The stark directive from the Prime Minister to the Auckland Council to loosen restrictive limits on housing will have a far greater influence on Auckland house prices in the medium term than any of the measures included in the 2016 Budget.
That’s not to say that the measures in the budget, and those announced over the past 12 months, are not positive steps. It is just that a national policy statement covering land use for residential development will have a far deeper influence.
In spite of what many would like to believe, it is not speculators, investors and non-residents who are responsible for the current situation.
At the core of Auckland’s issue is the country’s relatively successful economy, which is leading to a spectacular population increase. Four drivers are behind the increase – natural growth, people moving to Auckland from other parts of the country, New Zealanders returning from overseas, and new immigrants.
No-one can control the first three. As to the fourth (immigration) the budget data makes it clear that not only will the Government continue to welcome overseas immigration, it sees an increasing population as a significant contributor to the country’s continued economic growth.
Without the increase in population the surpluses forecast in the budget are unlikely to be achieved.
While we all benefit from a growing economy, rapid population increases place pressures on a whole range of services and amenities, including housing.
An insight into the size of the issue is contained in Statistics NZ’s population growth forecast for the year to 31 March. This was an increase of some 100,000 people, with 70,000 of that number coming from returning Kiwis and immigrants.
If half that 70,000 ended up in Auckland (in all probability it will be more) and based on 3 people to a house, we needed at least another 11,000 homes to house them.
Demand at this level must put pressure on house prices. Adding to it will be the next 12 months of population growth.
It is not only house prices that are under pressure. The same applies to houses for rent and rents.
The Government’s approach to solving Auckland’s housing issue is to build more houses. It is the natural market response to shortages.
The alternative is short-term initiatives designed to manipulate and suppress price increases. There is certainly no shortage of this type of ‘answer’.
However, these have the potential to impact badly on certain groups (such as the 20% deposit requirement did on first time buyers). It also impacts on existing home owners.
By far the majority of the homes in Auckland are owned by the occupiers. Their home is also their major financial asset. In attempting to manipulate prices, the risk exists of the majority being penalised to assist those seeking to achieve home ownership.
Based on the current level of debate around house prices, it is inevitable that home ownership and prices will become a major political issue over the next 18 months as we head towards a General Election.
The Government has put its stake in the ground, and its preferred answer is freeing up land, reducing compliance costs and reducing construction time.
Its critics’ response to this ranges from ‘disappointment’ to ‘outrage’ with some wanting their particular silver bullet introduced, while others simply want some sort of action, anything, but something.
What is not readily appreciated is that while Auckland prices have never been higher, and by inference the opportunity to achieve the best ever price for a home, Aucklanders are not rushing to sell.
Our sales data shows that the turnover of homes in Auckland is at best static, if not declining.
For the first four months of this year, our market share of sales has averaged 40% of the market, a little higher than it was for the same four months last year. In the past four months we had 6,347 new listings, 3% less than we had in the same four months in the previous year.
Also, while there will always be exceptions, a percentage of the higher prices being achieved needs to be attributed to the improvements being made to existing properties, and the higher specifications of the new homes being built compared to even 10 years ago.
Managing Director, Barfoot & Thompson