Written by Vicki Holder
The only thing that could send the real estate market topsy turvy “with rising interest rates, would be offshore developments – and this would likely come about with a bit of fear,” says Gordon. High on his list of events that could cause chaos is a Donald Trump win in the US – too scary to think about.
But the major driver, apart from immigration, the housing shortfall and banking regulations, is the cycle of low interest rates. While the Reserve Bank doesn’t break down the data into regional analysis, nationally, house prices are predicted to rise 16% this year and another 8% over 2017.
Interest rates are about as low as they have ever been and heading even ever so slightly lower in November, so it looks as if Auckland’s house prices will continue to rise. How much so will come down to the pace of new building, suggests Gordon.
Helping the outlook, the New Zealand economy looks positive. Tourism is in a growth spurt after a subdued period and aspects of the export market – like horticulture, meat and lamb - are showing signs of life. Even dairy is past its worst.
Gordon believes the upswing in construction since the Canterbury quakes will continue for a couple of years yet. It’s happening right across the country and in Auckland, there is still not enough housing to cater for the population growth. “If there’s a strong pick-up providing a range of different-sized dwellings on a mass scale, that will have an impact on the average house price in a couple of years. But it’s hard to look beyond two years. We know these things will end.”
He cites the Australian example where they had a massive rebuild in oil and gas projects from 2009 to 2012/13 where construction boosted the economy. Then it tailed off and instead of creating jobs, they were shedding, which saw rising unemployment. The government responded by lowering interest rates.
The Unitary Plan has already had a big impact on prices with a lot of anticipation about development that will happen. “There has been an asset valuation approach. Prices don’t just reflect current demand. They are based on the expectation of demand for land in the future. Over the past few years, there’s been a lot of anticipation of the Unitary Plan allowing greater intensification.” Now, to keep the pattern going, Auckland has to complete the development people have been expecting.
“If you want to crash prices, then block development. If you don’t allow houses to be built, the message will get through that there’s nowhere to live and people will stop coming.
People will leave the city. Expectation will vanish. What people are paying for land now reflects the idea there was going to be demand.”
Gordon hasn’t been following the major players in the forthcoming election to see how they plan to influence the housing market. But he does note, the youngest candidate Chloe Swarbrick’s idea of taxing land value only, instead of the improvements, would have a significant effect to incentivise development and more efficient use of land.
And in response to the question - will Auckland ever be affordable, he says, yes! “It will be affordable if we build more affordable homes. What has constrained Auckland for a while and what the Unitary Plan has tried to address are the constraints on use of land.
“In central Auckland suburbs, where there is demand for land close to the city centre, people have been constrained by what they can do on it.” The choice has been either build small units or one big house to maximize the square meterage.
“We need a menu to reflect different needs of the population – apartments, units, townhouses, standalones. We need a range but haven’t had that incentivised to deliver in the past.”
“Hopefully, says Gordon, “the Plan will open up options for what you can do. He says there should be choices in between the apartments and huge MacMansions that we have seen in the past.
“If you build a lot of affordable new dwellings that meet that low end of the market then what happens to house prices in the upper end of the market is less of an issue.”
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