Auckland housing market 'hard to label a bubble'

Property

The Auckland housing market suffers from a supply shortage but there isn't necessarily a bubble, ANZ NZ's David Hisco says

1st May 13, 4:53pm by Gareth Vaughan

By Gareth Vaughan

There's a shortage of supply in the Auckland housing market but not necessarily a bubble, says the CEO of the country's biggest bank.

ANZ New Zealand's David Hisco told interest.co.nz that the supply shortage had been well documented and ANZ was keeping an eye on it.

"But it's hard to pronounce it's a bubble because it depends on different pockets and areas," said Hisco. "But certainly we're noticing there's a shortage of supply, which means people are bidding up what's around."

Hisco was responding to a question asking whether he agreed with recent comments made to interest.co.nz by Adam Hunt, the Financial Markets Authority's head of strategic intelligence. Hunt said there is an Auckland residential property bubble, which needed to be acknowledged, and hopefully, safely managed.

ANZ has 38% of its NZ$57 billion mortgage portfolio in Auckland. ANZ says during March the average loan size at origination was larger in Auckland at NZ$288,000 than NZ$227,000 across its whole portfolio. And it says the average loan-to-value ratio (LVRs) at origination in March was 67%, only just higher than 66% for his whole portfolio.

The latest Real Estate Institute of New Zealand figures show the Auckland median house price reached a record high of NZ$562,000 in March, up 13.5% year-on-year. At 3,359, sales volumes in March this year were 18% higher than in March 2012, and 40% up on February 2013. Reserve Bank Deputy Governor Grant Spencer has hinted the central bank may look at raising interest rates if the housing market continues to rise sharply.

And Prime Minister John Key said the Government is doing all it can to help the Reserve Bank avoid having to put up the Official Cash Rate in response to Auckland house price inflation.

'More competitive in Auckland than ever'

ANZ has been duking out with ASB and Kiwibank in Auckland over the summer for the biggest slice of new residential mortgage business. Asked how ANZ was currently doing Hisco said the numbers go up and down a bit every month but ANZ was far more competitive in Auckland than it has ever been before. Last October Hisco told interest.co.nz that ASB, formerly the Auckland Savings Bank, was "an Australian bank like us" with "no territorial rights over Auckland."

"I think by later this year we'll have more branches in Auckland than any other bank. And when you add to that the number of specialists we've got wandering around, the power of going to one brand is really starting to come through," Hisco said.

He also pointed to the average LVR on ANZ's Auckland loans being not a lot different to the average everywhere else.

"So whilst people like to run the headlines on these things we're looking at what we're doing to make sure it's sustainable."

*The chart below comes from the ANZ group interim results presentation.

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46 Comments

by Keyser Söze | 1st May 13, 5:16pm 1367385377

Is today April 1st?

by dh | 1st May 13, 5:28pm 1367386087

My evidence for it being a bubble is the way housing diverged from GDP in 2002 and hasn't come back, what is the ANZ's evidence that this is not evidence of a bubble? Becuase lot's of international institutions are warning its a bubble I think the burden of proof might be on the ANZ here.

by andyh | 1st May 13, 5:32pm 1367386320

There seems to be a heck of a lot of 'they would say that, wouldn't they' articles appearing on interest.co.nz these days.

A cynic might conclude that the lunatics have taken over the asylum.

by Gareth Vaughan | 1st May 13, 5:34pm 1367386469

So you don't think I should have asked the CEO of the country's biggest bank to respond to the FMA's bubble warning then?

by andyh | 1st May 13, 5:45pm 1367387106

Well its up to you how you allocate your time Gareth - however his response was entirely predictable was it not?

They are not called vested interests just because they all wear vests......

by Gareth Vaughan | 1st May 13, 5:49pm 1367387340

Andy, I'll admit to a thin skin on this one. It frustrates me to be critisiced for covering this issue when it's being ignored in almost all the rest of the media. Vested interest or not, we have the views of the CEO of the country's biggest bank on the record now.

by Keyser Söze | 1st May 13, 7:03pm 1367391790

I concur - well done. It's a thankless job writing for the mob (including yours truely.....)

by speckles | 1st May 13, 7:57pm 1367395035

Only thing to do is focus on who you are writing for...

by jimmo | 2nd May 13, 10:22am 1367446952

kimy. Disagree. What makes the FMA the experts on how much borrowers should borrow. Describe poor lending practices PLEASE ! Tell me who the Bank is that is advising clients to borrow beyond their means. I apply to my Bank for a loan, the 1st thing they ask me is how much cash do I have to put in - my hurt money so to speak. Then they check out my income and if it is sustainable - then they look at my track record and what sort of assets I have accumulated. And finally they say I am good for xyz dollars and will lend me that provided the security is acceptable to them. Hardly negligent behaviour on their behalf

by Christov | 2nd May 13, 10:45am 1367448342

Jimmo..ultimately the Bank is lending against the asset purchased as security, not just your ability to earn (tenuious though that may be).

Artifically inflated values(bubbles) can occur for a number of reasons, shortage in supply being one of them. Now while the current environment is conducive to lending on those values , it does not appear to include the potential for a correction in values, which can be reasonably percieved as irresponsible lending on both sides of the ledger.

I say this because it is in the interests of the lender primarily (but not only) to maintain inflated asset values to appear insulated from exposure.....exposure of overlending during a frenzied period of buying without consideration to cyclatory corrections in supply and demand, sudden increases in unemployment, changes in immigration policy..etc..etc.

Essentially the Banks are saying it's all good as long as they are in control / infuence of critical market factors.

You may not believe this but Wells Fargo and a few of the Majors were saying exactly the same thing.

by Christov | 2nd May 13, 11:02am 1367449328

Jimmo...please go have a look at AndrewJ's comment and thread links on http://Exporters have to 'ride out' strong NZ$. Speaks volumes.

by iconoclast | 2nd May 13, 11:03am 1367449426

I had to read the Lead article a couple of times to get it

Adam Hunt of the FMA said there is a residential property bubble in Auckland and it needed to be safely managed.

The FMA is supposed to have expertise in "asset classes". They are independent. They are detached. If it comes to a shoot out who are you going to believe. The FMA or the ANZ. Hunt's message could also be construed as a warning message to the Financial Advisory community. The property asset class is in bubble territory, and any advisor currently recommending investment in property at this moment could potentially find themselves facing legal action some time in the future and making up any losses.

by Henry_Tull | 1st May 13, 6:01pm 1367388079

Its a credit to you and the site that you.

by Henry_Tull | 1st May 13, 7:20pm 1367392852

by Stephen Hulme | 1st May 13, 5:41pm 1367386881

What rate increase?

by Brendon | 2nd May 13, 9:09am 1367442571

Hugh I do not think as many people as should understand the social responsibility aspect of your affordability housing campaign. It is not a sensible long term business or political strategy to harm the society that you serve.

by Roelof | 2nd May 13, 9:56am 1367445386

Housing markets are in bubble territory when they exceed a Median Multiole of 3.0 ... refer 2013 9th Annual Demographia International Housing Affordability Survey www.demographia.com .

Hugh... Is it as straightforward as that...????

Looking at these figures (http://www.numbeo.com/property-investment/rankings_current.jsp)

I'm thinking... maybe Globalization and the accelerating trend of the division of wealth ( ie. fewer people owning more of the assets)... has made your metric...of the medium multiple.. irrelevant in determining a bubble....?????

Maybe Auckland Property will go the way of london which ihas a multiple of 15..

Reason I say London is becauase it is a "Global" city.... Maybe with our current foriegn investment rules ...Auckland will go that way too.???

(I'm just asking questions here.... don't have any views yet)

by bob | 3rd May 13, 11:26am 1367537199

Yes it's as straightforward as that. Hugh has proclaimed it - and it's been published on his website therefore it is a irrefutable fact.

by Happy123 | 2nd May 13, 12:20pm 1367454030

Have to agree with Roelof on this one, using solely the median multiple of the average household income is far too narrow.

You ignore many real world factors which result in home buyers not starting from $0. First home buyers often have money from parents, money from inheritance or have brought back money from thier OE's which is often in currency of greater value than the NZD. So a first home buyer having a couple of hundred thousand deposit is not unusual and that means a 600k purchaser is only borrowing $400k, approx 4 times the average household income and not far from your definition of affordable. Combine this with the fact that interest rates are at historic lows and likely to stay there. The average apartment in Auckland is only 300k and practically a cash purchase for some.

Then there's second home + buyers who have equity from the last 20 years or so, thier starting point, and borrowing ability, is much higher again and underpins the higher end of the market.

by powerdownkiwi | 2nd May 13, 1:22pm 1367457770

The plimsoll measure is also robust.

But it doesn't stop ships sinking.

Just as failure to ascertain external drivers renders rearward-looking comments obsolete.

by steven | 2nd May 13, 1:47pm 1367459241

In this I think HughP keeps copious company....not least our PM.

regards

by Stephen Hulme | 1st May 13, 5:59pm 1367387969

This comment is wholly consistent with the data revealed in this chart - but obviously those that say NZD 1.5 million is peanuts in the Auckland property market must live on the funding resources of another planet.

Now Gareth, if you can sort out the detail of the thick end of a trillion NZ dollar derivative book this ANZ depositor would more than relaxed.

by speckles | 2nd May 13, 9:23am 1367443383

Thanks for the comment Stephen, should be comment of the day.

by Stephen Hulme | 2nd May 13, 9:59am 1367445584

Thank you speckles.

by starfish1 | 2nd May 13, 9:42am 1367444529

I don't buy this housing shortage issue. Interest rates play a much bigger part in house price growth than housing shortages.

by bob | 2nd May 13, 10:06am 1367445991

True - if interest rates were higher lots of people whould chose not to live in houses which are, after all, a discretionary commodity.

by meh | 2nd May 13, 6:13pm 1367475236

If interest rates were higher people wouldn't be borrowing as much and wouldn't be pushing prices up.

by bob | 3rd May 13, 11:43am 1367538229

True - in a market with a surplus of housing. Given a shortage of housing prices still seem to go up and people just pay more by subletting their garage etc.

by Vera Fayed | 2nd May 13, 12:41pm 1367455285

It doesn't matter that you wont buy it because we're not trying to sell it to you. The Auckland housing shortage is a fact, and facts are the last thing you would be interested in.

Interest rates in many overseas housing markets are less than half of our rates but recovery there is slow because there is an adequate or over supply. Interest rates are low because the supply of deposits is greater than the demand for new mortgages.

You can choose to listen to those who insist destroying the export base of the economy by increasing interest rates is a great idea to bring down house prices. Those are the same people who also insist that the way to make houses cheaper is by making them dearer by introducing land tax and penalisiing anyone who commits the crime of owning a house as an investment.

Raising interest rates articficially (outside of market forces) is like amputating your leg to relieve the pain of an ingrown toenail.

by Chairman Moa | 2nd May 13, 1:33pm 1367458391

Yes, I couldn't agree more and I am not even in the property investment game. There are just so many hot headed contributors here. Some suggested that CGT and stamp duty will be the answer for our houisng bubble (e.g. ex Agent). Well, Australia had both since the 80s and did it stop the housing bubble?. Build more houses is the most obvious solution.

by Christov | 2nd May 13, 10:09am 1367446173

I have got to ask you Gareth and the Int.co forum, have you ever heard this before..?..... ANZ was keeping an eye on it.....does that have a disturbing ring to it...? as in the don't touch , do nothing RBNZ plainspeak.

I think the ANZ like all the majors should be asked if, they believe they have been responsible lenders on both sides of the ledger, and if so, offer a detailed response to counter FMA concerns.

The Banking Industry has flourished under a benign regulatory environment, while other aspects of the economy have faltered at the expense of preserving Banking interests.

That statement , is borne out by the evidence thus far, despite low interest rate conditions the Banks have still enjoyed the 100% margins, and see little reason to interfer with an environment that is ..working for them...regardless of the signals in the market place showing external pressures coming to bear on the economy.

by Gareth Vaughan | 2nd May 13, 10:30am 1367447434

I went to hear John Key speak yesterday. On Auckland housing, he said there needs to be 15,000 sections available per year in Auckland for both greenfields & brownfields development and suggested the government's RMA changes were a key plank in enabling this.

He also said he worries when he sees suggestions Auckland house prices will rise 11% this year because if they do Graeme Wheeler will lift the OCR, a move he said would stifle economic growth.

There's more from Key (on the NZ$) here - http://www.interest.co.nz/currencies/64264/pm-john-key-says-currency-in…

by Happy123 | 2nd May 13, 10:32am 1367447543

I know it's awfully unpopular to side with the banks these days but I do agree with David on this one. There is a shortage of houses in Auckland and where there is a limited supply and high demand prices go up. The theory of supply and demand and it's effect on price should have been explained to you all on day 1 of economics class. For various different reasons, which have been covered in depth, the supply will not be increasing any time soon. And when it does start to increase it will be flats, apartments and terraces so while these property types will have a supply increase and subsequent flattening in price the traditional 1/4 acre properties are not increasing in supply so prices will continue to go up.

On the demand side the OCR won't be dramatically moved, and rightly so, due to it's adverse effects on the NZD and our exporters. Auckland is a nice place to live with plenty of jobs and positive net immigration so demand will remain strong.

Strong demand and limited supply not only justifies the current prices but is a strong indication of continued inflation. When I compare Auckland properties, most of which are stand alone houses, with international counterparts they are very cheap in comparison. Apartments in Auckland are still very cheap and first home buyers have a very affordable option there, what has to change is their expectations.

by bob | 2nd May 13, 2:59pm 1367463567

The DBH report clearly showed that most affordable housing comes through higher density type development and that recent increases in house prices are largely due to the pause in higher density type development (which is where affordable housing comes from).

Hugh and his ilk disagree but don't like logical debate making their position hard to understand (Ad hominem attacks, Ctrl C/Ctrl V ing vast amounts of text, constant reptition and links to cantabury.com not being logical debate)

by SK | 2nd May 13, 3:43pm 1367466222

you dont see a problem with Auckland sprawling out and consuming warkworth and Hamilton and beyond?

by Christov | 2nd May 13, 3:57pm 1367467065

Well it can only improve Hamilton, I mean please really !....as to Warkworth , sure why not...Pakari can be the New Takapuna with better sand and surf... the hippies can sell and recolonise Wellsford to nouvo shiek.... sure why not.

by SK | 2nd May 13, 4:01pm 1367467276

Ha! would improve hamilton - the new south auckland!

But seriously Aucklanders want density - build up not out.

Looks like that is what we are getting - hurray for that - lets throw in a rail loop and eventually rail to the airport.

Shame if some guy in Chch doesnt like it.

by SK | 2nd May 13, 6:17pm 1367475448

HUGH IS COMPLAINING ABOUT BEING BORED TO TEARS ! ! !

POST SOME MORE OF YOUR MIND NUMBING LINKS AND NUMBERS TO KEEP US ALL ON THE EDGE OF OUR SEATS ! ! !

Why dont you drive pukekohe to the CBD for work in monday morning rush hour traffic and tell us all its fine to keep sprawling out further and further.

by bob | 3rd May 13, 11:34am 1367537692

Awesome response. You start with an ad hominem attack, reference Canturburyunite.com, restate your point of view (I'm sure there's some copy paste there too). Then an ad hom attack on the DBH so you can avoid responding to their research. Fantastic - almost a parody.

by starfish1 | 2nd May 13, 2:50pm 1367463012

Yes, but house prices fell in NZ when the financial crisis took place and there was a housing shortage then. House prices have picked up as interest rates have come down and there has been global stability since this time. If say later this year the US Fed starts easing bond purchases on signs that the US economy was improving then global interest rate sentiment may change even if the Fed does not raise rate until say 2015. The lower the interest rates the more you can borrow. If mortgage rates were at 2.5% then house prices will go up quite nicely. If rates were at 9% then house prices will not soar up because of a housing shortage.

by bob | 2nd May 13, 3:05pm 1367463911

Given one of the biggest financial crisis ever they fell slightly - nothing remotely like what they fell in places that also had a housing surplus.

by JimboJones | 2nd May 13, 9:54pm 1367488499

A 3 bed do up in a state housing area of mt roskill went for 1 million at auction last week. 1000square meter section

by bob | 3rd May 13, 11:40am 1367538056

what address?

by JimboJones | 2nd May 13, 9:55pm 1367488502

A 3 bed do up in a state housing area of mt roskill went for 1 million at auction last week. 1000square meter section

by speckles | 2nd May 13, 10:03pm 1367488993

cheap as chips...

by speckles | 2nd May 13, 10:03pm 1367488994

cheap as chips...