The Auckland housing market is showing clear signs that rapidly rising prices may be coming to an end.
The indicators have been there for some months, and in October we saw a significant fall in sales numbers, the rate of price increase slowing considerably and properties for sale increasing.
Only time will tell whether the upward price cycle has been tamed, or whether we are in a temporary lull caused by a combination of circumstances including concerns surrounding the world’s economic prospects, the Reserve Bank’s additional restrictions on investors borrowing, and the trading banks implementing the Reserve’s Bank’s new restrictions immediately rather than waiting for the official commencement date.
If rapidly rising prices have been pulled back there is every prospect that we are in for a soft landing from a situation that has been causing so much concern.
Another plus factor is that it will have been achieved with the fundamentals of our housing market intact.
There have been repeated calls from many for draconian intervention in the form of measures such as a capital gains tax, banning non residents from purchasing property (or alternatively being only able to buy new builds) and changing the tax deductibility rules for investors.
All these measures had the potential to fundamentally impact on property values which would have penalised all existing home owners, the vast majority of whom are owner occupiers.
If we are coming to the end of the upward price cycle it means the only new regulations of consequence the market has to live with are LVRs (which can hopefully be reduced over time, especially for first time buyers), the bright line test and the sensible requirement around non-residents providing an IRD number.
Unstoppable increase in residential house prices globally
Based on media reports, we are all aware that New Zealand has not been alone in experiencing rapid residential house price increases.
Recently, I attended an international real estate conference in Amsterdam and the topic that totally dominated discussion was the seemingly unstoppable increase in residential house prices.
Whether the delegates were from Continental Europe, Britain, Australia or North America, the main topic of conversation was the rapid rise in prices that had occurred in the local market, and the various initiatives their regulators had introduced, or were considering, to tame rising prices.
What struck me was that regardless of the existing local regulations governing each market, and the additional rules that had subsequently been introduced, the outcome remained the same. Prices had continued to rise year on year.
Each market had various combinations of restrictions. They included capital gains taxes, sales taxes on property, stamp duty, challenging mortgage equity ratios, curbs on investors buying property and curbs on the type of property non residents could purchase.
Delegates were keen to know ‘what has your market tried’ and ‘how successful was it’.
Low mortgage interest rates key driver behind price increases
A conclusion I reached was that a key driver behind the price increases in each market was what we had in common – namely all had gone through a long period of low mortgage interest rates, our banks saw lending mortgage finance as a key growth and profit opportunity, our people had the wealth and inclination to invest in their lifestyle and the belief residential property represented a sound long-term investment.
Early in November statistical data released by the Auckland Council underlines some of the factors that have contributed to the pressure on Auckland property prices.
Entitled Auckland Economic Update, November 2016, the report highlights that in the 12 months ending September 2016
- Just under half the immigrants coming into the country settled in Auckland, increasing the City’s population by 33,000
- The annual employment growth rate was 8.7%, with the unemployment rate reducing to 5.3%
- Auckland GDP growth was 3.2%, 39% higher than for the rest of the country.
These last two statistics represent greater career and job opportunities, and in addition to attracting immigrants are also contributing to strong internal migration north.
While it is a fact that some people are reluctantly abandoning living in Auckland on the basis that current property values are beyond their means, the cold hard statistics tell the other side of the story. Auckland retains its attraction as the city of the future in terms of job prospects and lifestyle options. The City’s economic wealth is certainly attracting more than house prices are pushing away.
Unless there is an event external to New Zealand which affects economies globally, the Auckland residential housing market is likely to continue to remain sound.
Next year is election year, and traditionally as the election approaches housing activity softens.
It could well lead to those who anticipate selling in 2017 finalising arrangements in the first half of the year. If it does we could well see a rise in the number of houses for sale in late summer and all of autumn.
Managing Director, Barfoot & Thompson