Auckland house prices to stop rising despite demand pressure as prices hit unaffordable levels, NZIER says; Rents may rise until supply comes back

Auckland house prices to stop rising despite demand pressure as prices hit unaffordable levels, NZIER says; Rents may rise until supply comes back

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.

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NEVER!

yes - never fear, we have the man with the key to the floodgates.
Globalism usurps nationalism. Survive or move on. For every moneyed chinese, indian, sth african, european that purchases a dwelling in NZ,  there is a space in their ghettoes for the un-landed global citizen who happens to be NZ born. So move on. One less middle-class welfare recipient is a good swap for a cashed-up fellow world citizen.
This is the new paradigm. The wealthy are not constrained by national boundries. Free to purchase a foothold in any nation desired. Of course, the nations groaning with middle-class welfare are going to be 'the winners' !
The 4 red stars, the fern, the black stuff, are already just quaint advertising props .
RIP  " the New Zealand nation"  and the diggers who gave their lives - but not for this.

For those wealthy immigrants that came to NZ, there should have been a requirement for them to have to build their first home in NZ rather than buying an existing one.  This would have created an added boost to the construction industry, kept housing stock numbers up and caused some downwards pressure on the sale price of houses.

this man gets it - you can talk all you like about supply and demand, but prices will only get up to a point that people can afford. Interesting that he talks about house building recovering "over the next 5 years". Thats quite a long time frame. Other economists talk about it recovering in the next year - not going to happen
what does he say about employment?
 

Bhuahahaha, he is a dreamer.  A rotten shack in Grey Lynn will keep going up over 2M before it slows down.

Sham is right. He should spend less on shiny hair products and save some money for a deposit on his first home.
 

This site needs a thumbs down button for comments like yours
 

I vote for that too!!

The street I live in is a boring little street away from the main road, nothing flash, reasonably leafy and has around 50 houses mainly early 1900's bungalows/villas.  Although it is double GZ, it is not really filled with mansions.  The latest released CV's show no properties on this street are less than 1M, I am starting to wonder how the younger generation are going to be able to afford owning their own houses if the prices keep going up and up.  Perhaps this article is true to a certain extent?

yep we've sold our souls

I've been looking at replacements for our ChCh properties in Auckland, and I'm astounded at how cheap it is in some of the top suburbs.
 
Very good quality homes in the low seven figures within 15 mins of the CBD is a bargain compared with Sydney and Melbourne, and percentagewise not all that much more than top end ChCh was pre quake.
 
In Fendalton pre quake a good newish townhouse would be about $1m, a very nice new or fully renovated house on a larger (600m2 plus) site could be up to $1.5m.  Remuera is hardly any more than that.
 
In middling ChCh areas of Beckenham or St Albans etc a fully renovated house in a good street on a full section (600m2) was $500 to 600+ pre quake, the equivalent in Auckland is probably under the $1m.  The type of fully renovated character property at $1.3m in Auckland probably could easily be around the $850k in ChCh pre quake but comparables are rare.  Auckland of course has many of those high spec renovations of older properties - however with the equivalent in ChCh being very rare it's not as obvious where the prices are at, but examples in say Strowan or St Albans have sold for enormous prices (pre quake there were a number of sales of renovated villas and bungalows in ChCh up at around the $1m mark on regular sized sites.
 
Larger modern 80s and 90s houses in the fringes of ChCh are $500-$1m+, which isn't actually all that much less than the North Shore or Howick and surrounds.
 
Obviously wages in Auckland are higher and land restrictions are tight so the value seems not too bad.
 
Rents are also often around 6% gross of the sale price with rising demand and prices.
 
To be honest $1000pw in double grammar zones is a bargain if the alternative is to effectively pay $200 per week per child to attend a private school (3 children and it's a no brainer!).
 
All up it's only selected pockets where the prices seem excessive, and the fact that 10 years ago a villa in Arch Hill may have cost under $250k and now it's $700k does give a bit of concern about some suburbs but in general prices don't seem as unrealistic as many believe.
 
However I personally don't believe we've seen the downward pressure that we saw in 1997-2001 with the Asian crisis (which was one of the big reasons the marketed sprinboarded back when it recovered), so while there may not be massive gains, I believe prices will hold firm and rise significantly in many cases especially as pressure goes on rentals.

Really sick of these RE junkies polluting our society.
Can we organise some sort of supervised injecting room for them?
The Mr Bigs should also be held responsible for the damage done to the future of our grand-kids.
Honestly this shit has gone too far.
 
 

Don't buy this Chris, I'm afraid
are you taking the piss that these bubble prices in central Auckland are "cheap"?
Maybe compared to Sydney, but Sydney is pretty much the most insane market in the world!
In an economy that is likely to be anemic for years (or do you see boom times around the corner?), it defies logic (to me) that these insane prices could rise much more, given limited new wealth creation. I'm not saying they'll go down (although they could well do if this is indeed really a bubble - after all busts always follow bubbles), but I really can't see them "rise significantly" as you suggest
Apart from elite core of lawyers, doctors and businessmen, who will always exist and be able to afford these prices, I can't see a lot of wealth creation in the "new normal" economy of Auckland / NZ. A Lot of people I know in Remuera made their wealth off property development / retail - both areas stagnating / declining. Also there are a lot of ageing residents in their late 60s / early 70s who will be moving on in the next few years (just walk through the main village to see them)- how many will be able to come through and afford THESE prices, let alone significantly higher prices?
A good family friend, a very very successful businessman, who owns a $3 million dollar property in Remuera agrees with me, for what its worth. A very astute businessman, and very direct, he'd be the first to tell me if  I was talking a load of bull.

MIA, if you look at say a $1.5m Remuera property, you in general have a house, garden and other improvements that would cost $900k to replace.  Land value is higher than the remaining $600k and with limited availability of land in those kind of locations, it is quite reasonable to suggest that current pricing is fair if not cheap.
 
The middle of the market is relatively pricey in the Central Suburbs, but further afield it's cheap. 
 
If you can't replace at significantly less than market value and there is no shortage in demand, then how can prices fall?

Did I hear that right?  Right at the end? "...and, there is no inflation?" Didn't he tell us before that unavoidable expenditure is rising? If he's going to tell us that deflation for discretionary spending is counterbalancing inflation in essential goods and services, that I can take seriously, maybe.
Bu this only benefits one ever-dwindling group in NZ society, IE those that have money left over after they've put food on the table.

The numbers don't stack up. Salary inflation is barely going up, all reports global and local based on a number of different variables all say NZ house price are between 20% and 40% overvalued. Sooner or later the gullable people buying 1 million plus houses in Epsom and surrounding subburbs will dry up and things will slowly get back to where it should. It might take 10 years or so.
We say we aren't building enough houses in Auckland but who is stopping the developpers? The answer is no one, if they can't see money to be made they won't develop. What we need is a partnership between the council and large developpers to free up land and build 1000 plus dwellings that make sense for this size of city. That's what they do in places like Ottawa in Canada and their house prices are very reasonable with a growing population. Places like Sydney, Vancouver and Melbourne are no different then Auckland. If the council won't get involved then we won't get cheap land. Alteratively we can wait till the older generation get despearate to downgrade which will push prices down as they flood the market with their investment properties and huge houses in central Auckland.
We are seing a Mexican standoff in the coastal property market in NZ. No one wants to sell at reduced prices and no one wants to buy at ridiculous prices. It becomes a game of chess where buyers wait for the desperate who have to sell and sellers are waiting for the gullable who will pay ridiculous prices. What ends up happening is very few sales go through with some being bargains and some being people who don't want to wait and buy emotionaly.
Fun stuff
 

"...but who is stopping the developpers?"
Auckland Council

That's a tad simplistic Bob
Even if the Council freed up the rules tomorrow, developers
would struggle to get funding and / or get developments to stack up.
I agree with you that rules need to be liberalised, but I don't think that by itself this is a silver bullet

Not really - I know of a few developments, in the hundreds of units, that would have already started construction if not for silly rules that don't make them better.

The world has been here before.  In past times a large proportion of the property in Scotland had accumulated in the hands of a few, with many tenants progresively screwed into poverty.  In 1884, on the Island of Skye the tennants finally refused to pay rent to the local Lard.  The goverment sent three ships and soldiers to restore order.  The strikers held firm and the Government backed down because the strike action had wide popular support.  Maybe the occupy movement would be better directing their efforts similarly.  In any event if things carry on in the direction they are headed, this is the type of end point we face.

STOP PRESS
"Auckland house prices to stop rising"
DON'T you ever say that !!
What will all the Auckland RE agents talk about at their Monday morning sales meetings !
Also it will upset SK .....

Even if they did stop rising (which they won't)
- we've still had 13.5% increase last year - so let us give thanks for that - and not be too greedy!

So no matter what in your via house prices will just keep going up for ever? 
regards
 

This is one I missed, "Federal Interior Minister Hans-Peter Friedrich (CSU) advises Greece to withdraw from the euro-zone."
http://www.spiegel.de/spiegel/vorab/0,1518,817566,00.html
You have to translate it though...
regards