Major cities slowly turning up the heat in the housing market

Guest Post by Tony Alexander

This week REINZ released their regular data on what is happening in the residential real estate market throughout New Zealand. Their numbers show us that after rising in seasonally adjusted terms by about 20% in the three months to May, sales rose again around 8% in the three months to August. Turnover is rising.

In addition, prices are tracking upward. Nationwide prices have so far risen 2.1% from their lows back in May. Auckland prices are up 3.1%, Wellington 3.5%, Canterbury about 3%. In the country excluding Auckland the gain has been 1.4%, which would fall easily below 1% if we exclude Canterbury and Wellington.

These numbers back up the view I’ve been expressing for the past year:

The upturn of the housing market this cycle will be led by Auckland along with Wellington and Christchurch.

There are many factors accounting for this, most notably Auckland average prices are below where the long-term trend against the rest of the country suggests they “should” be.

Wellington fell too far over 2022 so is having a good bounce-back. In Christchurch, there is still some post-earthquake recovery to occur, and the economy is improving strongly, assisted by migration of people from other parts of New Zealand including Auckland.

For the regions a development worth keeping a close watch on is the El Nino weather pattern.

This is starting to worry meteorologists here and in Australia because as a rule a deep El Nino brings drought to much of Australia and New Zealand – particularly along the east coast of NZ. Farmers are already closing their wallets in response to lower export prices and the developing weather situation is likely to crimp their spending even further.

Then there is the migration effect which I have discussed before.

Statistics NZ informed us this week that the net loss of Kiwis over the past year has reached almost 40,000. The record 11 years ago was 44,000 and we look like exceeding that soon. Kiwis go overseas from all around the country.

But immigrants largely go to Auckland with some spillover into Wellington and Christchurch. The migration boom which has added a net 96,000 people over the past year is therefore strongly beneficial to Auckland’s pace of population growth. That means extra pressure on Auckland’s housing stock which is not going to be felt in the regions.

At the moment I am sitting at the back of a conference room in a campus facility in Saint Johns in Auckland. I’ve spoken about where the housing market is heading and am listening while typing to representatives from Auckland Council talk about the intensification of housing in Auckland and how developments need to be managed to ensure they are visually attractive as well as offer good amenities to potential occupiers.

It is clear from the over-100 people in the room that there is strong interest in property development in Auckland. This is important to note because while one source of upward pressure on prices through 2024 will be falling new house construction at a time of strong population growth, this period of easing construction will not last.

There is a correction underway in the house building sector around the country.

Many inexperienced and under-capitalised developers, builders, and contractors are being weeded out in the face of reduced buyer demand and costs which have soared. But this situation will change. Next year, as the stock of existing property available for people to purchase falls away, buyers will turn back to new builds and construction levels will likely firm again from early-2025 if not earlier in fact in Auckland.

Therefore, be careful not to over-react when talk arises at some stage next year regarding a shortage of property in Auckland. That situation will be relevant in 2024 but it will likely not be long lasting.

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