I was interviewed as a guest of the NZ Herald’s Economy Hub today. The hub consisted of me, NZ Herald Business Editor Liam Dann and Auckland Council Chief Economist Chris Park. Auckland House Prices have been a hot topic lately.
I was asked when will this boom phase end. Whilst crystal ball gazing is a dangerous sport, it is in all likelihood going to continue for at least two years. Being a market, the economic laws of supply and demand are at play. Auckland simply doesn’t have the supply to keep up with demand, let along address many years of excess demand over supply.
Supply vs Demand
The most closely correlated driver to house price growth is migration. We have record high migration levels right now in New Zealand. Auckland has over 50% of all net permanent long term migrants coming to live in Auckland. This is well over 30,000 new Aucklanders every year. At 3.0 people per dwelling as per the last census, we need over 10,000 houses to cater for international net migration. We also have natural population increase and internal migration to consider. With just over 8,000 building consents issued, and cutting out 20% for carports and garages (building consents over $5,000 are counted) and those that build bachs, do home alterations or don’t build at all, and we have a significant under supply right now.
In New Zealand interest rates are at record lows and many economists are picking a cut for next Thursday’s Official Cash Rate announcement, or alternatively in June. These are impacting loan rates. A FUZO Property client fixed at 4.15% for 2 years just last week. That is historically cheap money. Whilst immigrants from the UK, Europe, US, Hong Kong, Singapore etc will think this is a high interest rate, it is actually at levels not seen since the aftermath of World War II, with a vastly different financial system.
How long to go this boom?
Hard to tell. With migration so high now, and Auckland being the third most liveable city in the world, the global terrorism events seem so far away here in Godzone, and with supply issues, and strong demand, it is extremely difficult to forecast downward price movements for the next couple of years.
See the video here:
By David Whitburn, Head of Strategy