Australia-style house price fall 'unlikely' in Auckland

Wednesday, 24 July 2019

Auckland house prices are forecast to 'bob around' current levels

House prices in Auckland are unlikely to 'melt-down' and seem set to 'bob around' current levels according to a trans-Tasman comparison made by Auckland Council's chief economist David Norman.

Norman said five major Australian cities had built far more homes than their population growth required, compared with Auckland which has under-built and still has a shortage of around 46,000 dwellings.

New home building in Australia has outstripped Auckland when compared with population growth

'This balance, plus Auckland's steady economic outlook mean a melt-down in the housing market without a sharp rise in unemployment and/or interest rates, is unlikely,' said Norman in his latest economic commentary.

Norman said the sharpest fall in Auckland prices was 4.5 per cent from their peak in October 2016, to a low maintained since February 2017.

Graph showing Auckland's lower rate of home building compared with population growth

What's happening in the crazy world of New Zealand's fluctuating house prices?

* House prices nationwide are tipped to soar by 20 per cent over the next four years

* Tens of thousands of Aucklanders left the city to find cheaper housing

* House prices soften as buyers snap up affordable options**

In comparison, Melbourne and Sydney prices peaked between June 2017 and March 2018, but have fallen since then by 15 and 10 per cent respectively.

Norman said one example was to look at Melbourne where in the decade to 2018, population grew three times faster than Auckland's, but new housing consents grew by seven times the Auckland figure.

'The difference in rates at which housing was consented across the (six) cities, relative to actual new residents is astounding,' said Norman.

'Population growth matters more than population size as the primary driver of demand for more housing in rapidly growing cities.'

Norman said while Auckland prices remain high, rapid population growth, low unemployment, the exclusion of foreign buyers for existing homes, and low interest rates will support prices.

'On the supply side - we haven't built enough houses relative to our recent growth, or our trans-Tasman neighbours,' he said.

'Prices are likely to bob around current levels, which is good for macroprudential stability, affordability is slowly improving, at the best it's been for five years, which is good news for first home buyers.'

Norman's view of house prices on this side of the Tasman is similar to forecasts from Treasury last month.

After a long overdue pause in the most overheated parts of the market, Treasury tipped house prices to rise by an average of 18.3 per cent in the next four years.

Using a different way of looking at housing markets, Bloomberg economist Niraj Shah in July found New Zealand and Canada were the two countries with the most unsustainable housing markets in the world.

Shah's 'housing bubble dashboard' showed the two countries had the highest cost of housing compared with wages, beating Australia, the UK, Norway and Sweden - which are also vulnerable.