Auckland house prices up 85% in four years

Friday 15th July 2016

Auckland house prices have risen by 85 percent in four years, taking the average price to around nine times the average household’s disposable income, fuelled by record high migration, low interest rates, and housing under-supply.

Prices are now rising quickly in most other regions as well with New Zealand’s national house prices increasing again in June, as five regions hit record highs. The median national sale price jumped 11 percent to $500,000 in June from a year earlier, while the number of properties sold advanced 6 percent to 7,864, according to the Real Estate Institute.

In the latest data, Auckland's annual price increase of 8.7 percent lagged behind the national average but it was still one of the regions to touch a new record median price in the month, at $821,000, along with Waikato/Bay of Plenty ($438,000), Northland ($360,000), Central Otago Lakes ($730,050), and Otago ($295,000).

“While Auckland continues to be the largest single region, its influence on the national picture is waning due to its own weaker sales and strong growth in sales in other regions," said REINZ spokesman Bryan Thomson.

The Auckland housing market has been hot for four years and since late last year the heat has started to spread to most other parts of the country, HSBC economists Paul Bloxham and Daniel Smith said in a research note.

The chief causes are interest rates at their lowest level in history and a growing expectation they will remain low for an extended period, which makes debt more affordable and pushes asset prices higher, the economists said. Housing supply in Auckland has also failed to keep pace with population growth with HSBC estimating Auckland has a deficit of around 30,000 homes or 6 percent of total housing stock. The deficit is currently growing by around 7,000 homes a year.

“Although policy-makers are taking steps to increase housing supply, more action is needed if housing price growth is to be contained,” they said.

The inadequacy of the supply response can be seen in a comparison to Sydney where population growth has also been strong. While Sydney is currently adding around twice as many people as Auckland to the population annually, dwelling consents are more than five times higher than in Auckland.

There are growing signs that speculative behaviour is driving the market with investors currently accounting for nearly half of all purchases.

Economists are now speculating on whether the Reserve Bank will lower or keep the official cash rate on hold in August, with HSBC saying that low inflation and the rising New Zealand dollar are likely to prompt a rate cut. The Reserve Bank is providing an unusual economic update next Thursday that could provide guidance on its intentions, the economists said.

ASB Bank economists say the latest price increases are likely to concern the Reserve Bank especially as the Auckland stratified median house price is getting very close to hitting the $1 million mark.

“The RBNZ has been between a rock and a hard place for some time now and June’s data do little to ease the pressure,” they said. ASB expects there will be a 25 basis point cut in the OCR to 2 percent next month “though there is a risk cuts get deferred until further macro-prudential policies are announced.”

Westpac New Zealand's acting chief economist Michael Gordon said the latest figures show house price inflation is running ahead of the Reserve Bank’s already strong forecasts. The most likely step is that the loan-to-value ratio limit for investors in Auckland will be extended to the rest of the country before the end of the year, he said.

Caps on loan-to-income ratios are also possible, although these would likely take longer to implement.

BusinessDesk.co.nz

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