With Auckland house prices continuing to increase along with a shortage of supply, Peter Thompson, Managing Director, Barfoot & Thompson, takes a closer look at the growing momentum of building houses and the balancing act decision makers will play in shaping the market's future.
In the last few months, debate around Auckland housing has been less on rising prices and more about the initiatives being taken to increase the number of new homes being built – and overcoming the barriers slowing down new builds and contributing to high construction costs.
It is a welcome development as, along with a number of others, I have been saying that the real issue affecting price increases is lack of available houses to meet population growth.
While most agree this is a major factor, it is not universally accepted. Those that don’t point to the much slower growth in rents and see this as a sign that under supply is not that great an issue.
A great deal is being done by the State, local authorities, and the private sector into getting greater momentum into building more accommodation, and more cost effective homes.
And to ensure there is greater activity, some land sales are conditional that building must commence within 6 months of purchase.
Currently, there is more housing being planned, on the drawing boards or under construction, than there has been for more than a decade.
The influx continues
Countering this is Auckland’s fast rising population.
One source of population growth is immigration. In the year ending May the country’s population from immigration grew by a net 58,000. If even half that number made their home in Auckland, and we allow for 2.4 people per family (the official average), we would need more than 12,000 homes to house them.
While I remain positive about the progress being made, I’m realistic enough to know that it is going to take years to deliver results.
The risks of radical intervention
A position I don’t buy into is that until we get ahead of the curve the only answer is some form of radical intervention around pricing to give the supply side time to catch up.
There are some 470,000 dwellings in Auckland, and the majority of them are owned by individuals who own only one property.
Each year some 30,000 Auckland homes change hands, and, rightly or wrongly, those people who have bought at current market values expect to sell at current market values. They operate on the belief that decision makers will not take actions that will deliberately undermine the value of the investment they have in their home.
The fine balancing act decision makers have to make is to ensure the present rapid increase in prices does not develop into a price bubble, to be followed by a negative over reaction that results in every property owner becoming a loser.
While the major responsibility for this rests with decision makers, others in the mix also have a part to play. The banks as lenders need to keep their competitive lending activities reigned in, economists and media need to keep their comments balanced, and those of us in the real estate profession must keep our selling rhetoric under tight management.
A desireable destination
Auckland is increasingly becoming a major world city.
To live in it requires us to accept changes to some long held concepts. Increasingly, we need to accept that apartments represent a good accommodation option; welcome private investors that want to provide rental accommodation; encourage the development of long-term rental agreements; and accept that not everyone will be able to own their own home within a 30 to 45 minute rush hour commute from the city centre.
Inevitably the City will build up. Rather than having large backyards we will increasingly rely on community parks and recreational areas, and that public transport will become the most effective way of moving around.
The payback is we get to live in one of the world’s most desirable cities.
Westpac has info and tools to help you navigate the house hunting process: