowners of these empty houses that are causing harm, it is Govt. policy.

Our vacancy rate is not even high by international comparison, and the vacancy rate in those jurisdictions where housing is affordable and supply equals demand, is not even a talking point.

And yet, as other commentators have already mentioned, the best we can do in Auckland, is have unaffordable housing, right an article about some empty houses quoted as Gross figures, and then talk about the solution as taxing the lot.

This primary school analysis and solution directly points to why we have the problem in the first place.

"If we said it was only the speculative owners, then they are made up of resident Aucklanders (voters), otherNZers not based in Auckland (non voters) and foreign owners (non voters).

Do we only tax the foreigners, or maybe also those ex Auckland NZers that can't vote?"

I have no idea why you think this is a gotcha question. You should tax both. I can't see why you wouldn't.

Holiday homes and baches are slightly more complicated, but personally I see no issue with them paying some tax for the privilege of owning a second home that they only occupy for a small fraction of the year. The tax could be set up so that it is proportionally smaller if necessary.

Homes under renovation would be excepted from the tax. If the house is only empty on the day of the Census and otherwise occupied, it should not be taxed. These aren't difficult questions.

"But this speculators are only systematic of the real reason they are empty in the first place, that is restrictive housing policies that allow demand to be greater than supply thus the speculative capital growth is high enough to give the required return on investment without having the running costs.

If they really wanted these speculators to go away, they would free up building restrictions (as well as look at our immigration policies) and these speculators would soon sell and take their cash. The real benefit of better housing policies is that they would go across all housing"

I agree that freeing up building restrictions is a good policy. I don't agree that it has to be one or the other, though. The impact of freeing up building restrictions will only be felt in the long-term, as it will take time for construction to start happening and more houses to enter the market, driving down the speculative investment. The empty homes tax will have an immediate impact, as speculators will immediately be forced to either rent the house, sell it, or get taxed.

"It is not the homeowners of these empty houses that are causing harm, it is Govt. policy"

It's both.

Yes so there is a net figure to arrive at rather than the Gross that has been touted about. That is what I have been saying all along, and which this article has not even considered.

Not sure what you mean about 'gotcha question? All I was showing is that there are different divisions of empty houses.

And If we are consistent that the reason we are doing this is to free up empty houses, then we should also be taxing Auckland based (voting) speculators as well. Or are you saying only tax non voting speculators?

As the horse has bolted, then yes you need to do both. Hit ALL speculators, and have less restrictions but once they start taxing then there's every incentive for them to keep it in.

And the privilege of owning more than one home is only the end result of a system that restricts supply so as to incentivise speculators to put their capital into that type of investment rather than another. Take away that restriction and investors will move their money elsewhere, and then the few that want to own empty houses (for whatever reason) because it is their thing, then who cares, as supply will meet demand for all that want to buy.

The present system is so screwed it is now a privilege to own one home let alone two or more. And yet that is exactly what we are seeing, more people renting, and less people owning more homes.

As I said, the % of empty homes in Auckland is not that high by international standards, and in those jurisdictions that allow supply to equal demand then no one is inconvenienced or cares about how many houses are empty or not.

This is a problem created by council.

"And If we are consistent that the reason we are doing this is to free up empty houses, then we should also be taxing Auckland based (voting) speculators as well. Or are you saying only tax non voting speculators?"

Tax all of them is what I meant to say.

I agree with you that the system is screwed right now. I think an empty homes tax is one of a number of policy changes that can help improve it. It obviously won't single-handedly solve the problem, as you say, but I find it hard to see the downside.

Agreed, and you are right that you can't see the downside, because foresight is difficult, for anyone.

But what we do have is hindsight to see what previous Govt. interference has got us to where we are today.

And the policies and principles they are following have never achieved long term affordable housing anywhere.

Okay so there may be 10,801 houses for sale on Trade-Me but are you not forgetting when its sold they need another one to live in ? basically that 10,801 is less anything lived in already so how many of those are empty new builds ? and there are only some of the rentals available because many of them will have people living in them still. Starts getting hard to do the real analysis and the key problem as many on here have already pointed out is AFFORDABLE housing.

Not if it's a brand new house/spec build, or the vendor is leaving the region/country. But I hear what you're saying.

Infometrics does good work, but some of these findings seem suspect to say the least. Would be good to see how many occupants per house they have assumed in each region.

Wow, such suboptimal reporting.. so many assumptions..

Give us the underlying numbers...

Has the latest sub-national population data included?

13
up

Its Not a housing market failure, Its an immigration policy failure.

. . ask Ian Lees-Galloway if we're gonna have an immigration target re-set ...

And , mention to him that we have enough home grown drug smugglers, thugs & drunk drivers of our own ... we don't need to import them and offer them residency . ..

How are we going to pay for the boomers retirement if we don't dramatically increase our tax base (by importing more working class age)?

Because... You are not solving the riddle, you are only making the problem bigger.

Isn't that the definition of good government? We should be celebrating the fact that we've got bigger problems to deal with because of our poor past management....

Make boomers work.

Make everyone work, present company excepted ;)

If not work, at least follow Winston Peters' thinking and give them compulsory community service, surely.

SIX two beddie units have been finished in Tauranga and minister Faafoi will be on hand to open them today....bring out the fanfare, the dancers and the trumpets! Go easy on the caviar hor d'oeuvres

... are they " affordable " to anyone on a below " rich prick " income ?

Other end of the spectrum in fact Gummy Bear these are homes for the homeless. Trouble is that the photos show these arent homes but palaces... unless the homeless problems are solved (which they're not) why spend massive amounts on so few. This govt has no sense

.... from the outside , they look great ... not built by Fletchers then ?

Built by the trolley fetcher and the grim greeters from Bunnings using a 6mm allen key and some furniture camlocks/nuts.

I dont love those bunnings flatpack duplex houses but it's better value for homeless people than what would otherwise look like owner occupied. Why have designer homes costing hundreds of thousands each then charge pennies to live there... in future the dumb govt will be installing all sorts of devices for energy efficiency as part of their carbon zero push

As suggested by the comments above.
The equation has two Variables :

Number of People/Number of Houses = Density of Occupation.

Changing any one or two of those components will affect the result.
Leaving them unaltered gives us the Quality of Life in New Zealand today....

Their occupancy assumptions are almost certainly wrong.
In Auckland, more 20-somethings are staying at home.
Many immigrants from South Asia are living in multi-generational or multi family households.
And of course we have the larger Polynesian households.
Average occupancy in Auckland is likely to be at least 3.

Would be nice if Census could produce a figure % for owner occupation in Auckland????
Dribbling out stats on line with zero impact on pop, instead of publishing results on paper to read.
Pathetic

Do you mean this: 2018 Census population and dwelling counts
https://www.stats.govt.nz/information-releases/2018-census-population-an...
And 2018 Census that shows: 191,646 unoccupied homes, 39,393 unoccupied in Auckland. There's a further breakdown of where they are and how many empty homes in the attached link: https://www.interest.co.nz/property/101855/2018-census-shows-191646-home...

Thanks for this. Just had a good crunch

Auckland has a 35% drop in residential sales 2006-18 for a 13% increase in stock.
256,000 increase in pop and only 60k increase in stock.

Since 2013, Auckland pop up 11% and stock up 6.5%. Residential sales down 26% in that 5 year block.
Epic failure of public and private provision.

More posts and detail: see my Linkedin page

Doesn't matter if the 20 year olds are staying at home, they still count the effect is accumulative, sooner or later they are going to want to move out from home, they don't just suddenly disappear from the equation when they hit 30, you get a huge backlog building up than still needs a place to live. Which ever way you look at it the numbers require more homes being built until we have more people leaving the country than staying.

Does not explain the mechanism by which deterioration in economic conditions should lead to price falls.
Just as contains within it the de facto expectation that shortage of "housing " leads to price rises.
Prices rise when demand (for buying a house) exceeds demand for type f housing wanted, in place its wanted.
Author's remarks are too theoretical and generic.
Any informed knows Auckland has a shortage of housing not being built - that is: rented, good quality, 3 bed housing for families in bottom half of income distribution.
Government and private industry has no plan to build this and intervening agencies are unco-ordinated.
Auckland is building lots more apartments and sales of apartments is falling, sown in 12m sales figures, month on month. Economic decline in GDP and consumer spending already impacting market since about April 2019 and this will continue.
Prices are not under upwards pressure because prices are dictated by what Estate Agents value place at based on what buyers are telling them and need to get commission rather than leave a property on market 5m longer than it should be at price market will not stand. Prices are also affected, though not dictated, by what banks are prepared to lend and also what people are prepared to borrow based on their confidence in the economy and their individual prospects. This confidence is draining away and this started last October with overseas buyer ban. There are too many 4 bed 200m square properties being built 30km or more from Auckland and public transport plan for light rail is years away, if at all. Sales drop rises as price rises. So sales over $2m are down 24% in last 12m to end of August whilst sales under 850k are flat. This is nothing to do with interest rates and cuts to them have not increased sales one iota in last 6m. Buyers are waiting and vendors still think their place is worth $100k more than it is.

Yep!
But will prices fall or just stagnate?
As you know I think they will stagnate until recession strikes sometime in the next few years. Then all bets are off.

Maybe prices will rise to all-time highs by March 2020? (which will be reported in April 2020)

Who will be paying those all-time high prices? And at what volumes compared to March 2019?

Kiwis will be paying these higher prices.
Who cares about volumes? (Unless you're a RE agent)

Please give a list of what you feel impacts on prices?
Who sets prices in market?
see. my other remarks in this stream

I think lists and analysis of endless data is your specialty Mike, not mine. You don't need to look at hundreds of data points to understand where the market is heading, you just need to understand the very few that matter and I'm certainly not about to share on a public forum what I have learned over 25 years investing and working as an Architect.

Yavil I think you're forgetting that we are all too aware of the driving factors that set NZ and particularly Auckland house prices soaring in the last few years before the peak of 2017. China has turned the money tap off and is not going to turn it back on again for the foreseeable future. So the top end of the property market is stuffed and you know it. Mikekirk, Fritz, CourtJester, Cmat and many other commenters are right to keep pointing this out to you. :) Here's an article link for further evidence: South China Morning Post: China’s capital outflow controls have gone to the ‘extreme’, former central bank adviser says. https://www.scmp.com/economy/china-economy/article/3012312/chinas-capita...

Higher prices in March 2020 and I'm right
Lower prices by March 2020 and you and your pals are right

Some of us will have will have to admit being wrong… let's wait and see : )

Still all mouth and no trousers Yavil. Still NOT ABLE to produce any actual evidence to back up your claims, now you're having to rely on future forecasting. Bit of a cop out isn't it. :)

I predicted the RBNZ to cut rates by 0.5% in August
I said 2 year interest rates will be 3.49% at the end of September
I said for the last 4 years that interest rates are coming down

What have you predicted accurately?

Some lucky guesses off the back of your bullish stance to property.

@Yavil: I remember warning you all for some time that the Auckland housing market would tank if Foreign Buyers were locked out. Remember the market is only being propped up at the moment by falling interest rates. Next step will be the loosening of LVR restrictions.

Predicting the Auckland market to tank after the FBB was clearly wrong, values have gone down about 2-3%, do you have a prediction you made that is correct?

LOL Wow you're really out on a limb Yavil. If you don't think that the Foreign Buyers Ban had much effect on Auckland's market then you are really trying to pull the wool over everyone's eyes.

Yes, stats.
See my extracts and concludes from census below

"Maybe" I see.
Auckland prices will continue to go sideways or utterly flat, re median, until end of February
Then, continuing drain of buyers and sales will pressurise prices, especially at key fulcrum which is 3 beds at $650 - 850k
This and over-supply of apartments in central Auckland and 4 bed surplus N of bridge, will cause prices to decline gradually for rest of 2020.
Unless we get a credit event in China in which case Auckland will see quite an impact

That's a very big change from your prediction of just a couple of weeks ago of values dropping by 25%.

We shall see by April 2020 (for the March 2020 figures) Up to all time highs or down 25%… we can't be both right, one will have to admit being wrong

Misquoting: AGAIN. I said 25% lower median by end of 2021.
Meaning 25% off the peak, which was $900k in March 17.

recession baked in for 2nd half of 2020.
Massive hit to demand form reverse leverage due to lack of residential sales in Auckland above a $1m.
Plus Aucklanders not cashing up and taking to regions, which impacts on them.
GDP will continue to fall to 1.5% annualised in next few months.

Fritz - have you been watching the Perth housing market the last 15 years?

Can one of our local spruikers explain to me why "high immigration, low interest rates, housing shortage, low unemployment, ..." (their constant mantra) hasn't resulted in rising prices in Auckland yet? It's been stagnating at best since 2017, and decreasing constantly in real terms.

Because of unaffordability at the lower end and FBB at the higher end.
PS, what's a "spruiker"?

Christchurch market is very interesting and has been for many years since the quakes.
The Council approved so much new land for subdivision and it has been going gangbusters ever since.
Personally had no problem renting houses to the better quality tenants and really haven’t had any empty for longer than a couple of weeks at worst.
There does seem to be far too many being built and not sure how so many people are affording to buy the new ones in the better subdivisions as they are at a minimum around $700k although you can buy dog boxes like the Fletchers ones for $450k but on postage stamp sections or semidetached.
At some time the builders that are building are going to be squeezed financially but then they have been making pretty good money over many years.
There is always going to be good demand for homes in the lower to mid. price range in ChCh as it is going to be the place to be as ChCh bets rebuilt continually.

TM2 - what do you think might happen when construction slows down in Chch? Will all the tradies who moved there as part of the rebuild stick around do you think? Might be a bit concerning if a few leave and there is already this amount of surplus housing.

There is always work for good tradies that charge reasonable.
There will be plenty of tradies very quiet and we don’t need thousands of new tradies coming thru in ChCh as we Wont need them

..what's a spruiker...between me and you perhaps?

Yes, quite right. But those factors won't change will they? So why do you think prices will rise to all time high in March 2020?

I have learnt about Real Estate in NZ over the last 25 years both as an investor and as an Architect. I am certainly not about to share in a public forum why prices will reach an all-time high in March 2020

Yvil I'm sure that you've considered that the period you've been involved in property may have been an anomoly (falling interest rates since the 1980's causing asset prices to rise, regardless of anything else) against the longer term picture.

People are asking you to substantiate your claims, not provide the Colonels Secret Recipe. I think it's because you don't have a clue, besides a wet finger to the air, hindsight and wishful thinking from your position of leverage. If that is indeed the case, then that's all you need to say there's no need to be embarrassed. We're not going to judge you.

Not a clue huh?

I predicted the RBNZ to cut rates by 0.5% in August
I said 2 year interest rates will be 3.49% at the end of September
I said for the last 4 years that interest rates are coming down

Name one other commenter the has more accurate predictions.

You guessed. Predicting is stating an outcome and providing sound reasoning as to how one will get to that outcome. You don't seem capable of providing reasoning, even today.

So they're just lucky guesses. Good guesses, so praise for that, but guesses.

Pretty lucky indeed, calling them all 100% correct, with specific numbers "3.49%", exact term "2 years", and exact date when it will happen "end of September", what are the chances I get lucky again with house prices reaching an all-time high by March 2020?

BTW you do not have to provide reasoning to predict anything, you can keep that part to yourself, predicting is just calling an outcome in the future.

Okay we will see. Good luck with your guesswork!

He said yesterday it's because of lower interest rates. I don't know why it's suddenly a trade secret today.

But if interest rates have such an influence, why have huge cuts in the last 12 months not re-started the market?
Also further cuts don't help in terms of FHB's getting the large deposits they need to get together.

You wouldn't understand, Fritz. It's a secret.

Oh yeah, I am not one of the enlightened few

Eggxactly :)

It's the property clock.

Does a dead horse run faster when you whip it more?

"Because of unaffordability at the lower end and FBB at the higher end."
Ding ding ding ding! Thank you!

You're welcome, but prices will rise to all time highs by March 2020 because…?

...it's a secret! At least you make predictions with specific dates and numbers. We'll see who's right. My predictions were HPI down 7% from peak by the end of this year (so December REINZ data) in Auckland, down 15% from peak by the end of 2020.

Yep, specific predictions like:

The RBNZ to cut rates by 0.5% in August
2 year interest rates to be 3.49% at the end of September
Saying for the last 4 years that interest rates are coming down

How do you do it?!?! Do you have a 12m long lecturers blackboard in the garage with all sorts of prediction equations scribbled up?

Is this you? -> http://iforce.co.nz/i/05da30wc.tmi.jpg

It is easy to tell from general observation that Auckland will have a temporary oversupply of new houses in one or two years from now.

Already over-supplied as real demand under real supply, esp f 4 beds in rodney and apartments in central

Just finished listening to the audiobook of Robert Shillers new work 'Narrative Economics'. It takes a more human look economics/markets/causation. What is really driving our decision making and the stories we tell each other that influences bulls/bears.

Any thoughts generally from commentators here as to what the narrative has been for NZ markets the last 10+ years? Do we really have a housing crisis or is that just the NZ society drinking the coolaid that the media have been propagating? Do we instead have a debt crisis? (I'm just working my way through Ray Dalio's 'Big Debt Crisis..').

Why not have both? Carpe diem!

We may have an over supply of housing, but masked by high demand because prices were going up (from both owner occupiers and investers) which gives cause to think there aren't enough houses. A reversal in immigration, say caused by recession or younger generation getting tired of expensive houses, could see NZ be the Ireland of the mid-2000's.

Immigration might ease, but I don't see a reversal (if you mean negative net population gain) anytime soon. Or ever, for that matter, unless a Taupo-scale volcano erupts.
There aren't many desirable places for the young to escape to. I think the prices will go down due to multiple factors. Mainly global recession, the old homeowners retiring / dying of old age, and the poor not having the money to buy the 5br family homes retiring boomers leave behind.

"Immigration might ease, but I don't see a reversal (if you mean negative net population gain) anytime soon. Or ever, for that matter, unless a Taupo-scale volcano erupts."

If the economy gets really bad, there is a high unemployment rate, and no jobs, people will move to locations with better employment prospects.

For example, when there was a mining boom, there were many who moved to Western Australia.

Also look at the exodus out of Venezuela given the economic conditions there resulting from the economic management of the economy by the government. Similar with Zimbabweans leaving Zimbabwe in the early 2000's. Also many South Africans came to New Zealand. Look at the number of Irish who left Ireland after the GFC in 2009 -2013 period - some went to Australia and New Zealand.

"or is that just the NZ society drinking the coolaid that the media have been propagating?"

FYI, the experience in Ireland - "On the role of the Media during the Property Boom"
https://inquiries.oireachtas.ie/banking/hearings/julien-mercille-on-the-...

For example, Auckland’s rapidly expanding undersupply between 2013 and 2018 appears reasonable, although if the city still has an undersupply of more than 29,000 homes, why aren’t rents and house prices coming under significant upward pressure?

Easy. The Auckland housing shortage was caused by severely constricted housing supply between 2011 and 2017 (primarily due to undersupply of land by the idiots at Auckland Council 2011-2017) and soaring immigration rate that has occurred since 2013 and continues today.

The Auckland Council 2011-2017 idiocy was reflected in a stagflationary type housing boom (prices soared/very little building activity was generated). In 2017 Auckland Council adjusted the land supply from completely idiotic to mildly odd - as a result there has been a large increase in building activity. The house prices are not increasing, because the land price is falling fast.

The immigrants arriving are poorer than the local population and the rents do not increase beyond the means of renters to afford it.

"The house prices are not increasing, because the land price is falling fast."

Can you give any evidence of that?
I'm unaware of any land price indices except for deep in the bowels of MBIE, which are pretty poorly constructed.

It's an interesting point you raise about the wealth levels of new migrants. Given our real economy is agriculture, logging and tourism it's not entirely surprising that this would generate more jobs at the lower salary ranges.

This might explain why there is now an excess supply of new builds beyond most people's budget.

That's a point I have been making for a long time.
And it contrasts with the relatively high wealth nature of immigrants in the early-mid 2000s, from the UK, Asia, South Africa.
There is far too much crude analysis of gross, aggregate metrics, and nowhere near enough analysis of dis-aggregated metrics.

yes, influx of younger, instead of middle aged has major impact on ability to afford above $850k
See below re demographics

The article has this to say about the supply/demand equation:

....an estimated oversupply of housing in an area points towards a lack of fundamental reasons why prices should have risen strongly and, in some cases, continue to do so.

I find that statement hard to reconcile with the Christchurch experience, where oversupply has certainly not led to 'strong price rises' but rather, has plateau'ed CPI-inflation-adjusted house+plot prices for most of a decade now. It's possible to acquire a brand-new house/plot for low $400K if a minor commute (45 minutes) can be tolerated and a relative recently picked up a brand-new rental (2 bed, 2 bath, 2 km from the city centre) for $400/week. These examples may not fit the '3 times multiple' in terms of affordability but they rather destroy that narrative from the article....

Census figures I just examined show following:

Auckland pop 2013-18: up 156,000. Private dwellings occupied up 26,700. That equates to 5.84 per house
That means pop up 11% and dwellings occupied up only 6.5%
At 3 per person (may be!) would have needed 52,000. So only built half what needed and are 26,000 short.

In 2006-13 by way, pop rose 110,500 and private dwellings occupied up 34,000 and only 3.25 per house.

Males aged 45-49 up 7.5% (major economic earners) between 2006 and 2018
Males aged 65-69 up 50%

This is a major influence on need and desire to move and also on ownership.
over 65 own about 74% of time.
Those aged 45-49 it is about 20% lower.

Rodney Ward, 2013-18 added 11,535 people and 2973 occ private dwellings at 3.87 per place
Hibiscus & Bays added 14,181 people and 4728 places, at 2.99 per place
Upper Harbour added 9,171 people at 2.89 per place.

Very significantly, age group (NZ total, male only) 40-64 (prime earners) increased 48,000
Over 65 increased 54,000
20-39 increased 117,000

This shows why FHB market is expanding fastest
Also explains a big drag on housing market because younger age group less able to buy.

Demographics is a major element ignored by most analysts.
over 65s increasing 7 times as fast in Auckland as under 14

Stats have done internal migration patterns from administrative data. Shows a net out flow of people of about 13000 per year from Auckland. The only age group that Auckland gains is 15-24, all other age groups prefer to leave Auckland.

https://population.org.nz/app/uploads/2019/07/4a-Internal-migration-Stat...

Thanks unaha. Really significant and backs up anecdotes.
Of course Auckland is still growing, but increasingly that growth will be coming from external immigrants (on average young and poor) or natural.population (high fertility rates among generally poorer Polynesians).
None of which suggests the boom times are around the corner...

How you can have a housing shortage and a fall in property prices at the same time.

The above article calculates the underlying housing shortage in Auckland.

Note that this is underlying demand for housing in Auckland. Factors which impact effective demand (on which the market prices of residential dwellings are based) are not accounted for.

Note that for the basis of this calculation for the housing shortage for underlying demand, no adjustment is made for changes in demand due to changes in house prices.

The calculation of underlying demand is used for the purposes of long term town planning, and infrastructure needs (such as sewerage, parks, roads, schools, etc) due to an increasing population. Underlying demand is not useful for estimating future property market prices.

For example, the housing shortage number calculated for underlying demand would remain unchanged in the following 2 extreme situations, (assuming current household incomes, current population, current population growth & the number of residents per dwelling of 3.0).

1) if the current median house price in Auckland was $10,000. In this case there would likely be a huge increase in the number of active property buyers which would increase effective demand (and would be above underlying demand). People who were not owner occupiers would buy at this price. A large number of people who are already owner occupiers would also become active buyers and buy at this price - buy a house for their children, grandchildren, parents, holiday homes for out of towners, etc as they are cheap. People who could afford it from all over New Zealand and abroad (such as Australians and Singaporeans who are exempt from the foreign buying rules, and New Zealanders living overseas), are likely to become active buyers in the market. The underlying demand calculation does not incorporate this.

2) if the current median house price in Auckland was $10,000,000. In this case, there would likely be fewer active property buyers in the market. The number of effective demand would be fewer than that for underlying demand. The underlying demand as calculated above would remain unchanged - after all there is no change to population estimates or the assumption of the number of people living in each house. There would still be a "housing shortage" as calculated by economists using the population numbers, but in reality there would be few buyers active in the market if the median house price in Auckland was $10,000,000. Very few would have the deposit necessary to buy, and very few would meet the bank lending criteria particularly on debt servicing.

This is the reason why the underlying housing shortage is a misleading number (as calculated by economists, etc, and quoted by mainstream media, politicians, property market commentators, etc) as a justification for future house prices to continue rising. It is used as a convenient justification by those in the real estate industry to persuade those to enter the residential real estate market.

Economists in their calculations of the underlying housing shortage, and talking about future property market prices, have failed to incorporate the fact that:
1) as prices rise, effective demand falls
2) as prices fall, effective demand rises.

This is introductory economics and the basics of demand. Underlying demand is unchanged, yet effective demand changes. This is how there can be a housing shortage (due to underlying demand), yet property prices fall (due to an imbalance between effective supply and effective demand).

So when talking about a housing shortage, there are two numbers to understand for their own specific purposes:

1) Level one supply and demand - this is underlying supply and demand - this is the most commonly referred to and discussed by most property market commentators, media, politicians, etc. This is useful for long term town planning purposes for local councils to determine infrastructure needs.
2) Level two supply and demand - this is effective supply and demand - and this is the key determinant of property market prices - and this is how property markets can go from being a buyers market to a sellers market (and vice versa).

Excellent demolition

""How you can have a housing shortage and a fall in property prices at the same time.""

The new comers to Auckland are on average poor. Auckland has an unusually low agglomeration bonus with most equivalent cities producing 100% more wealth per capita than surrounding small towns but Auckland is only slightly higher despite the many head offices, lawyers and academics. If our immigrants were earning like immigrants to silicon valley then property prices would go up further. Low wage immigration = worker exploitation, corruption, lower wages for Kiwis and over-crowded housing. High-wage immigration = everyone getting wealthier and having more to spend on property. Current INZ policy & practice rewards the former and inhibits the latter.

This article also points out that economically Auckland is dragging it's feet due to over reliance on property and a high amount of low wage immigration. https://www.interest.co.nz/opinion/101984/kiwibank-economist-jeremy-couc...

Excellent demolition

There is some evidence, although mostly anecdotal , that Auckland rents are increasing , and the reason that Auckland house prices are flat is likely twofold , first that the market had got ahead of itself and secondly the Banks were becoming gun-shy at the runaway prices , so insisting on the 20% LTVR in most cases meant there was a fall in new loans

If there was effective housing shortage at current price levels, then all those previously planned apartment projects in Auckland would have been sold out.

The reality is that those apartment projects were cancelled as there were insufficient buyers at their selling price.

1) https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=122... (July 2019, 46 Queen St)
2) https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=117... (October 2016, Flo Apts, Avondale, 91 apts)
3) https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=117... (Dec 2016, St James Suites 309 apts)
4) https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=119... (Nov 2017, Milford, 115 apts)

If there was an effective housing shortage in Auckland at current price levels, these projects would have been sold out due to strong effective demand.

If there was an effective housing shortage in Auckland at current price levels, these units would have sold like hotcakes (instead of the developer going into bankruptcy) - https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=122....

If there was an effective housing shortage in Auckland at current price levels, this newly completed unit would have sold, instead of still being listed for sale for over 10 months. https://www.trademe.co.nz/Browse/Listing.aspx?id=1871852858
Unit 11D / 57-59 Wakefield Street, City Centre, Auckland City, Auckland
Rooms: 1 bedroom, 1 bathroom
Property type: Apartment
Floor area: 55m2
Price: Asking price $705,000

One of the issues is that these projects are too expensive for the local population on local incomes and hence there is no effective demand at these price points.

If these projects were priced at the $600,000 price range, there might be more demand and the projects might have been sold out. However at that price point, the project is economically unviable for the developer, possibly due to a high price paid for the land, and construction costs.

If a 3BDRM apartment in these projects were priced at say $300,000 each, they would be selling like hotcakes, as they would be affordable to the local population earning the local household income.

The issue is not a shortage of housing, the issue is a shortage of AFFORDABLE housing.

100% right CN.
Expect many more project failures over coming months. Something has to give.

I only see effective demand rising significantly if:
1. Prices fall significantly; or
2. Deposit requirements are reduced for FHBs and investors to 5-10%

On effective supply -

I heard that some newly completed houses at Hobsonville Point are not being listed on the market for sale by developers for fear of depressing the market price. (if it isn't listed for sale, then it is not effective supply). Another area for potential effective oversupply is Pokeno with newly completed houses.

One area of effective supply rarely mentioned is sales by financially stressed owners in the primary and secondary market:
1) financially stressed developers
2) sales by bank appointed receivers / liquidators of developers
3) mortgagee sales - expect this to pick up in a recession.
4) financially stressed highly leveraged borrower house owners.

This is a potential cause for prices falling in Auckland, as over leveraged vendors become financially stressed and unable to hold on.

Most of the discussion centers around the property ownership market. How affordable is the property rental market in Auckland?

A) Net household income of $73,106
1) Median gross household income in Auckland is $95,561 - https://www.interest.co.nz/property/house-price-income-multiples
2) Tax on that gross household income is $22,455

B) Annual median rental of $30,004 per annum based on 52 weeks x average rental for 3BDRM in Auckland of $577 per week in August as per B&T - https://www.barfoot.co.nz/market-reports/2019/august/rental-report.

That means the median household is spending 41% of their net household income after tax on accommodation. (For reference, note that banks allow households to spend up to 40% of their income to service a mortgage).

Obviously a controversial subject, from the comments.
As someone who lives in Christchurch, has been a landlord here for 40 years, it has never been better, for quality of tenants, and rental return. I assume the unrentable houses, are the unrepaired as is where is, rubbish that has made some good money until recently, and should now be knocked down.
Christchurch has some of the most affordable housing in NZ, what's left has been well built, and well maintained, and the area has some of the best weather in NZ, just not today, all it needs are some well paid jobs. Perhaps Trademe, or Xero might want to set up here and save themselves some dosh.

The Property Clock is currently out of action. The batteries are going flat, the second hand is currently twitching at 9'oclock, unable to get enough juice to make it full circle.

Adrian Orr has tried swapping in some batteries he found in the cutlery drawer, but those are flat as well. He's currently diving under the couch cushions looking for the TV remote so he can pinch those batteries.

I thought it was solar-powered, and that's why houses don't sell when it's rainy.

Sounds very familiar :)

"The Property Clock is currently out of action"

FYI, found someone who has a property clock that is still working.

They are continuing their extrapolation of 40 years of historical property price growth in Auckland, into the future with a high level of confidence, unaware that during the same time household credit risks have changed significantly.

https://www.tvnz.co.nz/one-news/new-zealand/has-aucklands-property-bounc...

Fair enough to claim certain things like they are bigger or smaller. But conclusions need to be based on statistics.
Today there are 4165 dwellings available to let on Trademe in Auckland. Auckland's population is 15 times bigger than Nelson / Tasman where they have a population of just over 100,000. There are 84 dwellings advertised to let in this area. To have the same shortfall percentage Auckland should have around 1260 on Trademe. Sure builders are going for it in Auckland. They are consenting one new dwelling per 114 people the same rate as Waikato. Tasman however is consenting one dwelling per 112 people.

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