Treasury told booming Auckland housing market expected to stay strong; Land available on outskirts, but negligible demand for it; Little potential for supply response

Treasury told booming Auckland housing market expected to stay strong; Land available on outskirts, but negligible demand for it; Little potential for supply response

By Alex Tarrant

Auckland's booming housing market is expected by businesses and economists to stay strong as they see little potential for a supply response to demand pressures there, Treasury says.

Even though land for residential development was available on the outskirts of Auckland, Treasury said demand so far away from the city centre was negligible, based on discussions it held with 40 businesses and economists in September.

Those discussions will feed into Treasury's assumptions in its December half year economic and fiscal update.

However, the expectation from businesses and economists of little potential for a supply side response to the Auckland housing situation comes as government ministers are working on how to achieve just that (see below).

Prime Minister John Key said on Monday afternoon that two government bills amending the Resource Management Act are set to be introduced to Parliament shortly as part of the government's response to the Productivity Commission's report on housing affordability earlier this year.

'Auckland booming'

In its latest Monthly Economic Indicators release, Treasury said discussions with business and economists in the three main centres pointed to buoyant economic activity in Auckland, led by a surge in the housing market there.

Activity was starting to pick up in Canterbury as the earthquake rebuilding effort gathered momentum, while Wellington was perhaps a little more subdued, possibly owing to a comparatively quiet public sector.

"The residential housing market in Auckland is ‘booming’. Sales and prices are well up on last year across all price ranges as a result of high demand and little supply," Treasury said.

"Land for residential development is available on the outskirts of Auckland, but demand so far away from the city centre is negligible. The Auckland market is expected to continue its strength, as there is little potential for a supply response," it said.

"Allied to this, the construction sector is quiet. Residential construction in Auckland is weak, with consents around 1960s levels. 

"House building in Christchurch is also weak, with the main focus of the rebuild so far having been on demolition and repair. Firms were optimistic regarding the prospects for construction with housing reconstruction expected to get underway in Christchurch next year and the CBD rebuild shortly thereafter," Treasury said.

Govt eyes supply response

Environment Minister Amy Adams, who has responsibility for the Resource Management Act (RMA), is working closely with a group of other ministers, including Finance Minister Bill English and Housing Minister Phil Heatley, to fashion a government response to the Productivity Commission's report on housing affordability.

Interest.co.nz has been told "pretty much all" of the package addressing housing affordability issues, to be released this month, relates to RMA reforms.

While the Productivity Commission recommended more land be released on the outskirts of Auckland for residential development, it said there needed to be more medium-density 'brownfields' development within Auckland's existing limits. The Commission noted high costs associated with house building had put upward pressure on prices.

See the Commission's recommendations here: Productivity Commission recommends immediate release of land for residential development in Auckland, Christchurch, in final housing affordability report.

The Auckland Council is looking to allow 30-40% of all new development in the city to occur outside existing limits over the next 20 years, meaning 60-70% of new dwellings will be built within the city's current metropolitan urban limits.

Finance Minister Bill English has said the biggest opportunity for brownfields housing development within Auckland's city limits was in the hands of central government, due to its large land holdings for state housing.

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33 Comments

"The residential housing market in Auckland is ‘booming"
It's official then - Treasury are hardly a group given to hyperbole.
 
ps:
sub-5% floating rates are being offered in the wake of the re-branding.
 
 

"Consents around 1960 levels"....red flag anyone!

What's going to happen Wolly, I wasn't around in 1960...

Yee Haa ... git on ya horses and ride 'em straight to da bank to git dat cheapo mortgage and have a "house" partee !! :) overseas trip perhaps, new boat etc !!  ....sometimes I truly wonder about the financial acumen of the Enzud population in general .... totally "sucked in" by property spruikers and bank advertising.... JK is running rings around most of you.

Have updated with comments from Key - we are to expect two government bills introduced shortly amending the Resource Management Act - ie to fit in with response to ProdCom sometime in late October.
Cheers,
Alex

Unless the Council can get the Unitary Plan notified next year without appeal rights (other than on points of law) then housing supply in Auckland will be stuffed, as there will be several years of appeals / litigation on the Plan. As opposed to tinkering with the RMA, this is the key to Auckland's housing supply response
Prices will then no doubt contiue to rise. The SKs of this world witll be happy. At least in the short term. As Olly has stated, one can't but help feel this mini "boom" could end ugly - its got bubble written all over it

Well if Auckland is well ahead of the rest of the country on this cycle - there's always the risk it could be first to come undone.
Speaking of Uncle Olly - Its about time we had another letter from the dinosaurs desk!
 

Matt in Auck...I totally agree...the Unitary Plan is the key plank to solving supply side issues...the Govt needs to assist the Council in every way it can.
I'm sceptical on the RMA reforms. it's good the Govt is getting it's act together, but it's long overdue, and even if the proposals are good it will most likely be a long period before they are implemented, and further time before they have knock on effects.

Treasury said demand so far away from the city centre was negligible, based on discussions it held with 40 businesses and economists in September
This is such a simplistic statement. What were there assumptions?  That is SO important
You might find demand could be high for well designed low / medium density subdivisions in Dairy Flat, with houses / townhouses selling in the 380 - 550K range
Conversely, demand might be poor for poorly designed subdivisions at the back of Pukekohe selling for say 380K - 480K  
Experience proves time and time again that quality residential subdivisions on the city outskirts CAN be successful if executed well  

Has no-one in Treasury driven out to Kumeu lately?

Stan - what are you saying ? is it going of out kumeu way or is it a dead duck?

Sorry about the ambiguity there Grumpy, I meant that Kumeu has gone balistic over the last 5-10 years and that's quite a long haul out of Auckland central on the (god-awful) Northwestern, thus proving Matts point that Aucklanders will live on the outskirts if it's nice enough. Dairy Flat and other rural area's around Jafaland are primed ready for good residential development, especially now that the Northwestern is pushing past The Ugliest Shopping Mall In The World aka Westgate and out into that rural land north.

Now if they could just get that northwestern train line to a) run on time, and b) have some new stations out on the way to Helensville, we might see some real commuter dormatories springing up taking the burden off Central Akl.

Oh and punching the Northern and Northwestern motorways through to Wellsford would be good too thanks :-)

yeah and what would a bunch of Treasury nerds know about housing anyway? they just crunch models which usually seem to spew out totally inaccurate projecitons all the time
Bet they asked a number of bank economists if outer housing would have demand....unmmm, lets say the bank economists thought for one second then uttered - 'nah, no demand out in the sticks'........with vested interests at play to further limit land release on the city edges, hence pushing up the bubble prices which the bank economists seem to soooooo admire
That's the problem with our world, we've got a bunch of financial and political dicks in charge of our destinies 
 

quote from the treasury report:
 

 "Land for residential development is available on the outskirts of 

Auckland, but demand so far away from the city centre is negligible"

 

No support or justification for this statement, it just floats out there in the ether.....

Eat your heart out Aucklanders .... Yee Haa !  Cowboy livin' on da cheap !
http://www.zillow.com/homedetails/7327-W-Emile-Zola-Ave-Peoria-AZ-85381/7925029_zpid/
and a very good part of ol' Phoenix town too :) ..double yee haa !!

Just why anyone would aspire to live in that is beyond me. Just from the photographs I can pick dozens of design flaws.

http://www.zillow.com/homedetails/945-Green-St-11-San-Francisco-CA-94133/63196066_zpid/
 
This seems a bit more comfortable, not sure about the tapestry though.

Better, but I still doubt an Architect was involved. Not as good as my view either.
 
I reckon the tapestries might be okay on the floor of the dog kennel.

ha .. go back and look at that arizona property again .. click on birds-eye-view .. then zoom out .. no drive-ways down the sides of any houses for access to the rear .. no rear parking etc etc etc .. as for architectural involvement .. ha .. more like a single mold .. pop-em-out

God that is sad. Everything just dumped right in the middle of the section, so soul to the suburb at all.
I was only joking about the tapestries above as well, they are probably about the only thing worthwhile in the place.

scarfie ..... "just why anyone would aspire to live in that is beyond me"
 
This is just an example as an investment. In fact,  if you buy at foreclosure or a bank owned property,  you would get it way cheaper and with plenty to spare for renovations .... which btw are half the cost of Auckland.
 
My whole point is that the cost of housing in Auckland is just ridiculous... shortage of land or not.
 
If you think Phoenix is some "dusty country town" think again .... there are 12-14% gross returns for such a property...... try getting that in Auckland.
 
So you mentioned design flaws in the Phoenix property ... nothing anywhere like the "leaky building" syndrome that Auckland has been through....and still is going through.
 
People only pay stupid prices because they are scared of other investments, have too much "hot money" ex overseas or can't be bothered doing the ground work for  any other alternative investments ... so they all follow each other like sheep, all crowing the mantra .... "ya can't lose with Auckland property ... maaates"
 
Yee haa !
 
 
 
 
 
 
 
 
 

I quite agree. The sad bit is that Auckland houses are just as badly designed(leaky is more engineered). I am quite astonished that people aspire to own such trash. 

Yeehaa, alright. And, if you like four proper seasons and history, many of the cities around Great Lakes seem to have plenty of solid old-school mansions available for less than 800k NZD (except the last one, which got chucked in 'cos so purdy).
http://www.zillow.com/homedetails/2758-W-Park-Blvd-Shaker-Heights-OH-441...
http://www.zillow.com/homedetails/1500-Seminole-St-Detroit-MI-48214/8813...
http://www.zillow.com/homedetails/2210-Bedford-Ter-Cincinnati-OH-45208/3...
http://www.zillow.com/homedetails/115-Lebrun-Cir-Amherst-NY-14226/302630...
http://www.zillow.com/homedetails/140-N-39th-St-Omaha-NE-68131/75863711_...
 
Mansion money over there doesn't buy you much here.
 

Not much point in having a mansion in an industrial wasteland....hence why so cheap.
Which is interesting in terms of what happens when an economy shrinks...you dont need as many houses...blows Hugh away IMHO.
regards

Perhaps. When this cheap, it might not stay a 'wasteland' forever. During our lifetime, I suspect America and China will swap places, again.

Detroit has fallen even further from its glory days, but now the artists and creatives are moving in, then it will become trendy, people want to move there, and the cycle of creative destruction, which defines US capitalism continues.
Large areas of Manhatten were derelict and dangerous until fairly recently.

"The Auckland Council is looking to allow 30-40% of all new development in the city to occur outside existing limits over the next 20 years, meaning 60-70% of new dwellings will be built within the city's current metropolitan urban limits."
So where exactly are they going to build these new "developments" in Auckland - knock down all the leaky homes and start again?

As the article says brownfield sites.  There's still issues in getting something consented that is also feasible which, hopefully, unitary plan will address.
Drive down Great North Road.  The sites to north side are north facing, with harbour views looking over Res1 and on major bus routes 1km from town.  These are perfect apartment sites but is still being used as single level car sales yards.  Something is wrong with planning that encourages this - a car sales yard is even now being redeveloped on the corner of K'Rd, Ponsonby Road - zoning for such inappropriate use in a prime location is bizarre and needs to change.  Car yards should be a Prohibited activity in these locations.
 
The other major factor coming into play is that all historic buildings (including up 'till last decade) are being assesed for earthquake risk and many failing, less than 34% current code or something.  There's going to be a lot of worthless commercial buildings that can't get tennants or insurance to be demolished or rebuilt.

“On the back of record mortgagee sales” Treasury are a pack of pencil heads living in an ivory tower

Not record at all.
Banks are taking advantage of the booming market to offload bad loans without taking a hit.
 

 
Michael Hudson is on to it....
"This is the first time in history that people have believed they could get rich by borrowing money to buy assets that are increasing in price, or that they may get rich by the hyperinflation of property prices, and by the stock and bond prices that bank credit has inflated. Banks have managed to prevent the government from regulating and preventing this hyperinflation – and they even have called it “wealth creation.”
It is really debt creation. Debt is a claim on the means of production, and on labor. It is not a process of real growth. So what banks are saying is that there is no alternative but to let debts grow, at compound interest. This means reducing wages, as more and more must be spent on debt service. This eats into corporate cash flow and profits. So more and more are siphoned off to pay creditors. Debt also eats into the government revenue, so that the government does not have enough to pay for social programs and pensions. It only has enough to bail out the banks on exponentially growing debt that can never been paid, mathematically. That is the empirical fact. All you have to do is draw a statistical chart of the growth of debt, and compare it to the growth in wages."

As the commenters on ZH often say... Ctrl + P bit*hezz.

1          Herne Bay       $1,872,333
2          St Marys Bay   $1,469,667
3          Parnell             $1,330,778
4          Epsom             $1,141,889
5          Stanley Point   $1,134,333
6          REMUERA         $1,110,278
7          Takapuna         $1,109,278
8          Westmere        $1,065,000
9          Ponsonby        $1,044,778
10        Mission Bay     $1,043,000
11        Devonport       $1,026,889