This week, Independent Economist, Tony Alexander, discusses the everchanging Auckland housing market.
The fundamentals for house prices and house construction in Auckland have shifted to the downside. Such is the nature of cycles.
It is not just that interest rates are rising – Auckland’s population is shrinking. People are moving to the regions, the brain drain will hit harder than in other parts of the country, and, there are more newsworthy examples of developers falling over naturally appearing in our largest population location than anywhere else in the country.
Sometime this year there will be discussion leading to a community conclusion that Auckland no longer has a housing shortage. It’ll be based not just on the population decline but on the boom in new house supply. Given that consent numbers sit near 21,000 for the past year compared with less than 4,000 ten years ago.
It will be based on the evidence of falling prices surely reflecting an over-supply.
People will ask where all the buyers will come from to purchase the flood of townhouses being built.
Sentiment will be further affected by people remembering what they discussed in Auckland house price cycles before the GFC. The role played by migration flows. Before the GFC, people in Auckland swore black and blue that Auckland’s cycle was driven by migration flows. This comment and belief are likely to return once the migration flows get worse. People will be looking for a simple way of understanding why house prices are falling and that is likely to be what they will seize on – along with the supply boom.
But once these developments bloom and people talk about over-supply like they used to talk incorrectly about the Chinese being the sole factor behind soaring prices, attention will quickly shift to failing pre-sales for developers.
Journalists will ferret out examples of banks pulling or denying development finance. People will start to believe that the situation in some quarters will be dire. That prices will be flat to falling for years. And they will start to think there is no point in buying. Some of the fools who in earlier years told young people to keep renting rather than buy will emerge again from the woodwork.
They will be wrong – again.
Much as this interesting community psyche thing is going to come along, Auckland will still be in a situation where prices are high and will stay high, and the benefits from purchasing a new build will remain.
Continue Reading Tony’s Auckland Housing Market Update Here.
