The following overview of the housing market by Westpac chief economist Dominick Stephens was released in a Westpac Home Truths newsletter.
Going vertical
In financial market parlance, Auckland house prices are “going vertical”.
According to the REINZ’s House Price Index, Auckland house prices rose 5.3% in May (seasonally adjusted), and are now 25.6% up on a year ago – the highest rate since 1994.
Meanwhile, the same index suggested that prices were broadly flat or fell in May across the remainder of New Zealand.
Annual house price inflation outside of Auckland varied from 0.3% in Christchurch to 5.4% in the North Island ex Wellington and Auckland.
Stunningly, this REINZ data suggests that since January 2011 the relative price of houses between Auckland and Wellington has blown out by 69%.
That is, if two houses had the same value in 2011, the Auckland house would now be worth 1.69 times the Wellington house.
Where to from here?
There have been three important policy developments recently that might have implications for the housing market: the RBNZ has loosened its LVR policy for most of New Zealand, but has introduced new lending restrictions in Auckland; the Government will apply capital gains tax to any house resold within two years except the family home; and the RBNZ has reduced interest rates.
Without doubt, this mix of policy developments is positive for housing markets outside of Auckland. Combined with the anecdotes we are hearing about “Auckland money” arriving in Hamilton, Tauranga and Whangarei, we would not be surprised to see some degree of pickup in housing markets around many parts of New Zealand over the remainder of this year.
Christchurch may well be a different story – the inevitable lift in housing supply has reduced the pace of increase in both house prices and rents in the Garden City.
We suspect that Christchurch house price inflation will continue to underperform prices in the likes of Wellington and Hamilton for years to come, until something resembling the pre-quake price relativities between those cities is restored.
For Auckland there has been a different mix of policy developments. However, we suspect the impact of lower mortgage rates will outweigh the tighter lending restrictions and tax changes.
However, in a situation like this market sentiment will count for a lot, and can be unpredictable.
So while our tentative view is that the Auckland market will keep powering on over the remainder of this year, we will be watching the data very closely over the next few months for confirmation.
A wild ride
Last month we suggested that the blow-out between Auckland house prices and the remainder may be due to expectations of Auckland’s housing becoming denser, which have driven up the perceived value of land.
This view fits with key characteristics of the market much better than other common views – most of the price increase has been in the land, not the houses; the price of land is going up much faster in the centre than in the periphery or in other regions of New Zealand; and while house prices are rising, rents are very subdued.
If our view is correct, the key implication is that land values in established districts of Auckland will keep rising so long as expectations of population intensification remain germane.
Those expectations are being driven by the buoyant economy, strong population growth, the global trend for economies to concentrate on big cities, and the recent strong drive by Government and council to facilitate intensification.
None of those looks likely to wane this year.
However, the other implication is that Auckland land values could go into reverse if expectations of intensification are disappointed by the likes of an economic downturn or a slowdown in population growth.
In fact, we expect both of those things will come to pass around 2017, and consequently we are forecasting a period of declining house prices at that time.
This is quite different to the prediction that would be made by those who believe that a physical shortage of supply is the main driver of Auckland of house prices.
They would argue that house prices will only fall once actual physical supply is put in place.
We beg to differ – house prices hinge on expectations, and could fall before physical supply actually comes on line.
68 Comments
The particular house he sold in Epsom would not be worth $2.2m today, because of the steep site and access.
Although GV increase was high 2011 was 990k going to 1.59m in 2014. Have renovations been done? Interesting if someone with in depth local knowledge could tell us what they think 26 Halifax St is worth today?
http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=108…
DGZ properties around Mount Saint John in Epsom are extremely popular esp with the Chinese buyers. The land at 26 Halifax St, despite steep, is well over 800sqm. A similar DGZ property in Raumati Rd in Remuera sold for around $1.75m last year and I can see this one go for around $1.8- $1.9m in the current market. So still *ouch* for Bernard.
And he is probably close to mortgage free in Wellington. He has realised a big profit and probably lives a far more comfortable life style. Wonder how Auckland is going to fare now teachers, nurses can't afford to buy. I an sure the army of real estate agents can cover! Ha ha
Of course...I think you are jealous. There's no doubt any properties listed in the Auckland market (especially those in DGZ) will be snapped up like hot cakes and at horrendous prices, and that's the reality in the current market. The scary thing is that house prices can only shoot up like a rocket from here. Fasten your seat belt honey.
I'll be standing on the outside looking in, watching the skyrockets as they burst. I wonder how loud will be the howls of "why didn't the government do something to stop the bubble".
Or maybe the NIMBY's will start dying, their kids will sell the house and divvy up the loot, Developers will buy and cram it all with infill and unit blocks
......"House prices hinge on expectation" and no one is changing that expectation....no Politician or bureaucrat wants lower prices or they would have implemented changes that influenced the expectations.......crikey I can think of at least a dozen to 20 policy initiatives that would stall prices in their tracks and half of those would drive prices lower.
You don't have to ban foreign investors either just have suitable rules in place.
Tony Alexander BNZ Economist is at the Hamilton Field Days - listening to Gabriel Makhlouf
Have discovered in Auckland, when it comes to those selling property, Aucklanders have little problem with foreign buyers coming in and delivering them extra largess. In fact in Auckland people who have a house which failed to sell have a growing tendency to call their agent and complain about the lack of Asian buyers at their auction.
http://tonyalexander.co.nz/wp-content/uploads/2015/06/Sporadic-10-June-…
Morally you would want NZers to sell to residents in the country, but they also want to maximize the money they can make. Really overseas people (doesn't matter where they are from) should be prevented from buying existing housing stock, and should instead have to buy land and build like they do in states in Aussie. The existing housing stock should be reserved for residents, which I think would go a long way in solving the problem. But alas, these things are a decade too late. The governments were too slow.
The problem with that (which I agree with) is that the people that pass our laws have a vested interest in making sure it wont happen anytime soon. check out many of the boards of the foreign banks, development companies and how many have invested in housing. its one of the biggest rorts,
senior buy a house or apartment in wellington which is then rented to newbees paid for by us the tax payer, and don't forget your local MPs office who owns it and who pays the rent
Supply and demand are so out of kilter now, I think they need taking out of the market altogether, the first thing I would insist gets done is the govt reverse the allowing of residential property to be included in the investor category for prospective immigrants, that move was just plain cynical.
Immigration itself needs the brakes put on, hard, for now and for a fair while.
Absolutely more must be done to address demand as at this rate, supply simply never, ever will catch up.
Actually no you don't want them maximising the money they can make. That's an incorrect assumption.
What happened when milk hit $8.40/kgMS... did RBNZ say "oh we want heavily leverage technically lagging dairy farmers" to maximise the money they can make ...noooooo ... they said "Oh that is going to create inflation we better stop it quickly"
The individual property/farm sales is far far worse.
First up milk is a manufacturable consumable commodity...exactly the thing we want other people paying us lots for. Also dairy is supplied throughout NZ so it would give a shoot in the arm to all regions and provinces that desperately need it (see: lagging in technology), and the provincial lag in wages. milk is renewable and can be valueadded and does not reduce NZ's own asset value.
Compared with fixed capital items in unique un-creatable location of which there is near fixed supply. It is localised so all changes will affect one area and an increase will decrease neighbouring values. It is only in the largest city - one of the ferw places in NZ which doesn't need stimulation and that have no benefit from financial input. As stated the land is fixed supply so sales will increase costs to locations and depletely NZ's own available stock.
But not only that, the incoming cash causes a few people to get well off. but does nothing for anyone else. The way valusation works, it will lift ALL of the prices in the area...without lifting the earning power of anyone in that area, let alone the rest of NZ.
And OIO have their heads in their butts...because buying of the residences does NOTHING to improve strategically, any of NZ. And the inflationary affect, which IS happening in Quckland, where the foreign money is buying, and dairy farms which are also being brought, and inflating the prices ONLY in those areas, clearly has a direct affect on NZers being able to purchase - ie the additional buying is a PROBLEM, not a strategic advantage. We _should_not_ be allowing one or two NZers to maximise their money at the price of everyone.
Still to come - yes it will continue on up
watch these news clips for a taste of what's to come
Who is Huang Wangchan? Nobody had ever heard of him
Until his name popped up on the political donations register 1 year after the elections
The enigma travelling under the radar - who is he?
Huang Wangchan - 7:30 report
http://www.abc.net.au/7.30/content/2015/s4252680.htm
What we don't know is how he got his money in
Even the tabloid TV are getting in on the act
MSN-Nine a-current-affair - Tabloid TV
http://aca.ninemsn.com.au/article/8995619/chinese-buyers
We get bombarded with this stuff every second day
People are climbing in a hurry now to beat the new LVR and tax rules due to take affect in a few months time .
Same as what happened in the '70's when a property tax was announced but with no details for months.
Was it a mistake to create a future deadline that makes people act in haste?
WIth the lowering of the interest rates, is that not going to fuel house prices in two ways? Not just that people can now afford to borrow more, thus pay more for their shack, so it will be the person who can afford to pay the most will buy the shed in auction. But also the interest rate drop means a weaker NZ dollar, which means overseas buyers have more buying power with their overseas currency, so they can pay more. I really don't see why the interest rates have been reduced, unless there was going to be something done about counteracting it with the housing market in Auckland.I am not worried about Christchurchs bubble, as that will burst at some point naturally when the rebuild winds down, and it is a smaller population, so it won't affect so many people. I wouldn't buy a house in either Auckland or Christchurch. Wellington and Hamilton look to be good places to buy, although I would be wary of EQs in Wellington.
Maybe the reserve bank think the best way to control the Auckland market is to pop the bubble by dropping interest rates and accelerating the boom till it finds it's new level or pops. If it does collapse no one can cry about greedy fingers getting burnt in the hot toffee pot.
not so much for a person employed and using NZ wages to pay it off. any savings will go into higher prices because the NZD is dropping against the USD which most of our imports are paid for in as a country that now imports most of our goods that we cant compete and manufacture.
unfortunately that also puts overseas buyers at an advantage.
I don't think its a myth, too much anecdotal evidence, trying driving to the airport and you will see a massive billboard telling you to advertise your house with a Chinese website. talk to any Chinese person you know they will fill you in
we will never know the scale until the new rules come in and makes you wonder why the government was not interested in finding out
I am guessing in six months they could be red faced when it is known
Just come back from an auction for this, only one three bidders couple of young indian guys, older indian and a telephone bidder, got passes in at 575 K. only pakeha there was one agent
http://www.realestate.co.nz/2557756
The difficulty is that while it's a big deal to our scale economics, it's very small numbers to the economies that are printing money, so while NZD would be reacting like a broken rubber band, the other economies would be feeling it like said rubber against the hide of a rhino....if we're _lucky_ they won't notice...
Everyone wants someone to blame, successive governments allowed the the greenie controlled city planners to strangle the size of the city (Auckland) for the past 20 years and this is the result - the demand for housing will continue as we all have to live somewhere, the jobs are in Auckland, and currently there are not enough houses within the current boundaries - expand and build is the only answer to solve the supply issue. The greenies will bang on about, cars and motorways (they don't want them) meanwhile Rome is burning
Oh lets blame the Greens for everything, despite today only being 10% of the vote.
You dont have to be a "greenie" to understand the geological and hence economic limits of fossil fuels mean that the more roads will be empty of cars in as little as 20 years.
The thing that is burning is our future as a species let alone our society.
LA as a category, specifically Brentwood, West Hollywood/Hollywood Hills & Santa Monica areas are rated in the top ten cities for foreign property investment world wide. It a busy prime spot.
I agree with Steven, time to consider cashing out. Having said that I think cowboy has a point about the federal government. Cash up the lot?
Not from what I heard. Those are all areas that have been picked as "over-hyped" - unless there's a bigger fool, I doubt many folks will buy there, the turnover time in auckland is mostly under 60 days. woods & pier IIRC can be many months to get the price. Just too many other options in that area, unlike Auckland, where the action is well fenced in
There is talk in the Australian media of a property bubble, and Gen Y is getting restless.
The housing crash we had to have: A Gen Y perspective on the bubble
http://rationalradical.me/2015/06/the-housing-crash-we-had-to-have-a-ge…
Same story in NZ
This in the AFR this morning.
"Bill English says Kiwis must follow Australia's housing rules or risk buyer spillover".
http://www.afr.com/news/bill-english-says-kiwis-must-follow-australias-…
Now, Bill is a master in stating the obvious some time after the obvious has occurred to everyone else. But at least he is stating it, which suggests there is at least a smallish chance he will in fact follow through.
He possibly thinks in terms of foreign ownership of housing that we are now as tight as Aussie is. I don't think so, and I doubt he really does either. In which case expect some more regulation in the foreign space.
Bill English acknowledges Buyer Spillover into Auckland
When Hockey announced investigations into foreign buyers bypassing the rules in Sydney who will be forced sellers I posted an alert that all the Pacific Rim countries have now closed the doors with the exception of New Zealand. There will be a rush to get some of that money out of Australia and into Auckland - There are over 400 multi-million-dollar investigations going on right now - where is that money going to go - not back to its home it originated from
The following articles publised yesterday in the Fairfax Media who also own AFR
Meanwhile Newscorp and Murdoch Press remain strangely silent - subtle censorship?
Australian Tax Office targets investment property owners in 2015
http://news.domain.com.au/domain/real-estate-news/australian-tax-office…
Penthouse sale shrouded in secrecy at The Rocks sells for $16.2 million
The sale is the top price achieved for an apartment this year but, strangely, no agent has taken credit. It follows the March sale for $10.5 million of penthouse atop Residence Hyde Park to another buyer from China, Jun Yang
http://news.domain.com.au/domain/real-estate-news/penthouse-at-the-rock…
Phillip Dong Fang Lee and wife Shi Xiaobei
http://news.domain.com.au/domain/real-estate-news/buyer-of-399-million-…
Tax office property probe: snitching neighbours dob in foreign investors
http://news.domain.com.au/domain/real-estate-news/tax-office-property-p…
Dear oligarchs, plutocrats, and corrupt officials - Please come and stash you cash in New Zealand. Our doors are still wide open even though Austrailas have shut. You can still be anonymous through trusts and shell companies. Honestly we don't want you to go away... we have to be seen to be doing something for our own citizens, but we're actually doing nothing. The IRD wont bother you. All we care about is your money. Regards - John Key and Bill English.
snip from Chris_J | Fri, 12/06/2015 - 18:15
"It's obvious, the Reserve Bank wants the dollar to fall so that the Chinese can buy out the rest of Auckland at a discounted rate!!"
I hope they don't spend all their cash as they'll need a bit to pick up the dairy farms that will need to be put to the sword. Sure as hell aren't going to be any Kiwi's that will have the horsepower !
When Hockey announced investigations into foreign buyers bypassing the rules in Sydney who will be forced sellers I posted an alert that all the Pacific Rim countries have now closed the doors with the exception of New Zealand. There will be a rush to get some of that money out of Australia and into Auckland -
I have seen the same thing starting to happen with russian money in europe, with Putins amnesty kicking in. Makes you wonder when the dirty money runs out of a place to be parked.
Speckles - Dirty money always finds a place. It is part and parcel of our society. I've heard it is all John Key's fault.
"
The reality is that drugs are a massive banking business. And it is also a fact that the bulk of that business is done in the industrial nations, in their banks, NOT in the drug producing nations. The Drugs business is mostly a western business. It’s a banking busness. Not unlike global mining where the mines are in the third world but the mining companies are listed and work in London.A recent study on the Colombian drug trade reported in The Guardian found …that 2.6% of the total street value of cocaine produced remains within the country, while a staggering 97.4% of profits are reaped by criminal syndicates, and laundered by banks, in first-world consuming countries."
http://www.golemxiv.co.uk/2012/08/a-word-about-banks-and-the-laundering…
Yes however the circles are getting smaller...the USA will go with its long arm of the law anywhere if it politically suits.
Russian money was as large as drug money, now look at their options...same as Swiss bank accounts..check mate. Last option is to trust Putin..ha ha All theses Governments are open until money gets parked and then close the doors.
I just went to another auction this morning where two non-English speaking Chinese groups (one on phone to money man) were the only active bidders. I was prepared to pay over the odds despite being convinced that the market is going to tank but they bid it up to 1.625M when it's worth 1.4M in an overheated market. I've seen one of the dudes and his mate at a previous auction. He's not buying for himself.
It's the third family house that we've gone through this process and watched them go mad, buy it and then these beautiful family houses get left empty or fall into disrepair. We could drum up more cash and outbid but I wouldn't sleep knowing I've overpaid by 30% in a peaky market.
Good on my Chinese mates - they are making the most of a situation that the government has allowed fester. I don't begrudge them one bit. My bile is reserved for the National party. They know the price of everything and the value of nothing!
So that's the anger bit out of the way. I'm digging in and waiting for something to happen. I rent a $2.5M house for $1000 a week. I think I'll just sit here and watch the car crash unfold. We have a good deposit that is increasing in value as it is not held in Kiwi dollars. So could be worse and definitely not looking for sympathy.
But I do believe there are tougher times ahead...
1. Dairy is f*cked. Reserve Bank are crapping themselves. More rate cuts to come this year. Ireland have upped production 12% in the last month now that milk quota is removed. Expect Europe to double dairy output by 2020 according to local press. If that happens there ain't no price rises for some time.
2. NBR story on Friday - "Chinese buyers looking to flee Auckland". Apartment buyers who settle after October change to rules (http://www.interest.co.nz/property/75520/key-announces-budget-2015-chan…) are panicking to get out of deal cause, surprise, they don't want their own Govt knowing what they are up to. I guess it's fill your boots before October - good on them.
3. Chinese stock market = Accident waiting to happen
4. Resurgence of US = moneyflow out of Asia
5. Weakening Kiwi = bad vibes if your own currency (China) is pegged to the US dollar and Kiwi is falling away. Bad vibes for all foreign investors holding property.
6. 40% investors in Auckland market now need 30% deposit. Will weed out the silly speculators (and they'll be thankful for it later).
7. Sentiment - the "sure-thing" and "one-way bet" property investment, the "rockstar" and all that bullshit will be gone by Christmas. Maybe even the property seminar ads on Radio Live will dry up but "herbal ignite" ads will live on forever.
8. Ireland knock Kiwis out of Rugby World Cup in October - triggers collapse in NZ stock market!! : )
OK maybe #8 is a "maybe" but the rest I'll stand by. These things tend to play out slower than I normally expect so maybe it'll be early next year before everyone is really worrying. We still need a home and we'll find one in time but I fully expect there to be a property deflation, possibly a crash and it's starting in the next few months.
Ahhh, that feels better! Had to just get it out so I can relax rest of day. Time for a Tsingtao.
maaaate...
http://www.smh.com.au/business/six-reasons-rising-house-prices-are-bad-…
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