Mortgage rates hikes and investor LVR restrictions won't be enough to stop Auckland house prices from growing in 2017, says the Property Institute

Auckland house prices aren't going to keep falling, says the Property Institute of New Zealand. 

The CEO of the body that represents valuers and other property professionals, Ashley Church, says that while house price growth in Auckland will come off the highs of the past couple of years, growth will remain "strong".

Annual house price growth in the super city has been falling in recent months. According to the latest QV House Price Index, it sunk from 16% in August, to 14% in October and 12% in December - the slowest rate in 17 months.

Barfoot and Thompson data released this week also shows the average sale price fell marginally in both November and December, when sales volumes hit a five-year low.

Yet Church says the lull can't last. 

He makes the following seven predictions for 2017:

1.   Longer term mortgage interest rates will rise

The general consensus is that interest rates are on their way up – partly because of international events, and partly because NZ Banks will need to pay more to attract a diminishing fund of investment from kiwi depositors. Expect to see little change in 6 month to two year mortgage rates – but a jump of up to 1% in longer term rates as Banks try and woo borrowers into shorter terms in anticipation of further funding increases over the next 2 or 3 years.

2.   House prices will keep rising….

The current lull in the Auckland market is partly the result of the 40% LVR restriction on property investors put in place in October – and it can’t last. The continuing gap between demand and supply means that further price inflation is inevitable for the foreseeable future.

3.   ….but Investors will be constrained for a while

That 40% hurdle is a tough one and investors who were highly geared will need to wait a while before they have enough new equity in their properties to get back into the market. Those investors who had lower debt gearings are still buying – but are being constrained by tighter lending rules which are acting as a brake on runaway house prices. That means that it’s unlikely that we’ll see a return to the heady 20%+ levels of annual price growth experienced in the last couple of years.

4.   New home construction will start catching up

Depending on your source, Auckland either needs 40,000 new homes ‘right now’ or 10,000 per year for the foreseeable future. Either way the market will finally start to make some inroads on this target in 2017. The houses built through the combination of Government building initiatives and private sector construction of apartments and free-standing homes will, for the first time in years, exceed the number of homes actually required just to stand still – although we’ll still be a very long way short of the number required to ensure that supply matches demand.

5.   The cost of renting will start to rise, in Auckland

Renters in Auckland would probably disagree – but they’ve been renting in a relatively benign environment for the past two or three years. This is because many Landlords have chosen to forgo big rent increases while the capital growth on those properties has been so strong. This is likely to change in 2017 as Landlords look to offset lower capital growth with higher rental returns.

6.   Debt-to-income measures are off the agenda – for now

The Reserve Bank talked a lot about debt-to-income restrictions on mortgage lending during the latter half of 2016 – but is unlikely to act on them this year. This is partly because it will take a wait-and-see approach on developments in the world economy – but more specifically because the measures are politically unpalatable to either major Party. While the Reserve Bank is independent – it’s not completely blind to the politics of such a move.

7.   Property will be the #1 Election Issue

Expect to see a string of announcements, from the Government, spelling out what it is doing to fix the Auckland housing crisis and outlining new ideas to speed this process up. In particular – it’s possible, even likely, that the Government will offer a more generous response to the plight of first home buyers in a pre-election budget surplus splurge.

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?

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67 Comments

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*Newsflash*

Those who spruik property say its a safe bet forever.....wow, what were the odds?

Lets be honest - we're in a set of circumstances no one has seen before with ongoing ZIRP and QE.

The values of property are now so detached from normal metrics of income/debt/rental return etc that who knows - logic left the room a long time ago - Only time will tell...

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I hope these "experts" put their money where their mouth is and enjoy the source of eternal wealth, the prices-never-go-down paradigm.

Looks like the Property Institute has made a good case for the RBNZ to further decrease the LVR limit on investors from 60% to 50%, or less.

Peri, your sentence doesn't make sense, and you have 5 "likes"...

You can surmise what he is trying to say, though. It's funny because it is true.

Property investment in NZ is a cancer on our society and needs to be taxed way more heavily than it is now to discourage this. It is one of the main causes of inequality and until that gets addressed we'll see people living in cars or paying 80% of their wage to some slum lord paying off his mortgage.

Filed this article away...

Mr Church I think is pretty accurate with most of his predictions.
Interest rates won't be moving up much at all that will effect seasoned investors although Aucklandites will feel it more than other parts of the country.
The government will need to do something to assist first home buyers into the market which will surely stabilise the market as well.
The only way the Auckland market will drop substantially is if the immigration policy is amended to restrict.
DTIs won't be implemented as all it will do once again is shut out many first home buyers and ensure that they will never be home owners.
It isn't what most on this site would wish for as you are looking for prices to drop so that greed y landlords as you put it get hammered.
The thing is though that landlords that are investors are not greedy and are providing a service that the government would rather not be involved in.

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unfortunately Mr Church does not control world liquidity, nor can he control the euro dollar crisis. I believe central banks will prove to be powerless against the coming recession.

Please supply a link to Mr Church's previous predictions so i can judge the veracity of your statement "Mr Church I think is pretty accurate with most of his predictions" or are you judging his predictions correct even though the year has only just begun.

You still haven't answered by question I asked several days ago - what are you scared of.

BadRobot, I think they call that a loaded question. Did THE MAN 2 say he was scared of something?

Bollocks - it's not a loaded question. How is it loaded. It is a simple question as to why he continually makes comments with no evidence and expects people to believe him - who is he trying to convince - me or himself. If he can honestly answer the question perhaps he will understand that not everyone believes the same things , not everyone thinks the same way.

Bad Robot, didn't know you asked me a question sorry!

What am I scared of?

Still being on here trying to justify my time trying to reason with the many jealous posters that think the sky is going to fall!

Why are you even trying to justify what you think to others. Other people think differently - not everyone thinks the same way not everyone thinks the same things - get use to it. It's a pointless argument. How do you know people are jealous? I think you are assuming that they are. Perhaps people are fed up with your bombastic statements with no evidence to justify your statements (I know I am).

https://www.bloomberg.com/view/articles/2017-01-13/pundits-facts-and-the...

EDIT

And a Warren Buffet quote I just found -

"Forecasts usually tell us more of the forecaster than of the future."

https://www.oaktreecapital.com/insights/howard-marks-memos

“If you wish to improve,” Epictetus [first-century Greek philosopher] once said, “be content to appear clueless or stupid in extraneous matters.” One of the most powerful things we can do as a human being in our hyperconnected, 24/7 media world is say: “I don’t know.” Or more provocatively, “I don’t care.” Not about everything, of course – just most things. Because most things don’t matter, and most news stories aren’t worth tracking.

You obviously think you know something and care enough to write this comment though.
It wouldn't be very interesting if everyone didn't know and furthermore didn't care now would it? People do know and care about what's going on in their own lives and I find it interesting getting their perspective on things.

In reality most "news" doesn't matter. The Bloomberg link sums up mostly what I think. Look up Dunning Kruger effect.

Have the "Property Experts" factored in Donald Trump, I don't think they have? Even if they reduce the LVR rate for Investors to buy in Auckland it won't make much difference. Everyone knows that the rents here are Maxed Out, you can only drain people so much until the leave or default and then turn your rental in to a P lab.

Haha

The world should take note, because the real end game for central banks will come when they are constrained by rising inflation in a weakening economy. We all know what happened after the 1970s stagflation; and hiking rates to 20 per cent in an overleveraged world is a lot harder than it was back then.

The small vulnerable economies will go down this route first, with the likes of Norway, Australia and Canada already struggling. While they are still on the side of monetary accommodation, that could change abruptly as exchange rates depreciate and inflation takes hold, just as their commodity dependent housing bubbles bursts and drags economic activity down with it; larger, more diversified, economies will be next.
http://bawerk.net/2016/08/19/toward-stagflation/

Nice to see positive and balanced article on housing. I agree that house prices rises will be moderate around 10% in Auckland.

Nice try Ted (Mr Estate Agent) but even the NZ property magazines are telling Investors to be cautious and not to expect great returns, especially in Auckland.

so would property valuers as a group want real values to drop or would they benefit up or down.its only 5 years ago that the SFO was warning us against tame valuations being rife,dont remember any cleanup

Limited supply,Immigration and densification will mean house prices in AKL won't fall too far but there again I don't see prices roaring away.

Your three factors could be vapourised at the stroke of a pen or an FMD outbreak. Property is a long term game and you cite short term political whims to prop up the house of cards.

I don't think you could really describe any of those three as short term whims. But sure catastrophes could be catastrophic but we can't really factor them into the discussion.

In order of importance
• Capital flows from China. In the short term (Jan-May) we can expect a boost in price due to syndicated buyers pooling their $50,000 USD allowance to buy houses. The silent capital controls Imposed by the CCP politburo may slow or delay that process as banks in China now have forex caps. Auckland seems to be the last domino falling and Chinese house buyers are shopping internationally and will be aware of that.

• Election – The wealth divide between boomers and 5th generation Kiwis is now enormous. People who were angry about housing during the last election are apoplectic with rage now. Foreigners aren’t just buying houses of course, they’re buying the future income earning potential and future wealth of 5th generation Kiwis (doctors engineers, accountants white collar) who’ve been turned as JK said into “tenants in their own country”. This will be a huge election issue but it’s going to be a bloody knife fight as vested interests battle to control the narrative. What’s at stake is a foreign buyers tax, and changes to favorable taxation of investment properties. Major changes are inevitable in the long term as real-estate is becoming an issue of social and political stability.

• Interest rates – they’re going up now but they could be going down tomorrow. During the next crisis they could be set negative and cash will be banned. This will create a drive towards hard assets.

The real wealth divide in NZ is the massive median wealth gap between Pakeha & Asian,Maori,Pasifika.

Kiwis haven't turned into "tenants in their own country" & NZ needs many immigrants in the near future due to New Zealand's low birth rates below replacement level,fast ageing population.

1 million+ Kiwis live overseas which is the second highest for any nationality per capita after the Irish.

650,000+ Kiwis live in Australia (15% of the NZ population). 31,300 Kiwis moved back to New Zealand from Australia just last year.

Cause and effect – you’ve got it backwards!

What’s the point of entering Auckland as an Engineer, Accountant or Lawyer? When the salary is so low 90-110K and the house prices are so high (1.3-1.8 million). Why would professionals want to have children in Auckland when it means losing one income and substantially increasing their cost of living. If they can’t afford to finance a house in Auckland as DINKs then they sure as hell wouldn’t ever be able to afford it with kids!

The real wealth divide between the lower quartile and upper quartile is getting larger, and I agree that’s no good for society.

One in six Maori have emigrated and live in Australia
https://croakingcassandra.com/2017/01/11/economics-of-immigration-where-...

I think the Chinese syndicate buying days are largely over. From Jan 1st anyone moving 50k or less out of China has to make a declaration the money won't be invested in property.
The will probably move to gold as the favoured place to stash their cash. Interesting following the bitcoin money laundering machine.
I think there is a new wave of wealth coming in from US and Europe as people there are fearful of the future.

We have heard that all before. Where there is a will there is a way to get there money out.

Only way to slow things down and bring it under control is a Vancouver Tax

15% non citizen buyers
15% on investors (include anyone buying a 2nd property)
15% on students and foreign temp visa workers
15% all companies & Trusts

@Joe Public ....you have covered all bases there, but the chances of even one of the four taxes going through are nil under a National government......too many personal snouts in the trough to upset the "status quo".

I have watched the Auckland market "go stupid" for the last 4-5 years and I still wonder if all those mortgage repayments and rents had gone into R & D or new businesses, what a "real" rip roaring economy we would have now !

All of them sound like reasonable and realistic 'predictions'. Factors inducing upwards pressure are still outweighing the opposing factors in my view too. In regards to housing being an election issue, irrespective of which party wins, housing issue is here to stay for a forseable future. Anyone who thinks otherwise simply rates our politicians far higher than I do. (I hope I am proven wrong)

We have been in such a benign economic climate for 10 years that investors have got smug. Watch prices tumble when interest rates start climbing. Renters ain't going to pay for spruikers overindulgence. How can they, they can barely afford rents now!

as for falling it should going by previous patterns stall and slide sideways for a few years same as has happened in previous cycles,
but we have been in a halo period of easy cheap credit for a long period, with no inflation, in fact the tools were being used to drive consumer growth and create inflation.
it looks like inflation and growth are returning around the world so that will lead to higher interest rates including here, but will those with the debt be able to service it
if it does start to correct imagine the talk in the backyard bbqs in Auckland, be a couple of sob stories instead of the paper millionaires talking up how well off they are

Election year. I 100% agree overseas ownership and specuvestor tax treatment will be key focus, and if NAT dosent change their tune, there will be a change in govt in NZ.

If immigrations tap is shut off, and overseas cash gets locked out and there if no tax offset or free cap gains, those holding onto stupid levels of debt with low rental return will be feeling sick.

Does require the iphone generation to vote but they should do as the cant easily run away to Aussie or the UK like they used to, and Trump has shown how to use social media to influence this hard to reach group.

It's completely impossible to turn the immigration tap completely off. New Zealanders are still moving back to New Zealand by the masses from Australia & Everywhere else.

They still can run away to Aussie if they aren't moving to escape paying student loans but Australia should put in a population cap on the Trans-Tasman border.

Labour have said they want the NZ refugee quota to be raised to 1500.

Why not? They fell for decades in Japan after a similarly crazy bubble.

I don't think you could describe Japan's bubble as similar in craziness. Some property in Tokyo is now only worth 1% of its former value yet is still some of the most expensive land in the world. The land under the Tokyo Imperial Palace was once worth all the real estate in California at the time. Some properties were 350 times more expensive than similar land in Manhattan. They also had a massive stock market crash.

Japan Bubble

It doesn't matter 'why' a property market falls, but that it did. They are mostly all different! None of them reached the highs that they did without expectation that they would go further up - otherwise the then current owners would not have bought/been holding them.

What is clears is what caused the fall, afterwards. In Japan's case you could sight the stock market etc. In Ireland you could look at EU immigration and tax policy. In Spain speculation and in the USA Sub-Prime mortgages. They are all different with one exception - they all fell.

Its been a 20 year ponzi scheme. Auckland house prices will return to July 2010 levels by the end of the decade. The data is all stacking up , and those in the trough are in denial .

20 years maybe,but like rip van winkle we have to wake up, when you need to mortgage your future to live in a box in auckland or letting yourself be groomed into thinking that living in a tiny house or a van by the river is acceptable then we need to reboot the system.

We can only reboot our property system if we have control over it, which we don't!

We're completely at the mercy of Foreign Buyers. We need the same tax control that Canada and Oz have introduced but at a 20% tax rate. This will bolster our economy and take the pressure out of the housing market.

true that,we know it isnt going to happen under the English regime(even sounds colonial)so I was thinking more of a short term political cure.scrape off the old barnacles.get rid of that dull as ditchwater lineup,lets get going!

Yes I very much agree with you 2bobmillionaire, do you have anything specific in mind apart for getting rid of National?

cometh the hour cometh the man,no sighting as yet.short term was thinking winston to cool the immigration,he isnt the bogeyman everybody makes him out to be.ran a steady ship with helen clark.

Spot on

15% TAX. Follow Canada and Singapore.
Rein this in before it gets even more out of control.

I think it solely depends on how many people we want to live in Auckland. If we want immigration to flow in, then it is a supply and demand thing, and high intensive housing will need to be built. There is only so much land within the circle, so much of the value of much property in Auckland is locked in the future potential of the land a house sits on. The actual building on the land is worth little in comparison to the value of the land, as you can build many units on a piece of land that previously had a single house..
Property investors in Auckland want properties to keep increasing in value, so they are likely to be all for high levels of a immigration inflow. This mixes with cheap credit fueled the housing crisis, meaning that it looks like we may have a generation locked out of the housing market in Auckland.

Cowpat, I have a deal for you, how about I give you the option to sell your current 3 bed Auckland house for its value today in 2020 for the same price as today. I am willing to shake hands right now...

A number of very famous quotes were made in Ireland in 2007 , suggesting the same.( at least the quotes are folklore in Ireland ) Although the details of what I own , or do not own in Auckland are a little sketchy,I will add that I am currently in final negotiations in selling one property in Auckland, although it does not have 3 bedrooms.Given that your financial position will be significantly less favourable in 2020, I prefer to sell now and reinvest. I stick by my comment.

I think it would depend on what area it was in, and the type of house it is. If it is a standard shack with a good sized section, and the unitary plan allows for more intensive development, then I wouldn't be surprised if it will continue to go up in value. It is all about the potential in the land.

Why 2010? A lot of people would like to see the Auckland house prices to crash to 1999 level.

Its got nothing to do with 2010. Just a 45-50 % drop from today's median prices

I'll think you'll find, house prices in Auckland have doubled in the last seven years!

Blue meanie, is this a mathematics lesson

OK, I will bite.

I think you'll find that ..... A*2=B = B*0.5 = A

If a house price was $400k in 2010 and now it's doubled to $800k, if it were to now reduce by 50% ($400k) it would be $400k again. Now I understand the problem with the bubble!!!

even if you see a likely collapse of property prices in auckland it would still be a bold decision to sell the family home if that was your only exposure to it.unless your next door neighbour wanted to pay a premium and no RE fees you could risk chronic seller remorse.

CP, it is a good time to sell...good luck. Your comments about AKL prices being at the levels of 2010 in 2020 are disingenuous at best...ain't gonna happen unless Rangitoto erupts...
....

So said Ireland.

As long as the 'house flipping' or 'Multiple ownership in days' ' keeps going in Auckland, the the bubble keeps http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1178...
.

That was all the same people/ companies.
the moving it around was a paper transaction
if the reporter was any good they would have followed the money and seen the amount borrowed and price paid were the same amount, no LVR here

Vancouver tax 15% stamp duty required

Apply to
Foreign buyers
Investors (any second home purchase)
All trusts and Companies

Apply to existing homes .

Check out this madness :
http://m.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11782787

If English doesn't act he will fail miserably at the next election.

There is a seldom used word for the opinions of the Property Institute....................Bunk .

Markets do come down and quite alarmingly so , not just some markets , but ALL markets adjust after big swings , they either lose momentum , become too expensive for anyone to afford , or something radical happens like a recession or other crisis.

Quite simply , for the property market to carry on going up it would need unbridled immigration to New Zealand , and this is not going to happen

Already the Government has signaled tighter entry rules , and there is an election coming , during which there will be a swing to the right ala NZ First or even Gareth Morgan purely on their immigration policy and its bedfellow, Housing Policiy

It would also need interest rates to stay close to zero , this is also not going to happen .

Fundamentally , just look at one example :- There is no justification for the price of a section on the North Shore selling for $800,000 , the intrinsic value is simply not there , its just too expensive , and anyone who thinks it can just keep going up is delusional

All markets are markets. People were pumping up the cost of Hong Kong apartments for about 25 years. When the prices dropped around 50% a lot of people went broke.

The political issues for this coming election could be really interesting to see debated.

But.....but....but....but.....its different this time.

Tell that to Irving Fisher the first person to say that. Of course he lost his $6m fortune and his bank in the 1929 crash.

@ rmnz: Really is it different this time? I think you're missing the bigger picture, remember who 'was' buying in Auckland: Money is pouring out of China as rapidly as it once poured in. That’s a dilemma for Xi Jinping.

https://www.bloomberg.com/news/articles/2016-01-14/china-s-capital-flight

$800k for North shore section + $600k to build a decent house...all up $1.4 million - absolutely a good deal...