Welcome to the first issue of our new monthly publication which focusses on the state of the Auckland housing market. This is a market which has performed very differently from all others around New Zealand since the end of the global financial crisis in early-2009, with that difference best seen through price comparisons.
Since the start of 2009 average house selling prices in Auckland have risen by almost 90%. In Christchurch the average gain has been near 40%, Wellington 6%. Average prices across the Waikato and Bay of Plenty have risen 14%, Taranaki 12%, Otago 18% and Southland 9%.
Why has Auckland’s market performed so differently?
There are many factors driving Auckland prices higher and in our November 1 2012issue of the Weekly Overview we listed 19 of them.
But there are three big price drivers. First, up until 2006 Auckland accounted for almost 40% of consents issued around New Zealand for new houses to be built. Since 2006 that proportion has averaged less than 30%. There has been a worsening shortage of houses in Auckland since at least 2006 and possibly 2002 by our calculations.
Second, Auckland is becoming an international city and the centre of the New Zealand economy. It used to account for just 21% of NZ’s population in 1961. Now that is 34% and forecast to rise to over 40% come 2043 as up to an extra one million people squeeze into the city’s boundaries. Auckland accounts for 34% of gross domestic product (economic activity), and contains proportionately more people with degrees, attracts more business visitors, has better international connections than other parts of New Zealand, and is our only true “agglomeration”.
This popular term in the field of economic development describes a large grouping of talented, diverse, open minded people focussed on new technological developments and their implementation, the cross-fertilisation of these things, and strong connections with other agglomerations elsewhere such as London, New York and San Francisco. Businesses and economies these days grow less through small productivity changes and more through new technological changes. Or to look at it another way, if farming was going to take us back up the OECD ladder we would be there already. But farming fails in this role because of an inability to significantly add value and differentiate our largely unprocessed commodity exports.
Because Auckland is our only true (near) international city it is logically the city to which offshore investors look for somewhere to invest their money in a world awash with liquidity and low interest rates following central bank money printing since 2009
Third, with the world (and importantly Australia) looking less and less attractive fewer people are leaving New Zealand (the brain drain) and more are moving in or shifting back home (the brain gain). The net migration inflow this past year of near 60,000 people is a record which adds 1.3% to our population. A net 61% of this 60,000 flow goes to Auckland – a combination of migrants shifting there and Auckland losing fewer people offshore than other parts of the country. That is a 2.4% population boost to Auckland on top of natural population growth.
There are many more factors in play and you can read another of our lists of them here in our May 12 2015 issue of Sporadic.
Do we expect that the near 90% rise in Auckland house prices these past six years will be repeated by 2021? Not at all. House construction is rising, the net migration gain will plateau soon then ease off, investors are looking for better yields and what they consider to be under-priced markets elsewhere in New Zealand, and the Reserve Bank is determined to sharply curtail the pace of Auckland price rises.
The minimum 30% deposit for investment properties from November 1, IRD number being needed by all foreign buyers, probable withholding tax from July next year, and automatic levying of capital gains tax on all investment properties sold within two years of purchase are all factors making some buyers back away. Nevertheless, the housing shortage will take a great number of years to erase and until then, in the absence of a major economic shock, Auckland house prices are likely to keep rising by 5% to 10% at least in each of the next two years.