Auckland housing market bursting-bubble
24 November 2014
House prices in Auckland which have risen 34 percent since 2011 will be sustainable for as long as there is the demand and the means for buyers to continue purchasing.
House prices in Auckland which have risen 34 percent since 2011 will be sustainable for as long as there is the demand and the means for buyers to continue purchasing, the University of Canterbury’s architect-in-residence and urban commentator Tim Nees says.
The surge in house sales is well underway in Auckland but as soon as demand stops many property owners and individuals who have leveraged borrowings off inflated equity will be in trouble, he says.
"The reasons for such rapid inflation in Auckland's residential property market will involve a number of contributory factors so there is no one solution or suggestion which will slow the trend.
"Government policy will need to be based on thorough research into the causes and effects. It may also be wise to question the contributory factors of Auckland's growth and whether one super city should be encouraged to grow to a level that it dominates New Zealand's national market and whether Auckland's dominant status should somehow be rebalanced.
"This may involve investing in other cities and regions to attract quality development that may then ease the pressure on Auckland.
"There will come a tipping point when the number of properties being sold, to either realise capital gain or profit or to repay debt, will exceed the demand or the price-point of the demand and values will then drop. The effects of the bursting-bubble are a risk not just for Auckland but for the whole country.’’
Nees raises the question is Auckland's problem a lack of stock or a highly active speculative rental and investment-led market? If it is the latter a question is whether more land and more stock slow that speculation down or provide more properties, for those who can afford to invest, he says.
"There are also many sustainability issues - social and environmental - that tend to be ignored by the development of greenfield sites. A more beneficial approach would be for the state to invest in social housing within established urban and suburban areas in order to guarantee homes for those who can't otherwise afford them.
"In Spain, social housing is sold to eligible purchasers well below the real estate value, but this doesn't undermine private property developers. There is room in the market for the state-supplied product. Although it is built at low cost it is frequently well-designed, thanks to the Spanish government's support of quality architecture and their investment in the built environment of their cities.
"Currently New Zealand appears to be doing the opposite. State housing stock has either been sold or been allowed to run down. Instead of investing in the housing stock, money from Housing New Zealand is being redirected into rental subsidies, which may enable tenants to meet market rents.
"But the money goes directly into the pockets of landlords and keeps rental prices up at otherwise less affordable levels. It could be said that this approach will encourage landlords to obtain even more properties, including ex-state houses.
"A long term sustainable vision is needed for housing in this country, a vision supported by the Government that is fair to all levels of the market and works at a national level, not just a regional level. It needs to include good quality decent housing that has been planned well, and that people can afford to rent or buy. And if rented, is adequately maintained.’’
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