Australian media has been filled with stories of plummeting house prices in Sydney & Melbourne, especially apartments. Could a similar fate befall Auckland?
In a report out this week, Auckland Council chief economist David Norman has compared the two markets. His prognostication is much more upbeat for this side of the Tasman.
In his report titled “House prices: A factual antidote to doomsday ailments”, Norman first explains that house prices rise when not enough houses are available to meet demand, and when low interest rates and income growth allow people to bid up prices.
Following the recent price declines in Australia, some have suggested Auckland will go the same way. Melbourne house prices have fallen 15% from their 2017 peak, while Sydney is down 10% and Perth has fallen 11% since the end of the mining boom. Brisbane and Adelaide have not suffered the same fate.
Norman points out that Australia has over-built relative to its population growth over the last decade. Much of this over-development was for a foreign investor market that is now weaker.
Auckland, on the other hand, has grown by twice the population of Tauranga since 2008 but our new house construction has lagged behind. We simply haven’t built enough houses relative to our population growth and currently have a shortfall of at least 46,000 dwellings.
Auckland’s population is still growing rapidly, unemployment remains exceptionally low, and household incomes are rising. On top of that, interest rates are at record lows, and are likely to fall further making it possible to service more debt. All this bodes well for Auckland.
“The two property markets are different,” says Norman. “What is playing out now on the different sides of the Tasman is the result of supply and demand. The balance of supply and demand, plus Auckland’s steady economic outlook, mean a meltdown in the housing market here without a sharp rise in unemployment and/or interest rates is unlikely.
“Instead, prices are likely to bob around current levels. With Auckland’s economic outlook, prices will likely remain flattish and affordability will slowly improve.”
Norman says “prices will likely remain flattish” over the medium term. I’ve said it before and I’ll say it again… we’re in for a 7-10 year zombie market.
Maybe not on the commercial side, which is still in the throes of a long-term growth cycle, but definitely on the residential side.
Norman finishes up with this…
“Affordability is slowly improving (the best it’s been in five years), which is good news for first home buyers although prices remain high. But those who have bought for capital gains in the last three years will be least happy with the outlook.”
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