Are house prices overinflated? Yes, they are.
Is the rampant speculation that has dogged Auckland over the past few years bad for our economy? Yes, it is.
Are we about to experience a housing correction? In my opinion, not yet.
The naysayers are out in force willing the market to crash. They are excitedly lined up to say “told you so.”
I’ve voiced my concern in this newsletter for over 2 years about the global economy. At times I’ve felt like chicken little.
The thing I find so frustrating is our media’s inability to peg our housing issue back to a global problem that is much bigger than house prices.
Far from solving the ‘big issue’ which is unsustainable debt-fuelled growth, we are about to enter another round of monetary easing. It’s a race to the bottom with countries trying to competitively devalue their currencies. All chasing the mythical benefit of an export led recovery. The only problem with such a limp approach to solving the growth dilemma is that for every winner there must be a loser.
In other words, it is not sustainable and cannot work.
Unsustainable growth essentially driven by debasing our monetary system for the past 30 years is the elephant in the room that nobody in the mainstream media is talking about.
Globally our whole monetary system is at risk and nobody has the answer. You are unconsciously participating in a very big economic experiment. My other observation is that Governments and Reserve Banks will keep this game going as long as they possibly can – which is a while yet.
Our Reserve Bank is giving itself room to reduce interest rates even further and they signalled that today. Low interest rates push up all kinds of assets, not just property – and this is a global issue. The media is not talking about the share market being in bubble territory as it breaks through new highs.
My other frustration is our Government and Reserve Bank’s reluctance to deal with immigration, but mostly with the inflow of foreign capital. The Reserve Bank hasn’t put two and two together and figured out how banks have managed to increase their retail deposits by 11% year on year. It has not come from Kiwis saving! Foreign capital. Enough said.
Auckland has been heavily influenced by the influx of foreign capital at the same time as record immigration and a unitary plan that invites speculation. The rest of the country has every right to be pissed off with the mess our politicians have made of Auckland and they will now also feel the brunt of it with LVR restrictions but without the same levels of capital appreciation.
Will there be a market correction?
We’re going over old territory on this. My view is that any major market correction (i.e. a “crash”) will occur at a global level and will be driven by factors outside of New Zealand. It is foolhardy to look at New Zealand in isolation of the rest of the world.
When the world goes into its next serious recession (which it will at some point) then we will feel its impact more so than last time. Australia and China aren’t in as good a shape to carry us through. We are however in reasonable shape.
When we go into the next global recession the share market will take a hammering and that’s an obvious place to start. I’m fascinated by “market commentators” who point at property but don’t point at the share market as if it is somehow immune to the bigger issues brewing.
But what about house prices?
House prices will fall when supply outweighs demand, but mostly when people are forced to sell into a soft market. It always works that way.
The Reserve Bank is attempting to reduce excess demand through LVR restrictions, but ironically it may also inadvertently limit supply as the liquidity is removed from the market and homeowners don’t sell.
House prices fall when demand crashes. That could happen in speculative parts of the market where there could be a sudden spike in properties for sale. Sections are always dangerous when the market turns.
Prices fall when there is a big jump in unemployment and people can no longer pay the rent or the mortgage.
Demand can reduce if there are better or safer options for people’s money. Hmmm, let’s think about that: finance companies, share market, banks. If you are a Boomer and came into $500,000 tomorrow where would you put it? Personally I’d pay off debt. I sure wouldn’t put a lump sum into the share market right now. I might put it into a bank deposit and earn around 2.50%. Understandably many Kiwis would buy property with a gross rent yield of around 4.00% to 5.00%.
Next, unemployment. During the GFC we didn’t see a big increase in unemployment. We live in a fairly simple economy and we produce basic necessities. We are also not a high growth economy, and businesses here have not tended to over-invest in growth. Most businesses are run very lean with little ability to cut staffing. Think about that in the context of your own job. I recall reading that Kiwis work some of the longest hours in the world. That’s not to say unemployment wouldn’t increase, but NZ is not the same economy it was 30 years ago.
Speculation is where I see the greatest risk and that’s been a big factor in the Auckland market. The risk sits mostly around developers and land bankers and in areas where buyers have been speculating over capital growth as a result of the unitary plan and housing shortages. A lot of this has been fuelled by foreign capital and a game of pass the parcel. The rule of the game is simple – ignore fundamentals and find someone who is prepared to pay more than you paid. This game clearly ends badly. The greatest speculative risks are on the periphery of the city where land prices and build costs are simply too high.
That said, there are plenty of mitigating factors in the short term with ongoing immigration and a shortage of housing supply. I suspect the LVR restrictions are going to slow down housing market supply (people will be less inclined to sell.) That lack of liquidity and reasonable underlying economic growth and high immigration will push house prices along for a while yet in Auckland, especially against a backdrop of low interest rates.
Auckland city is going to continue to grow. Its population will continue to increase and it will be popular for new residents. There is no easily develop-able land in Auckland city (and a lot of water and un-usable land) so per square meter rates will increase as we push the city upwards. Long-term nothing changes that.
There is no reason to panic.
My key message (which hasn’t changed) would be to be sensible and not over extend yourself:
- Make sure you have a sufficient buffer inside your mortgage, wriggle room in terms of your ability to service the loan, and have some other forms of savings.
- Where appropriate lock in longer-term fixed rates to give you certainty. Also don’t rely on your ability to borrow against the house.
- Make sure you are properly insured if something goes wrong.
- If you own a business make sure you are well capitalised and have a strategy should your market slow down, especially if you are in retail.
- Also be quick to act when things do change. With much tighter loan-to-value ratios don’t assume you can get access to capital from borrowing or even selling property.
- On that point, be careful about cross-collaterisation. Generally, I wouldn’t have all of my lending with one bank, or I’d at least mitigate the risks.
John Bolton is the "Chief Squirrel" and CEO at Squirrel Financial Services. This articel was first posted on the Squirrel Mortgages blog, and is here with permission.
66 Comments
I think there are quite a few people wanting the market to slow down or correct in some way so that their children and grandchildren will be able to buy houses for their families just like us boomers were able to. They are not all naysayers, rather they are just concerned for their offsprings futures.
They are not 'naysayers"! They are realists! You and other 'deludes' may believe in perpetual growth models, ponzi & pyramid schemes around housing, but the rest of us actually know a thing or two about real world economics!
The market WILL crash, and you lot will blame everyone but yourselves. Being an optimist does not change mathematical realities. 2+2 does not and never will = 5.
Good learning!
Only it is: 1-1/2+1/3-1/4+1/5-... ad infinitum = -1/12.
Similar mathematics is being used by economist to run the world economy into the ground as requested by the 'powers to be'. And the 'powers that are', are playing second fiddle and will join the unemployed once the New World Order 'regime' is in place. The rest ..., will became debt slaves!
Oh, I forgot. Dubya will save us with a new regime change, and we'll all leave this planet to become Homo-Spacius, the new breed!
Nope. Had it right the first time :)
https://en.wikipedia.org/wiki/1_%2B_2_%2B_3_%2B_4_%2B_%E2%8B%AF
'Unsustainable growth essentially driven by debasing our monetary system for the past 30 years is the elephant in the room that nobody in the mainstream media is talking about.'
Spot on!
Indeed, growth now has many of the characteristics of cancer -robbing healthy tissue to fuel expansion of unhealthy tissue, and in the process slowly killing the host.
It certainly seems sensible to me and I can't see anything I disagree with. Properties on the periphery of Auckland seem to be selling for a little too much over CV when compared to the central suburbs so a correction is likely to hit harder there if it does occur. Low interest rates, high migration, good employment statistics and political stability are likely to see things stay fairly steady.
Again you are making an assumption - I never specified a time line only that things can change. When things do change they are likely to be for the worse. The second part of the article talks about prudent financial management in the event that something does change for the worse.
For some reason peolpe need certainty in an uncertain world.
You mustn't let the thought that "things can change" paralyze you. Thinking that when things change it will likely be for the worse is a losing strategy. Often throughout life you will find things change for the better, especially when it comes to finances -expect a windfall, expect a lucky break, expect to make a profit, expect a promotion or a pay rise.
What has this to do with the article - it's about being financially prudent and not assuming that things won't or can't change (not "it's different this time") - being eternally optimistic is just as bad - if things do go pear shaped you can be over exposed and lose the lot (an example of that is the couple in Australia who owned several properties in a mining town - then the mining bust came (even the banks own internal risk assessment pointed it out as a potential risk - but the banks still lent them money) and now they are several million in the hole. Another example is the property investor in Christchurch - rents are declining - and there is an oversupply of rental accommodation - and it's not as if you couldn't see that one coming a mile away - the rebuild will eventually finish). Things change and you have to be prepared for that change.
The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function. "F. Scott FitFitzgerald"
From my perspective the two opposed ideas are that the Auckland housing market is wildely overvalued, but it also could go up even more depending on what the Chinese do.
Duncan Garners headline article today 'My fear is that my children will never be able to buy a house'.
Isn't this hilarious? It appears to be a sentiment shared by my parents and many of their friends. Now I'm one of those kids who can't afford to buy a house - or well that's actually a lie, I could, but I think it would be financial suicide for the remainder of my life so I won't, but that's a side issue.
But isn't it funny that my parents generation worry that their children won't be able to afford to buy a home - yet at the same time they've all turned into 'property investors'? I mean WTF. How does that work. They go out and buy as many houses as possible, outbid FHB at all the auctions, and then turn around and say, holy crap, I'm so afraid that my children will never be able to afford a home in the country.
These same people also allow JK and his merry men to allow foreign buyers to openly buy as much property in this country as they want, by continuing to support National who won't even accept that there is a housing crisis. Again WTF older generation New Zealanders. You're the voting majority - you're voting National because you like feeling rich by seeing the value of your houses go through the roof (excuse the pun) - but you're fearful that your children will never be able to afford a home?
You like to negatively gear your property investments, another tax avoidance scheme that National don't appear to have a problem with - that openly encourages people to grow their property portfolios, locking FHB's out of the market. Again WTF New Zealanders!
When I hit up older generation New Zealanders on these issues, I've been told (more than once) I'm an entitled little brat!! So I ask them how many homes their parents owned when they grew up. They say, 'well just the one we lived in of course'. I ask, 'how many do you own?". They answer 'well 2 or 3, but that's our retirement'. You can't have your cake and eat it to older generation New Zealanders. Wake up and smell the coffee instead of drinking the kool-aid that property investment is the way of the future.
Yes there is a strong possibility that I will if the market doesn't return to affordable levels in the next few years. I don't believe I ever said I was shifting immediately - and why does this interest you so much? So perhaps I'll leave, and be replaced by 5 unskilled workers from overseas - that's fine.
Very well thought out and expressed, Independent Observer.
If you manage to stay out of debt, by default you will ahead of the pack!
And think of this, not everybody will be able to sell their nest-egg when the need arises. The smart investors are selling on the way up, whilst the "selling is good."
Wheter when one like it or not :
Correction will happen.
Only question is :
When it will happen and
By how much, may be just 10% or may be just 5% or may be 30%
"Bull market are born in pessimism, grown on skepticism, mature on optimism and die of euphoria" - Sir John Templeton.
Now decided at which stage, we are at the moment. It is a matter of individulal perception some may feel optimist as many comment in this article implies but reality is getting towards if not already in EUPHORIA.
I think John Templeton is correct.
Sorry John Bolton as even I think we are at last stage and is true, we are in Euphoria. Can check with anyone who has house. If John Templeton theory is correct, one has to be extra careful and also if RBNZ and major banks opertaing in NZ are saying there is a crisis means something is not right. Also if in media/ news day in and day out indicates that there is a situation that has gone out of control and be prepared for the worst.
More chances of burst than boom from here on. John B is correct, it could happen anytime and most prrobably from external factor and whenevr it happens all pundis will come out with their analysis and told you saw attitute.
Internally everything points towards burst but as government not interested in controlling will be hard to happen by itself due to low interest rate but one never knows as election year is not too far.
This bubble is fuelled by oversead Asian money and little control on it would help control and avoid major disastor but only if government ..........
Excellent Article and wise analysis, John Bolton put his finger right on the heart of the issue ... and his message is wise, Don't Panic ... indeed.
As to his reasons to why Akl prices will rise, I totally agree .. we are still looking down the barrel for an increase of 5 - 10 % this year and maybe the same next year if no big disaster happened in the world!
Wise advise too - thanks John
This fellow sounds a bit confused.
He says there's no reason to panic, then goes on to list all the vulnerabilities of the global economy. That is *more* cause for panic, not less, because there is nothing we can do about the problems in the global economy.
If you have a big mortgage, it does not really matter what causes price to fall, be it domestic or external events.
Excellent points John great article, but I'm not excitedly lining up to say “told you so" i have been yelling from the sidelines for some time, since Bush bailed out the banks in fact. The game is rigged and when the full time whistle blows, it will bring big ugly Bertha into the bedroom.
Yes this is a good article and does help to support what all of us have been pointing out for some time now. Basically Auckland property prices will not crash any time soon mainly due to Asian money pouring in and high immigration. But and there is a but! It can NOT last forever! I'd give it another year possibly two until it has to recorrect. And this is why:-
* Outside of Auckland and larger cities the property market will crash and probably drop by -20% generally we're already seeing this unfolding in Christchurch.
Btw I did see the same thing happen in London after the GFC, basically London property was supported by overseas Investors so just plateaued. The reason why the Brits don't jump up and down about Non-resident Investors is due to them being more diverse and not coming overwhelmingly from just once area. London has always been Multi National.
* Quality migrants will stop coming to NZ due to high cost of living. This causes our economy to contract as our immigration will be strong but of very poor quality, so little out put and of no commercial merit.
* Our educated young will leave for better opportunities and prospects else where in the world.
* Tourism will also suffer due to high NZD which is overinflated due to Auckland's house prices.
* Hopefully the NZ public will wake up and realise what's going on before the next general election.
Good points. I particularly agree that 'quality migrant' numbers to NZ are likely to slow. Sure there will be some high net worth individuals migrating here, but hard to see a lot of middle class professionals flocking here.
The cost of living is high here relative to Australia. Apart from housing, which is probably generally equivalent, everyday costs here are much higher - power, fuel, groceries, general day to day costs.
*Relatively* affordable housing *used* to be a pull for Auckland from 2000 to 2005, but that is no longer the case.
Or on the other hand;
* Interest rates about to fall even further, within a few short months we are possibly looking at under 4% rates as standard carded rates across the major banks.
* Housing supply in Auckland is a long way behind housing demand unlike Christchurch.
* Its not getting cheaper to build a house, and if the dollar falls it will get even more expensive. Not great news for future supply. Its not getting any cheaper in Auckland to develop land either, infact since the 'super' city mergers its only got more expensive.
* The rest of the world is in a mess, our young people will continue stay home, and many foreigners will want to immigrate here. NZ is only small on the global stage. The rest of the world is only just finding out how good life is here. If a fraction of 1% of Asia, Europe and America wanted to move here it would be more than the entire current NZ population. It wouldn't surprise me if net immigration hits yet new highs.
* The RBNZ has basically made sure that investors buying more property will not need to sell if the market faces a crash by requiring them to now have 40% deposit, meaning houses would have to fall 40% before their equity disappears. While this maybe possible in theory, its hard to imagine the reasons for this as long as demand outstrips supply, given extra supply stops dead when developers and builders cant make a profit. Also that doesn't sound like high leverage to me. Say a $650,000 house rents at 4% gross yield at $500 a week. Only 60% is borrowed funds - that's a mortgage of $390,000 - that's a yield on debt of 6.7% which in many cases will be cash positive. It's hard to see a market crash when investors are forced to buy cash positive investments. I know, I know, - many may put up their own home - but in that case they are still paying less in interest on that than a tenant would pay in rent (even before the tax advantage), why would someone sell in that position - which would only increase their cash expenses by having to rent? Unless we get rising interest rates combined with rising unemployment its hard to see any market crash.
* Its also possible (or likely?) central banks worldwide continue to print trillions more before they would let a correction happen. Originally the FED was talking about QE as an emergency unconventional measure. Now it could become standard operating practice when the economy isn't performing to target. Even the RBA recently has looked at their own version of QE. There is no limit to central bank printing of fiat money, and its the politically easy option.
Umm economist: I beg to differ; at least from an quality migrant point of view. See NZ still has the most expensive mortgage rates in the western world. To a BritKiwi like me, it still feels like day light robbery with mortgage rates in the 4 to 5% margin, I'm use to seeing much much lower rates than that.
Then you have to weigh up extremely high house prices and low quality (High maintenance) property. One of the main attraction feature for NZ was the opportunity to own a good size home, sadly for new migrants who aren't able to cart around suitcases full of money the prospects of owning a home in the larger cities is becoming much less of a reality and therefore far less attractive to move.
And you would be surprised, even avoiding terrorism isn't enough of an intensive to make people want to emigrate - however affordable property prices are a very attractive incentive.
Maybe CJ099, but its supply and demand. Falling interest rates here will make houses more avoidable and a falling dollar will make houses more affordable for foreigners moving here. My point was there is two sides of the coin here and the other side as JB points out doesn't look like weakening any time soon in Auckland so its hard to see a 'crash' in prices. The new LVR restrictions on investors may pause the market in the short term but the demand backlog is just too much to clear in the short term and people need to live somewhere.
I wasn't thinking of terrorism directly more the financial mess the EU is becoming.... if only a fraction of a fraction wanted to move here we just couldn't cope. If half the expat Kiwis all decided to move back - our housing just couldn't cope with hundreds of thousands of returning kiwis.
New houses are very expensive to build here, yet Auckland needs to build at least 10,000 per year just to keep up with demand. Infrastructure is very expensive here. Building new subdivisions is very expensive.
House prices are very affordable in places like Dunedin but people aren't moving there. The problem is the Auckland population is growing faster than the infrastructure. Immigration and lack or planning from government is a big part of that.
CJ099, I have been told that there are "foreign" people who enter the country on the business investment Scheme ( I think it is $2M of investment plus a lot of other rules etc) ... they set up businesses and employ people ( of their own) , most are import businesses .. they sell practically nothing but they cook the books to show transactions and Profit at the end of the year and they pay the TAX on that plus all the PAYE ... and They buy houses and apartments for their families and Kids etc ... all that is for the sake of staying legally in NZ and acquiring permanent residency ... this is not fiction! it is the silent truth...
Ever wondered how all these Chinese import companies ( bathrooms, kitchens, toys, furniture..etc - have a look at trade me and go and visit their showrooms ) which have mushroomed in Auckland who are utterly unsustainable businesses run by people who in most cases don't even command two words in English?? ... how about all the cafes, sushi , and Franchises bought for at least 30 - 40 % more than its worth in the last 3 years which are loosing money every week...Do you see any local people working in these businesses anymore?
There are people ( immigrants) who are buying their residency here and paying for it day in day out , might cost them around $50 - 100K a year...and yet they consider that to be a cheap and affordable way of getting their families here and their kids in Uni with free health care and schooling and with the high quality of life that we enjoy....(small change really after investing $4- 5 M to enter the country.
Never under-estimate what wealthy Chinese people would do to reside in NZ, they certainly do not use the same logic and rules and MONEY that we use, their Goals are different and they focus on ( and buy) the future.
I think economist is correct .. NZ is a focal point of anyone who can afford being here and there are lots and lots of them in China and INDIA. I am sure that the Gov is holding the flood gates firmly tight, I would have imagined it would have been a circus if they were to let everyone standing at the gates in !!
So demand will continue to increase on Houses, SUVs, luxury Euro cars, Commercial Properties, Life style Blocks and everything in between.
Oh, BTW , I have nothing against that ...good on them if they can pull it up and keep paying their way .. a little of that is good for the economy and the country in general , but too much access luggage is dangerous! and we are slowly getting there ...
I think the Gov should find a way to close the gates ... for a while!!
Deflation is overstated (actually non-existent). The CPI is positive (meaning inflation - not deflation). The big fall in the price of oil is over. Not sure what data you are looking at when you say deflation is everywhere? Do you mean the fear of deflation is everywhere? Measuring annually (to take out seasonal estimated adjustments) we have never had deflation in my life time.
Petrol prices up 5.3%, construction costs up 2.1%. ...
http://www.stats.govt.nz/browse_for_stats/economic_indicators/CPI_infla…
Also a lot of construction costs are imported - bricks, tiles, taps, etc... as the dollar falls these prices go up, meaning its hard to see how building a new home gets cheaper when the dollar falls...
I'm not holding my breath for construction costs to come down either (actually I suspect they will only go up as a significant portion of the cost to build is labour and I don't see construction wages falling as the construction industry struggles to find skills). Nor do I see the regulatory council compliance costs falling - if any thing they keep getting more and more expensive. My main point is that its getting more expensive to build and that trend is set to continue.
Yes obviously the Auckland housing market is overpriced and it has been for several years.
You are dreaming if you think investors are the reason for this.
There is no way that an investor would be buying up there for a rental return of 3 per cent or less.
It is speculators and money launderers and we know where they are coming from.
Christchurch market prices are not reducing at all as there are so many new homes being built and with building costs high they continue to rise.
A new 200m2 home is approx 800k.
Yes there are a lot more rental property available now than several years ago but there is still demand providing the property has been maintained.
Rents have dropped by approx. 10 per cent but investors are still better off as the interest rates on the mortgages have dropped by approx 20 per cent.
The median prices quoted by the Real Estate institute etc. in Ch.ch. are skewed by the fact that there are hundreds of AS IS WHERE IS properties still being sold.
Rental returns from these can be well over 10 per cent p.a.
Christchurch rental market for investors leaves Auckland for dead for returns and future capital gain but then why would you sell???
The Reserve Bank decision this week to penalise first home buyers by increasing the deposit required should not have occurred.
Why should the rest of the country suffer due to the mess in Auckland?
All the above only holds true while on the DEMAND side
- foreign persons continue to buy 39% of properties (Non Residents, Temp Visa and foreign students LINZ)
- Investors continue to buy 46% of the properties
If however the government/Reserve bank finally try and tackle this excess demand by
- Applying a stamp duty 10-15% on Investors and Foreign Person
- Apply Loan to Income Rations on Investors and Foreign Person
Then Demand would significantly drop (and we know what happens when demand falls of a cliff) prices would follow....
So great article assuming the government continues to do absolutely nothing ...
Where do they get the figures that say that over 40 per cent are so called investors?
An investor is someone that buys a property to rent out rather than leaving empty or speculating that prices are going to go up.
Wish they would not call them investors!!!
An investment to my mind is a positively geared property and not one you have to prop up each week.
All my ChCh properties are investments in that they are all positively geared.
We hear you on investors vs speculators.
I was speaking to a friend's brother-in-law in Auckland 3 months ago. He had just been to an "investment" seminar where a self appointed expert wad advising borrowing against his home to by rentals (in Auckland). When I asked what the cash flow was like he got a glazed look and went from bubbly exuberance about property price growth to a little more subdued.
I left him with a passing comment about 2007 and a suggestion that be run a scenario of a 10% drop in price and a decade of no price change after that with the possibility of say a 1% interest rate increase later in that period. Suggested these were pretty modest scenario considerations. He started to look shocked. He was a speculator and didn't know it. He thought he was an investor. I suspect there are plenty of people that don't do sort of "what if" thinking. Their appetite for risk is actually lower just they are/were caught in the hype and have n't been there before (yet)
No moa man, it wasn't the 'savers that saved the day' it was the money printing that saved both the debtors and savers.... that 'salvation' has come at a cost. Artificially suppressed interest rates and assets bubbles everywhere and much higher debts. Time will eventually tell if it really works out or not, if it doesn't both debtors and savers are going to loose, but especially the over-leveraged as they may end up loosing more than they have.
Here we go people, Hot of the press ... the first BRexit aftermath ... watch the space for tax cuts to please the angry people of the world (OECD)... next year will be interesting indeed..!
https://nz.finance.yahoo.com/news/g20-countries-call-tax-policy-0857095…
NZ is probably the only country in the world that tries to distinguish investors from speculators when it comes to property purchasers ... probably because of ridiculous tax laws....
Rest of the world these two groups are the same thing. An Investor buying property is treated in the same manner as a speculator buying property.
In the UK both pay stamp duty. Both pay capital gains tax. The sooner NZ tax authorities adopt a similar approach the better.
Both have exactly the same risk when they buy a property.
It comes down to what you want to hear and who you want to listen to.
http://i.stuff.co.nz/business/opinion-analysis/82365773/martin-hawes-ta…
If all experts are saying than definetly not something but everything is wrong. Bubble gives sign but happens without warning and if it was upto any governments no bubble would have burst but unfortunately, it needs only one trigger and will boooom.
It would have been in interest of the government to control it to minimise the damage but current national government is not able to look beyond next election, a pity.
I’m fascinated by “market commentators” who point at property but don’t point at the share market as if it is somehow immune to the bigger issues brewing.
There is a multiplier of awfulness attached to Auckland property.
Since we have decided to supply restrict land and increase the cost of construction in Auckland, the rate of building in Auckland has been very slow. We've made too expensive to build here and whilst investment has inflated the cost of land, Auckland's rate of construction is the worst in the region. This means that when a correction finally occurs the availability of rental space in Auckland will be lower than in Sydney, Brisbane, Melbourne and so on by a considerable amount. Companies on the share market will do what companies do in time of economic difficulty, find cost savings - they will stop renting in Auckland and move away.
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