I am positive about the outlook for the Auckland residential housing market in 2018.
While there is always uncertainty about what direction any market will take over an extended 12-month period, when you weigh up all the factors involved in determining the direction housing will take in 2018, the positives far outweigh the negatives.
The area of greatest uncertainty is what the new Government may or may not do to influence the market. On that score I feel pragmatism will outweigh the rhetoric we heard during the election campaign.
While the Government will press on with some level of restriction on non-New Zealand and Australian residents buying existing homes, it may eventually be a case of leaving well alone, and the Government’s focus might be fully directed on the provision of affordable homes and initiatives that will assist first time buyers.
Any start point for making an assessment of where the market is heading needs to commence with establishing where it currently sits.
Our sales data and that of the Real Estate Institute are consistent and demonstrate that in 2017 prices continued to increase between 1.8% and 2.7%* over 12 months while sales numbers compared to the previous few years were down by a third.
It means we have a stable market and what was the most pressing issue - that of rapidly rising prices - has been tamed. Ultimately, it was tamed by the combination of Reserve Bank and Trading Bank initiatives, and consumer resistance.
The key factors that remain are a shortage of existing homes for the present population, a rising population, a building sector that cannot build homes fast enough to meet demand, a stable economy and low mortgage interest rates that are unlikely to increase significantly in the next 12 months.
Given these factors, without major internal intervention or an external financial shock, the most likely outlook for 2018 is prices rising modestly, and sales numbers increasing until the mid winter seasonal downturn.
Vendors looking for additional major capital gain, and buyers looking for a bargain, may well be disappointed.
It is worth noting that based on past trends, where Auckland goes is terms of housing, the rest of the country will also go over a period of time.
9% of Auckland houses sold for under $500,000 last year
The Government has talked about delivering a great number of ‘affordable homes’ over the next decade. However, affordability as a concept is difficult to pin down.
In discussions around housing the term is commonly used in two senses.
In the latest international ranking of ‘least affordable’ cities Auckland is ranked in 9th place, with it taking 8.8 years of median household income to buy a house at the median price.
Another use is when a specific value is put on an ‘affordable home’, and in Auckland it would appear that value is $580,000.
What is always missing in discussions around affordable housing is hard measures as to what you can expect to receive for (say$580,000) in terms of square metres, number of bedrooms, physical location, garden size and garaging.
What needs to be kept in mind when selling the concept of delivering affordable housing that expectations need to be kept realistic. The expectations of what makes up a modern home is today far in advance of what it was a few decades back.
For many years Barfoot & Thompson has released data which shows how many homes are sold within price segments, and one of those segments is for homes sold for less than $500,000.
In current terminology, such homes would be seen as affordable homes.
It may come as a surprise to some that in 2017, in the 9th most unaffordable city in the world, 9% of all the homes we sold had a value of less than $500,000.
While in percentage terms the number of homes sold for under $500,000 has been declining, it demonstrates that in a period when many claimed prices were out of control, and it was impossible to buy an affordable home, there was a significant portion of homes still being sold at under what is now regarded as the affordable benchmark.
If the Government can deliver on its commitment to build a significant number of affordable homes all well and good, but at the same time there needs to be greater flexibility in the options for first time buyers and those on limited income to get into these homes.
Without flexibility, first time buyers and those on limited incomes, could be left as disadvantaged as they have been in the past.
*REINZ median price increase in 2017 was 1.8%, B&T’s median price increase was 2.7%
Managing Director, Barfoot & Thompson