Business

Bank sees signs of resurgence in Auckland house prices

The Auckland housing market remains soft but there are signs it is stirring, according to the latest Kiwibank regional economic survey.

Sales activity in New Zealand’s biggest city has started to lift in recent months, a trend that usually leads to lift in prices.

The uncertain direction of the Auckland market has been one of the factors in driving business confidence lower in the last 12 months.

Kiwibank says 30 percent of its business lending is secured by personal homes.

“Swings in the housing market can have a significant impact on business confidence, especially SME business. Many SME business owners utilise the equity in their homes, to access funds for their business ambitions. A strong housing market bolsters confidence in general, and can support small business expansion. Conversely, a deteriorating housing market can reduce risk appetite” says Kiwibank’s chief economist, Jarrod Kerr.

The sluggishness of the Auckland housing market has translated into weaker construction activity,” according to the bank.

Senior economist Jeremy Couchman says this doesn’t mean construction activity is soft but that growth is not there like was back in 2016 when the market peaked.

"This is the case for much of Auckland’s economic measures. Employment is growing around average, but average is weak compared to the boom of a few years ago.”

There are signs that Auckland house prices may have bottomed during the winter.

“Sales activity is lifting and we think this will lead prices up,” says Couchman.

Kiwibank’s chief economist Jarrod Kerr, in a recent presentation to Auckland businesspeople, highlighted the strong fundamentals underpinning the Auckland market.

“We have had a massive migration boom and there has been a substantial spike in the people per dwelling.”

The long downward trend in the number of people living in a single home reversed in 2014.

Kerr estimates the country is short of 130,000 homes, with 60,000 of those in Auckland.

“While we have seen a pickup in supply, particularly in Auckland, there is still a massive gap.”

The houses being built are smaller and higher-density - a trend that Kerr says will continue.

The price drops in Auckland have a lot to do with the Chinese government’s policy of restricting the amount of money that can leave mainland China.

“Chinese buying had a large impact on Auckland and Queenstown like it did on Sydney, Melbourne, Vancouver, Singapore and London.”

Kerr says the loan-to-valuation ratio (LVR) introduced by the Reserve Bank in October 2013 also drove many investors out of the inflated Auckland market.

This had stabilised the property market and pushed it sideways for a period of time, which Kerr says was a good thing.

“Where do we go from here? Well, interest rates are low and I think they will stay low for a very long time supporting confidence.

“The fact that capital gains tax is no longer [a possibility] and in my opinion, LVR restrictions will be loosened, a lot of the uncertainties around this market will dissipate and we will see house prices start to rise ever so slowly at the back end of this year.”

Kerr says the regions are still playing catch-up as money continues to flow out of Auckland into other areas.

Housing markets in smaller regions, such as Gisborne, Whanganui/Manawatū and Southland, have surged as they catch up to the larger centres, and investors hunt for decent rental yield whittled away in larger centres.

Kiwibank’s regional economy survey also indicates the Wellington region is performing much better than the other heavyweights - Auckland, Waikato, Canterbury and Otago.

Growth in employment, retail sales, and guest nights are tracking comfortably above average for the region. 

Almost 40,000 people (a 7.6 percent gain) moved to the Wellington region between the 2013 and 2018 censuses, increasing pressure on local infrastructure and the cost of housing.

Kiwibank’s Wellington regional manager Peter Charlesworth believes the upbeat assessment may not last.

“Whilst the housing market remains strong, business confidence is certainly down over the last year.

“This follows national trends but also reflects the lack of progress in recent years on critical infrastructure projects within the city were highlighted as part of council elections.”

Some Kiwibank managers say the strong regional economies are currently fuelling confidence in their housing markets.

“With the Provincial Growth Fund kicking in, money resulting in previously-mothballed industry restarting - along with new industries opening up - Gisborne is pumping along at a pace that this idyllic slice of NZ hasn’t seen for several years. Accommodation for visitors is a premium with short notice space hard to find as out-of-town workers come into the area to ply their trade. With a growing population off the back of increased work opportunities there is now a real shortage in housing, along with trades to build the housing needed. This means busy times and raising prices for those in a position to build or sell.” Kieran Mischewski, Commercial Manager, Rotorua

 “The residential property market remains upbeat, with demand still outstripping supply. A number of motels have been converted into emergency housing due to the rental property shortage, reducing the amount of ‘short-term-stay’ stock. Prices continue to rise. Commercial property development is buoyant, with forward pipelines fully loaded with construction work. Labour shortage is still a seasonal issue for our horticultural industries. Pockets of the business economy are doing well, but optimism is anecdotally starting to wane a little. Feels like 7/10 – the sun is shining!” Garth Duncan, Senior Commercial Manager, Hawke’s Bay

“Tauranga has more cranes dotting its skyline than ever in its history, construction work is everywhere, businesses are coming into town and the roads are filling up with cashed-up Aucklanders. Just out of town, kiwifruit is booming once more - the biggest problem is getting workers to pick the fruit. However, all this activity is putting pressure on infrastructure with roads getting jammed and a lack of development space for housing causing concern in the housing construction industries.” Kieran Mischewski, Commercial Manager, Rotorua Business Banking

 “Outside investors and people moving into the region are putting pressure on housing stock – a lot more higher-end properties and buyers now in the market. Natalie Sara, Business Manager, Palmerston North

Kiwibank is a Newsroom foundation supporter.

We value fearless, independent journalism. We hope you do too.

Newsroom has repeatedly broken big, important national news stories and established a platform for quality journalism on issues ranging from climate change, sexual harassment and bullying through to science, foreign affairs, women’s sports and politics.

But we need your support to continue, whether it is great, small, ongoing or a one-off donation. If you believe in high quality journalism being available for all please click to become a Newsroom supporter.

Become a Supporter

Comments

Newsroom does not allow comments directly on this website. We invite all readers who wish to discuss a story or leave a comment to visit us on Twitter or Facebook. We also welcome your news tips and feedback via email: contact@newsroom.co.nz. Thank you.

With thanks to our partners