– Auckland’s housing market has shifted from under-supply to over-supply, ending the investor-led market.
– Housing affordability has improved for first-time buyers, with prices stabilising.
– Government measures and changing migration patterns have contributed to the evolving housing landscape.
Ten years ago, the housing market was freaking people out, especially in Auckland. The headlines were relentless in stories of despair by first-home buyers shut out of the market, and that was before Covid became a household name and prices went higher still.
Back in the Auckland of 2014, competition was already fierce in the auction rooms. Investors were falling over each other to buy and migrants were pouring into the country.
While some commentators are today cautiously optimistic about the housing crisis, telling OneRoof it has quietened and could even be on its way to being solved, 10 years ago the picture was one of a housing shortage and an investor-led market that needed to be brought under control.
Back then, there was also hysteria that foreign buyers were driving up prices and outbidding Kiwis at every turn, although outside of anecdotes proof was hard to come by.
In 2015, Labour cited a controversial list of house sales leaked by a Barfoot & Thompson staff member – who was subsequently dismissed – which listed people with Chinese-sounding names as buying thousands of properties, and in 2018 went on to introduce the foreign buyer ban – which the current Coalition has hinted it will amend.
If the market has quieted now, 10 years ago nowhere was hurting as much as Auckland. In 2013, the Reserve Bank, supported by the National government, brought in LVRs (Loan to Value Restrictions) to target investors and a year later, tweaked them to target Auckland, a measure some say simply sent investors out to Auckland’s golden triangle of Hamilton and Tauranga, pushing up prices there.
Discover more:
– Former gang town is NZ’s hottest suburb – why house prices quadrupled
– Revealed: The biggest house price winners and losers of the last 10 years?
– House next to ZURU Toys mansion for sale for first time in 90 years
Other measures were introduced by National, like the bright-line test, again to curb investors, and in 2016 Auckland’s Unitary Plan rolled out allowing intensification in the suburbs and rapidly changing the city’s landscape.
When Covid arrived in 2020 prices shot off only to collapse again. Now, after a rollercoaster decade, some of the fundamentals underpinning the housing market are changing, says independent economist Tony Alexander.
Auckland’s housing scene has gone from under-supply to over-supply and Alexander is calling the end of the investor-led market.
Back in 1987 when the share market crashed many Kiwis were burned so turned to property as a way to build wealth for their retirements. While it is too early to see in the data if they are returning to the sharemarket, Alexander says smaller-scale investors are getting out of property.
An Auckland auction in 2016 draws the crowds. Photo / NZME
Prices have fallen but rates and insurances have risen, and rule changes are in the tenant’s favour, he says.
“I think what’s underway is a stripping away of the average mum and dad investors in the property market they’ve moved in in the last three decades because it seemed an easy way to grow one’s wealth – I think that dynamic has now changed.”
Alexander is positive on a range of factors, such as the Coalition Government’s move to make more land available and construction easier, and combined with the building boom and intensification in Auckland he goes as far as to say the housing shortage has “sort of” been solved.
Migration has weakened with an annual gain of only around 15,000 in the last year compared to the average of about 50,000 in the last 10 years, plus Kiwis are leaving for Australia and listings are at their highest in 10 years.
Prices in Auckland’s inner-city suburbs were regularly above the $1m mark 10 years ago. Photo / Fiona Goodall
While the picture is not good news for investors, especially those who bought in recent years, Alexander is pleased from a societal perspective.
“It means improved housing affordability for young people. Frankly, this is sort of what many of us were hoping for in the past three decades – a better environment for first-time buyers to buy themselves their first property, start forming their family, all that sort of stuff.
“I think it’s going to take a while for people to figure that out. This is no longer an investor-driven residential real estate market in New Zealand.
“It’s driven by the first-time buyers who have been active since the March quarter of 2023. They remained active but the investors – not really.”
Kelvin Davidson, chief economist for Cotality, says if the Covid pandemonium was removed from the picture, affordability has settled about where it was 10 years ago.
At the end of 2014, mortgage payments as a share of income were at 48% and that figure rose to 51% at the end of 2015.
Infometrics chief forecaster Gareth Kiernan questions how effective price-calming measures have really been. Photo / Supplied
While the figure rose again to over 60% at the Covid peak, it was now back at 48%.
“Housing in 2014 was no more or less affordable than it is now. I’m not saying buying a house is easy now and I’m not saying buying a house was easy in 2014 or 15, or hard for that matter, but the point is if there was massive hysteria back then about housing unaffordability, well there probably should be now.
“In some ways it may have been a little over-egged back then because subsequent to that it actually got a lot worse.”
Gareth Kiernan, the chief forecaster for Infometrics, says a significant difference between now and 10 years ago are the controls that have been put in place by the Government and the Reserve Bank, including the LVRs, the bright-line test, foreign buyer ban, and more recently debt-to-income ratios.
Kiernan says the LVRS did take some heat out of the market, but questions how effective measures have really been.
“Affordability might have been worse than it is now if we hadn’t had some of that stuff there, but you look at the affordability metrics, they are no better than they were a decade ago, are they?”
The measures addressed symptoms rather than causes, but Kiernan was hopeful causes could be addressed by the Government delivering the kind of infrastructure that would help with housing supply.
Another change he noted over the last 10 years was the greater financial education of people around different ways of building wealth. With young people used to KiwiSaver these days and without their own memory of the 1987 stock market crash, investing in shares had become more agreeable.
Home-ownership still had a large role in the Kiwi psyche but Kiernan said with New Zealand becoming more multicultural people’s expectations around housing and home ownership would continue to evolve, saying the home ownership rate might continue to edge down.
For Tom Rawson, Ray White Manukau co-owner, the big change in a decade has been access to finance, which has gone from relatively easy to much harder. Ten years ago an offer subject to finance had a high chance of going through but the same offer now was more of a “coin flip.”
As a result, the popularity of auctions had surged because of the certainty the sales method offered.
Pricing was another big change – contrary to the myth prices don’t double every seven or 10 years, he says. In Otara, houses in 2014 were selling for $400,000, rising to over $1m during the Covid boom but now Otara had fallen to a $600,000/$700,000 suburb.
The price crash had knocked people’s belief prices would continue to rise: “We’ve seen several years of prices come back so people are a little uncertain whether they buy now it’ll be worth more in a month or less in a month, or even a year.”
Houses remain a huge household expense and Alexander told OneRoof affordability would never return to the early 1990s when the average house price was three times the average income, instead remaining at a new norm of around six or seven times the average income.
Hugh Pavletich, however, unapologetically disagrees, predicting New Zealand will see a return to the magic three times average income multiple within the next decade.
Pavletich was behind the Demographia surveys, which have run since 2005, comparing housing affordability in different countries, and has been outspoken about how unaffordable New Zealand prices have been.
But he says the debate around affordability has shifted from the advocacy stage to the implementation stage, pinpointing a 2014 speech by then Labour leader Andrew Little, who made a point of thanking Bill English (the former National Minister of Finance) and Nick Smith (the former National Housing Minister) for their efforts in trying to deal with housing: “That was really the tipping point.”
Pavletich praises the efforts of the Coalition’s Minister of Housing, Chris Bishop, backed up by others, and says last year’s Demographia report made it clear New Zealand was now the global leader in addressing structural issues.
Auckland still comes up as “severely unaffordable”, which it has consistently through the Demographia reports, but Pavletich says New Zealand is improving and “streets ahead” of Australia.
Auckland’s housing affordability sits around eight times the average income but Pavletich says Sydney’s number is 13.8 and Melbourne and Adelaide are around 10.
“We are well down the track of actually solving the problem in this country, on the road to restoring affordability in this country, in my view.
“There’s a massive push internationally to restore affordable housing. I think we’re also going to be quite surprised with what happens with the prefabrication of housing being done in China by people such as the Mowbrays [the billionaire Kiwis behind the ZURU toy company].”
Likely AI improvements in manufacturing efficiencies would also help lower the cost of housing products, he says.
Pavletich thinks within the next 10 years, Demographia will celebrate the return of affordability: “I’m very confident of that. Excuse my optimism. I think I do know a little bit about what I’m talking about.”