Auckland's housing market could be developing a split personality as the market eases at the top and price pressures increase at the bottom

Auckland's housing market could be developing a split personality as the market eases at the top and price pressures increase at the bottom

By Greg Ninness

Auckland may be developing a two speed housing market, with prices for top end properties easing back while the growing housing shortage keeps upward pressure on prices at the bottom.

The first hint that this could be occurring came at the beginning of this month when Quotable Value (QV) released its Auckland valuation figures for January.

These showed the average dwelling value in Auckland declined from $933,264 in December to $928,921 in January.

On its own a movement in average values of around $5000, whether up or down, is not necessarily significant, but what was interesting about the movement in average valuations was how they varied between different parts of Auckland.

Average values fell in In Central Auckland, the North Shore, Waitakere and Manukau, but the biggest falls occurred in the high-priced coastal suburbs of the North Shore where the average valuation dropped from $1,244,765 in December to $1,225,307 in January.

Conversely, in the cheapest parts of Auckland, Rodney in the north and Papakura and Franklin to the south, average values went against the trend and actually increased from December to January.

So values were falling in the most expensive parts of the city and increasing in the cheaper districts.

The Quotable Value figures are for three month periods and because of the way QV collects the sales data it uses to update its valuations, its figures are a lagging indicator of movements in the market and the January figures were probably a reasonable indication of what had happened in the fourth quarter of last year.

B&T adds weight

Further weight was given to the idea of a two speed market when Auckland’s largest residential real estate agency, Barfoot & Thompson, released its January sales figures.

These showed the agency’s average selling price dropped from $869,492 in December to $811,700 in January, while the median price slipped from $800,000 to $760,000 over the same period.

Consider this statement which Barfoot’s managing director Peter Thompson released along with those figures:

“During January we sold a higher percentage of homes in the outer southern and northern suburbs compared to those in the central and eastern areas than is normally the case.

“This change also shows up in the number of $1 million plus homes sold in January.

“In January 20.7% of all sales were for homes that went for more than $1 million.

In December one million dollar [plus] homes accounted for 34.9% of sales.

“The number of homes that sold for under $500,000 in January represented 28.6% of sales, compared to 5.5% in December.”

A similar trend could be discerned in the REINZ’s January figures which were released a few days later.

These showed huge declines in prices in the city’s expensive central suburbs, where the median fell from $867,000 in December to $790,000 in January and on the North Shore where the median price declined from $910,000 to $870,000, while prices in the cheaper northern and southern fringes increased, or at least held their own.

In Rodney the median rose from $745,000 in December to $793,750 in January and in the REINZ’s Outer Auckland district, which includes Franklin and Papakura, it was barely changed, dropping from $635,000 to $630,000, a decline of just 0.8%.

What's causing the divergence?

So what could be causing this apparent divergence at opposite ends of the market?

A common refrain from many of the people I talk to is that Chinese investors are still noticeably absent from the market and that is likely to have removed a big chunk of demand.

Their presence was particularly noticeable in Auckland’s more desirable suburbs and they seemed to have had no problem paying what often seemed at the time to be extravagant prices.

Their absence may well have taken the cream off the top and removed some of the pressure at the top end of the market.

And a sense among other mid-to-top end buyers and vendors that prices aren’t increasing as quickly as they were and may be declining, could have removed some of the urgency that previously existed to buy or sell.

At the bottom end of the market I’m hearing that investors have become much less active since the new 70% loan to valuation ratio (LVR) rule was introduced for Auckland residential investment properties.

However the growing shortage of affordable housing in Auckland means demand from first home buyers is so great that upward price pressure from the bottom of the market is continuing.

What I’m hearing is that first home buyers and other owner-occupiers looking for a home at the cheaper end of the market have taken up the slack left by investors sitting on the sidelines in Auckland.

That scenario is supported by figures from KiwiSaver and the Reserve Bank.

The Reserve Bank’s figures break down new mortgage lending by the main borrower types – first home buyers, other owner-occupiers, investors and for business purposes.

Unfortunately the Reserve Bank’s definition of new mortgage lending includes refinancing packages, which means the figures don’t provide an accurate measure of buying activity by either investors or owner-occupiers.

But they do provide a good measure of purchases by first home buyers, who won’t have an existing mortgage to refinance.

And their numbers have been increasing.

The Reserve Bank’s figures go back to August 2014 when 1277 first home buyers took out mortgages during the month and their numbers have been steadily rising ever since, going past the 2000 per month mark in September last year and staying there every month since.

The KiwiSaver figures tell a similar story.

They show that in the seven months from the beginning of July last year to the end of January this year, $281 million was withdrawn from KiwiSaver accounts to go towards the purchase of first homes, which was more than double the $140 million withdrawn during the previous 12 months.

Pendulum swings for first home buyers

So the higher LVR requirements introduced by the Reserve Bank for Auckland residential investment properties last year appear to have swung the pendulum in first home buyers’ favour.

Unfortunately the severe shortage of affordable housing in Auckland and the rising demand for it, is maintaining upwards pressure on prices from the bottom of the market.

A two speed market where demand and prices are easing at the top and increasing at the bottom is likely to be highly volatile and this probably accounts for the big swings in prices the Auckland market has experienced over the last few months.

The REINZ’s Auckland median house price hit its all-time high of $771,000 in September last year, then dropped back to $748,250 in October, before clawing its way back to $770,000 in December and then slumping to $720,000 in January.

Own goal danger

That volatility could get worse as a posse of Auckland City councillors cave in to Nimbyism and oppose the housing intensification that would occur in their wards under the city’s proposed Unitary Plan.

I can’t help but think that those who are opposed to more intensive housing developments in their neighbourhoods are in danger of scoring an own goal.

There has been a good deal of speculative buying activity in areas where intensification has been seen as likely, from both developers seeking to land bank properties on which they can build higher density housing at a later date and from purely speculative players hoping to sell to developers and make a quick buck once intensification is approved.

That activity has helped fuel a rapid escalation of house prices in those areas.

If councillors’ equivocation on this issue creates doubt that that intensification will proceed, the first thing that will happen is that the developers and speculators will stop buying in those areas and that in itself could drag down property values.

If the council does eventually decide to scrap intensification in some areas, those developers and speculators who have already bought into them on the premise that intensification will proceed, will be left holding properties that will be earning them half of next to nothing and may even be facing negative cash flows.

They will want to sell and that’s when property values will really start to slide.

So if you are planning on being active in the Auckland property market this year you should fasten your seatbelt.

You could be in for a bumpy ride.

You can receive all of our property articles automatically by subscribing to our free email Property Newsletter. This will deliver all of our property-related articles, including auction results and interest rate updates, directly to your in-box 3-5 times a week. We don't share your details with third parties and you can unsubscribe at any time. To subscribe just click on this link, scroll down to "Property email newsletter"and enter your email address. 

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?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

37 Comments

Comment Filter

Highlight new comments in the last hr(s).

Good article and backs up what is happening elsewhere in the world. Good top end property will always sell to the super rich. The area where there seems to be the greatest weakness(and this is happening on an international basis)is in the what I would call the higher end family professional market. This in part reflects the fact that earnings have not kept up with house price inflation.

Len Brown will be spitting. Less expensive houses increasing in value puts up the rates for these people in dramatic fashion given his decision to go for a minimum Uniform Annual General charge.
The other thing is: what's wrong with house value drops for your so called Nimbys? Surely by calling that a potential own goal shows that you have a chip on your shoulder. I think most people who live in high value suburbs would say that valuations have become absolutely ridiculous and that they could never have afforded to move there in the first place if they had been so high back when they bought. Great numbers of these so called Nimbys would not be upset one little bit if prices plummeted.

Careful using averages.

Places of papkura with loads of free land for developers are seeing lots of new builds spring up - prob priced 600-700k - in a poor area where average houses can be had for under 500k - so more new houses selling will lift average price of houses sold - even while older second hand stock is decreasing in value.

This is also seen in apartment prices - they havent doubled - just lots of off plan sales skewe the data and push the average prices up when compared to period when almost all sales were older second hand stock.

Ps. be careful of these cookie cutter new builds in poor areas like papakura - may turn out to be as grossly overpriced as the cookie cutter apartment boom in the early 2000s

Exactly. Some people expect the "affordable" new builds which are required as part of the special housing areas to be "affordable". They may be initially if the sale price when first sold has to be capped at an artificially low value. But if you compare even a tiny a new build to an old shoddy run down thing, there will be much more demand for the new build, so its value is almost certainly not going to be "affordable" when the first owner "has a change in circumstances " and "has" to sell.

Just read a piece last week where "affordable" seemed to be $500~550k on a 150 year lease so not even freehold. Not sure what sort of affordable that is but, assume both working it would then absorb one person's complete wage per month to pay the mortgage if they were earning $100+k, maybe even 120k+. That isnt affordable to me.

The areas in and around Papakura is expected to be a large growth area with 22,000 new homes 6,000 new jobs and major upgrades to the motorway and existing roads for the future. Doesn't sound like a 'poor area' that 'may turn out to be grossly overpriced'. Indeed it could be more the opposite...under-priced. The next few years will clearly show what direction it will go.

supply-demand buddy.

6000 new jobs, 22000 new homes (to house 66000 people?!)

Seems like a supply glut in the making.

Exactly why shoe box apartments halved in value and stayed low for 10 years (only in last 2 years have they now recovered). Too many houses that no one wants to live in, or that are all sold to investors (as I believe could be case in papakura) that compete for average-poor quality tenents = slum and depressed prices for a long time. You are right, we will see, next 2-3 years will be fun (for those not exposed to auckland housing).

I dropped into Barfoots auction this morning for a quick look. The auction room was full and many people were standing. I only saw the results of the first six but five sold going for 130-310K over CV. The one that didn't sell reached 110K over CV but passed in.
My advice is buy good one and two bedroom units. There is big demand for those and will be in the future. Standalone two bedrooms built of durable materials will be valuable too.
I used to be down on the fact that Auckland was becoming unaffordable but now I believe we should make Auckland exclusive and that means it won't be cheap. One of the best cities in the world ain't going to be cheap. Let's make the whole city DGZ!

You mean 3rd best city in the word as indicated by the survey of expats in NZ on corporate remuneration packages run by Mercer?

Exactly. For the average person Auckland is a nightmare. Perhaps in the survey they did not go outside?

What planet are you on Zachary!! Do you really think the Auckland business employers are going to pay huge salaries to attract and enable people to live in Auckland??? There simply isn't the business infrastructure to support your lofty ideals. Its not like London, NY etc.. Which by the way Auckland City is now more expensive than these more well established cities that have a very large business infrastructure within their CBD to support higher salaries.

Well, I do have a vested interest. But think about it, a lot of the buyers are already rich and have business interests elsewhere. The poorer people will buy two bedroom homes. Rich singles will see the benefit of single bedroom houses.
Honestly, I think we could have kept NZ really great and almost everyone could have been millionaires with holiday baches. Small population and highly mechanized primary industries. However that would have required a system much criticized and assigned to the dustbin of history. So I play with the cards I am dealt and it is full steam ahead with globalization and that means exclusive international (global) cities.

Zachary, lets start thinking about this. The buyers are only rich on paper because of the current valuations. To actually be rich, all the buyers would need to all sell right now at current valuation levels (all of them at the same time). Then they could sit back and look at their bank accounts and go 'look at all the money we have in the bank, we're rich'. But what would happen if everyone sold right now at the same time? Prices would drop dramatically. In fact there would be a massive crash in the housing market. Those that sell first would do well. Those who sell last will be punished.

Further, if all these buyers are rich because of inflated house prices, why then are we the most in debt we've ever been as a society? How is owing all of this money to the banks being rich? You're story makes no sense.

gees Zachary fits this profile to a tee
"Only in a bubble could losing money on housing be viewed as positive,"

http://www.smh.com.au/business/the-economy/the-charts-that-suggest-the-h...

But what would happen if everyone sold right now at the same time?
Never fear, Smith is here!
Seriously? Aint gonna happen. No business or investment would ever get started if you took that attitude. Everyone still needs a home to live in. Many PIs have properties with positive cash flow. Thousands, maybe millions, of people in India, China and Europe want to come and live in Auckland. People are desperate to buy a home in Auckland. Chinese like to buy but they don't like to sell. Private schools are booming. It's actually money itself that is worth nothing. Houses and land are the real treasures.

Enjoy the view from the top Zach, but there's obviously not much oxygen up there

I think you might find that Christchurch is doing something similar to that of your headlines.

To a certain degree I think you are right - the eastern part of the city supposedly is increasing in value. However there is a lot of rental properties in Christchurch that appear to be unoccupied or looking for new tenants - TradeMe currently lists 1778 properties for rent. TradeMe also list 2331 properties for sale. There was an interesting article I read the other day saying Christchurch population has only just recovered to pre-quake levels - most people who left the city have moved to west of the city to Rolleston or Rangiora area.

And many if they could sell would move back..especially out Rangiora given the commute.

House just listed in Hamilton for $319K.
Sold 12/13 years ago for $110k. Been rented ever since.
Put on market 6 months ago for $289k couldn't sell .
New valuation of $300k now on for $319.
minuses...No garage
no utility shed
about 2 feet away from neighbour.
Wooden house covered in plaster.
So small you can't swing a cat around
Wire netting fence great for kids i think not.
Pluses.
Roof over head,

Anyone who wants to know the truth about Auckland property prices should have a look at the link below. The blue line clearly shows a sharp decline in the REINZ Auckland Price Index. And the decline in Auckland property prices to date, is much steeper than the GFC ever was.
https://www.reinz.co.nz/Media/Default/Statistic%20Documents/Public%20HPI...

Link doesn't work.

Sorry, try it now.

There is so much hype and propaganda out there regarding property prices put out by real estate agents and property investors that no one knows for sure which way the market will go. It is in these peoples interest to talk the market up.
My opinion, for what it is worth, is that the only reason there is supposed to be a shortage of houses in Auckland is that investors with money have bought multiple properties cutting out genuine owner occupiers. Every major city in the world has had housing inflation since the world was flooded with cheap money. I do not think that there is a housing shortage in every major city in the world at the same time. I do not see many people sleeping in parks etc. as I have seen in other parts of the world.
The market will eventually correct and many people will be burnt.

https://www.tvnz.co.nz/one-news/business/one-client-purchased-100m-worth...

A market some aspired too...now maybe the washing has dried up. The pump does not last forever.? Who can afford to compete at 10billion a washer.

Now freely admitted too...just as many, many clearly reported here, months ago.

Where is the Serious Fraud Squad.. No seriously, what are they waiting for.

Crime is getting bigger and bigger in Awkland. Now maybe moving out to the provinces. A drop in the ocean to some..100mill a pop....but enough to cause a tidal wave, in little old NZ.

I mentioned this transaction on this site in an interview last year when commenting on foreign cash coming into NZ and no one even commented. Now the $100m is a headline : )

Anyway, it was overseas money coming in and buying development land. Not necessarily a bad thing if it helps build houses in Auckland - which is what they looking to do.

Is the money legit? I don't know. Its more the size of the transaction and the process it goes through.

The point was that when people buy with cash and they don't borrow or invest through a bank then they do not need to do AML compliance. If they had borrowed to buy then the lender would be required to do full AML.

They did eventually borrow some money but at that point because they owned the land no AML of the source of funds was required. It was already 'established.' Still had to be ID'd etc and now the IRD is getting tax numbers so that's also a step forward.

There is $2 trillion a year of money laundered globally. It would naive to assume we don't get our share of it. Lets say 0.32% which is our share of global GDP - well that would be $6.4 billion a year.

Is it contributing to higher property markets globally? - of course. This isn't a NZ thing.

JB Squirrel which interview did you comment on the 100million transaction. It would be interesting to read/hear.

NZ is still a way behind on money laundering. Unfortunately it has got itself a very poor reputation internationally which is a shame and needs to change.

Oz bubble out of control - wld be interesting to do the same research on NZ as contained in this article http://m.theage.com.au/business/the-economy/the-charts-that-suggest-the-...

i am hearing of young people being offered 700k mortgages with no hope in hell of paying if interest rates were to rise by 1%.
so the banks must think house prises will only rise and interest rates will go down

L.A. Bubble .......research into investors speculating in property...sound familiar?

http://www.bigtrends.com/education/how-asset-bubbles-form-spread-like-a-...

"young people being offered 700k mortgages with no hope in hell of paying if interest rates were to rise by 1%."
If we had justice that would be a crime. People who lure them into that should be led away in handcuffs.

Coercion is the beast !!

It is a simple human desire to have a roof over one's head......so the coercion starts at open homes I would have thought......words along the lines of "if you want to get into a home this is what you have to pay"....."true value here" ......."investment opportunity or First home buyer"....."options galore" ...."affordable"......."get on the property ladder"........etc........and I haven't even started on the RE adverts and so called catchy lines to get attention.

I have never ever seen a property advert or any thing ever come from a RE Agency that warns of any downside to property.......when any person young or otherwise is lured into "this is what you have to pay" a price has been entered into the head, hear that price around 3 times and the amount is committed to memory.......it is subliminal messaging/perception.
http://www.umich.edu/~onebook/pages/tablepages/history.html

I have seen properties advertised as, "not for the faint-hearted".
I would say that for the last fifty years Real Estate agent's hype has been 100% correct. Surely it would have been bad advice, in the past at least, to advise someone to rent rather than buy?

Zach now is a good time to rent, keep saving and wait. 32per cent fall annualised since October15 and trending down. Why borrow part of which could go down a big black hole. Pay pennies to landlord and save thousands in borrowings.

RE Agents are by and large acting for the vendor......not the buyer. So it is the vendor they should be advising. Any advice outside of the contracted parties is manipulative.

A 30 minute walk through an open home listening to thickly coated lipstick lips or pants hitching suit wearers doesn't cut the mustard and past performance is no guarantee of future returns.....

It is not up to me, you or the postman to tell another person what they should do let along how to live their life or what to invest in........you do understand how this interference changes prices? Your question is a barbed one as it is as much a statement as it is a question.....and the only reason you can make the statement/question is hindsight and people actually need foresight when it comes to investing.

Everyday someone comes up with a new way and overanalyse it .
Come back when you have a crystal ball