Undoubtedly the initiatives being introduced by the National led Government will bring change to the Auckland housing market, but like a ship at sea trying to change course, the results being sought will take some time to bring about change – potentially years.
In the meantime, unless there is a change in the current dynamics affecting Auckland housing, such as an unexpected economic downturn or Auckland’s population growth stalls, the housing market will continue on much the same track as it has for the past few years.
The key driver increasing Auckland house prices over recent years is that there are insufficient homes to house our growing population.
A claim made by many commentators is Auckland house prices are ‘out of control’ and often back this statement up by comparing the current CV (capital value) with the selling price.
What needs to be kept in mind is that current CVs are now three years out of date, and that based on our data, compiled from selling one home in three in the Auckland market, prices have increased by 35% since CVs were last issued.
Also CVs are not market values – they are valuations used for setting rate payments. Westpac has an excellent explanation of CVs in this article.
For me there are two reliable ways of establishing a property’s market value. One is to engage a valuer, the second is to auction your home. Auctions are the ultimate market valuation as it is what a buyer is prepared to pay to take over ownership today.
Our data shows that in the past 12 months the average sales price in Auckland has increased 12%. While this increase is significantly higher than inflation over that period, and way higher than the average increase in wages, it represents what people with the ability to do so are prepared to pay to obtain the property of their choice in the current market.
While first time buyers, or those of limited means, may be dismayed at a price increase of 12% in a year, the majority of buyers are in fact already in the market, and in the process of selling and buying, will benefit from a rise in the value of the property they are selling.
For those struggling to get into the market, in time the Government’s bundle of initiatives for the housing sector will assist them.
Among those initiatives is a commitment to change the Resource Management Act to free up more land for building and to reduce and simplify Council compliance costs; the creation of some 80 Special Housing Areas within which the target is to build more than 40,000 homes over the next 12 years; making changes to its KiwiSaver and Home Start Grant schemes to assist low income and first time buyers; and partnering with community housing groups to promote the building of ‘affordable homes’.
The Auckland Council’s unitary plan, which allows for the City to grow up and out, and for greater density of housing, will also contribute to easing the pressure on accommodation.
The root of Auckland’s housing challenges is our growing population.
If the most common forecasts prove correct, within 17 years the population of Auckland will grow by 500,000 people to 2 million. To house such growth will require the City to build between 140,000 to 200,000 additional dwellings – or 8,000 to 12,000 new residences each year.
Theoretically, it is possible to achieve this building rate, but it has never been done before over such a sustained period of time. From this distance, it looks a big ask.
Regardless of whether the building target is achieved, the value of Auckland’s existing 475,000 dwellings will inevitably continue to rise over time. These homes are in the most sought after areas, with their location being closer to community amenities and town hubs.
For existing home owners this represents positive news. Many have spent a good portion of their working life paying off a mortgage and putting buying a home ahead of other discretionary spending or activities. Rising home values for them delivers a return on the discipline and sacrifices they have made over many years to get ahead.
Westpac has info and tools to help you navigate the house hunting process: