Will Auckland house prices follow Australia?

Chief Economist David Norman compares the two markets

Publish Date : 24 Jul 2019
Will Auckland’s house prices follow Australia?

Falling house prices in Australia’s biggest cities has led to speculation that Auckland will follow.  Auckland Council’s Chief Economist, David Norman compares the two markets.

The Auckland Unitary Plan was introduced in November 2016, enabling four times the city’s previous housing capacity. Aided by tighter exchange controls in China and loan-to-value restrictions on investors in New Zealand, land prices reduced by about 6 per cent in Auckland over the two years to 2018. The impact of this surge in development potential was immediate and Auckland house prices fell about 4.5 per cent from their peak in October 2016, staying flat since then.

Fast forward to March 2019, the proposed capital gains tax took Auckland prices down another (small) step.  But with capital gains now off the table, we’ve seen a small resurgence in house prices.

Across the Tasman, Melbourne and Sydney saw their house prices peak between June 2017 and March 2018. Since then, prices have fallen 15 per cent and 10 per cent respectively. Perth prices have fallen 11 per cent since the end of the mining boom. Brisbane prices have recently flattened out, while Adelaide prices have risen most modestly and uniformly.

What's the outlook for Auckland?

David Norman, Auckland Council’s Chief Economist says that while housing markets in Auckland and Australian cities saw significant growth in values in the past, the two property markets are different.

“What is playing out now on the different sides of the Tasman is the result of supply and demand.

“House prices rise when house supply does not meet demand. Low interest rates and income growth also allow buyers to bid up prices.

“Australian cities have overbuilt relative to population growth over the last decade, compared to Auckland, meaning they just don’t have the housing shortfall Auckland does.”

“This puts them at far greater risk of the kind of price falls they are currently experiencing.

"It’s unlikely Auckland's housing market will follow trends in Sydney and Melbourne.”

Supply and demand in Auckland

The supply and demand relationship sets the price of products and services in Auckland. 

To understand what is likely to happen to house prices – we need to look at what has happened in Auckland to affect supply and demand.  Here’s what we know. 

Housing supply:

  • We haven’t built enough houses relative to our recent growth or our Trans-Tasman neighbours
  • The Auckland Unitary Plan has stimulated a major boom in new dwellings being consented, so the gap is unlikely to widen, but we do have a shortfall of at least 46,000 dwellings.

Housing demand, or who is willing and able to buy houses:

  • Auckland’s population continues to grow rapidly as net migration remains near record levels
  • Unemployment remains exceptionally low, and household incomes are rising
  • Interest rates are at record lows and are likely to fall further
  • The threat of capital gains tax is gone
  • The effect of foreign buyers being removed from the existing home market is baked into prices.

This balance of supply and demand plus Auckland’s steady economic outlook mean a melt-down in the housing market here without a sharp rise in unemployment and/or interest rates is unlikely, says council’s Chief Economist David Norman.

“Instead, prices are likely to bob around current levels. With Auckland’s economic outlook, prices will likely remain flattish and affordability will slowly improve.

"This is good news for first home buyers even though prices remain high. But those who have bought for capital gains in the last three years will be least happy with the outlook.”

The full report

Read David Norman’s full Insights Paper here:  House Prices - A factual antidote to doomsday aliments

Email the Chief Economist to sign up to receive the Insights Report and the Auckland Economic Quarterly

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