By Alex Tarrant
Auckland house prices are set to stop rising, despite demand pressures, as fewer people become able to afford houses in New Zealand's biggest city.
But pressure will remain on rents, eventually leading to more building of new homes.
That's the view of economist Shamubeel Eaqub of the New Zealand Institute of Economic Research (NZIER), who presented NZIER's latest quarterly expectations for the New Zealand economy on Thursday afternoon.
New Zealand's housing market was currently a story of Auckland and Christchurch versus the rest of the country, with house building levels in those two cities set to recover over the next five years, Shamubeel said.
There were currently real hotspots of demand within Auckland, with the desirable post-codes doing well in terms of prices, although areas of lower cost housing weren't seeing the same levels of price activity.
“If you’re in Mt Eden, house prices are doing really well, but on average through Auckland we can’t see a lot of pricing pressure," Eaqub said to interest.co.nz in an inverview following his presentation (see end of video above).
“That’s because it’s not affordable. House prices are still very expensive relative to incomes, relative to rents, so we’re not convinced that it will be possible for house prices to rise much [more] in Auckland, despite the demand pressures,” Eaqub said.
“Some people can’t afford it – not everyone can afford a half a million dollar mortgage. I think we are going to see some pressures in the rental market, and as rents start to rise we’ll start to see some supply come back in, and that will come through new builds in particular,” he said.
New housing starts were still low, but NZIER was more confident about increases in Auckland and Christchurch than in other regions of New Zealand.
“I think Auckland and Canterbury will see quite a bit of work taking place over the next 2, 3, 5 years, whereas [in] the rest of the country we think the rate of recovery will be much shallower,” Eaqub said.
In his presentation, Eaqub noted 31% of people who had left Canterbury for places within New Zealand between November 2010 and September 2011 had gone to Auckland, based on IRD figures. Fourteen per cent of people had gone to Wellington, 19% to the rest of the North Island, 13% to Otago, and 23% to the rest of the South Island.