I finished last month’s housing blog by noting that if Auckland’s pace of house price rises was not sustainably slowing down then the Reserve Bank would probably take the 30% deposit requirement for investment purchases to 50% or 75%. This probably won’t be necessary because the pace of price inflation has slowed to 3.8% in the three months to October from 6.1% in the three months to July and 8% in the three months to August.
Further slowing is likely in the near future though not at the pace of the 4% fall recorded in October. Monthly price changes can be all over the place which is why we use three month averages to get a clearer picture.
House price inflation is slowing in spite of falling interest rates because:
- investors are searching for higher yield and smaller mortgages elsewhere,
- young buyers are seeking cheaper housing elsewhere,
- some investors have been excluded from the market by the 30% deposit requirement,
- some foreign buyers are unsure about the IRD number requirement, and
- many buyers have simply backed off, waiting to see what bargains might emerge from these combined factors and causing other buyers to back off.
The last factor in this list is the interesting one. When a regional housing market is rising strongly buyers tend not to discriminate a lot between different types of houses and often between different locations. But once the boom eases off these relative factors can become a lot more important. Some locations will see continued rapid price growth because they have a different dimension from other locations and one of the most important of those factors is proximity to new major transport changes.
First, as an aside, this aspect of not caring much about location is playing itself out in areas outside of Auckland currently. In both Napier and Hamilton where I gave presentations recently people spoke about houses in less good areas which failed to sell two or three years ago but which have just been snapped up amidst multiple offers by investors out of Auckland. This is good for people who have been trying to sell such places unsuccessfully for some years. But the buyers need to be aware that the “bargains” they are securing will not be able to be easily sold in a hurry come the next flattening in the regional housing market.
In Auckland the most obvious transport infrastructure change is the motorway extension, especially the connection to the north-west motorway which will vastly improve airport linkage with the CBD, and transport options for those living in the likes of Onehunga and Mangere. The eventual shift in airport-CBD traffic to the motorway will drastically change flows along the suburban roads currently used. In this instance reduced traffic without reduced linkages will mean improved amenity and presumably better living for people along the current route – with upward pricing implications.
Improvements in the road between Auckland and Hamilton will in coming decades lead to entirely new towns being developed between these two cities. Similarly the Transmission Gully Motorway and expressways north of Wellington and along the Kapiti Coast will boost population and housing markets along those roads.
In contrast, locations in Auckland seeing neither improved roading nor a reduction in current traffic loads risk lagging behind in terms of house price inflation, Investors would be advised to get a map showing new roads planned for the next couple of decades and where the new traffic flows will be diverted from.
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