With the benefit of hindsight, it’s now possible to see that over the past 6 months the Auckland residential housing market has gone through a major readjustment without a significant downward impact on prices.
In summary, in the last quarter of last year the rate of price increases slowed, and then stopped. To date this year prices have remained at around record levels, but sales numbers have declined significantly.
For a market that had experienced 9 years of year-on-year increases this has to be seen as a positive development.
Rather than seeing the ‘bursting of a bubble’ we have experienced the loss of momentum in a ‘hot market’.
The loss of momentum has been achieved without loss of ‘paper value’, which can easily turn into real value for those that are the most exposed to changes in the market.
Undoubtedly, initiatives taken by the Reserve Bank in terms of equity ratios and the trading banks themselves in tightening lending criteria and edging up mortgage lending rates have contributed to the loss of momentum.
Other than that there has been little change to the key drivers that affect the Auckland housing market.
121,000 people new to Auckland in the 3 years ending June 2016
The population of Auckland continues to grow at a fast gallop (121,000 people in the three years ending June 2016 according to media reports), the Reserve Bank (in its normal cautious wording) is not seeing any increase in the OCR in the medium term (the measure which has a major impact on mortgage interest rates) and this month Moody’s reconfirmed the country’s credit rating at AAA.
In March I was invited to express my views on some of the issues confronting the affordability of housing in Auckland.
It caused me to review just where Auckland was positioned in terms of meeting the challenges of transforming from the country’s biggest city into a world city of international standing.
I was able to offer no silver bullet answers to the challenge, but at the same time I am confident for the future.
Those that call New Zealand home sometimes lose sight of just how attractive the lifestyle we enjoy is to the international community.
This, combined with internal migration and natural growth, is quickly propelling us towards a population of two million plus.
Even without the massive influx of people, Auckland was always evolving, as change is a natural part of economic development. But what may previously have taken decades to occur has been compressed into a few short years.
Lots going on behind-the-scenes
We see the negative side of this growth in terms of unprecedented traffic congestion, changing school zones, infill housing, first time buyers feeling they are locked out of the housing market, rising rents, longer commute times, an inner city in chaos from infrastructure construction and a shortage of properties for sale.
However, what we don’t see is the major planning and infrastructure initiatives moving forward in the background such as the Unitary Plan, the planning of designated mini cities on what are currently the fringes of Auckland, the protection and development of transport corridors, and the rezoning of greenfield and brownfield land for residential housing.
I don’t know one politician or official who doesn’t agree that these developments are moving forward too slowly for their liking, but along with us they are constrained by the process.
What is clear is there is no holding back the future, or turning back to the past.
Shifting culture: Apartments, terraced housing and town houses
In terms of residential housing, it will mean a greater number of people will live in apartments, terraced housing and town houses rather than stand-alone properties surrounded by gardens.
A greater number of people will rent rather than own (many out of choice).
Private investors will become more involved in providing rental accommodation (preferably matched by a system that is fair to both tenants and landlords) and public transport rather than the car becoming the preferred and most efficient method of getting to and from work.
If you look, you see signs of these developments occurring already. Examples include the North Shore’s bus lanes, the transformation of the Wynyard Quarter into a residential/lifestyle precinct, the total rejuvenation of the Glen Innes housing area, and the creation of a new community within the old Three Kings Quarry.
While it may take some time for Baby Boomers and Generation X’s to get use to the new norm that is Auckland, I have a feeling many of today’s Y’s and Millennials will embrace it with open arms. For them it offers an exciting future.
Managing Director, Barfoot & Thompson