The Chief Executive of The Property Institute is predicting that Auckland median house prices could double by 2026 or 2027.
That would give a median price of around $1.7 million in Auckland, compared to the REINZ's April median of $850,000.
Property Institute Chief Executive Ashley Church based his prediction on mortgage data supplied by property analytics company Valocity, which suggested the residential property market peaked in 2016.
"Almost without exception, the number of mortgages uplifted by every buyer group [including investors, first home buyers and existing property owners refinancing], peaked in 2016 and has dropped away since then," Church said.
"That's the clearest indication yet of when we reached the top of the market.
"We know from experience that property values roughly double in Auckland every 10 to 12 years, and based on this rule of thumb, I'm of the view that the next cycle will start in 2021/2022 and by 2026 or 2027 the median house price in Auckland could be around twice what it is now," he said.
However the Valocity report also shows a split in home buying patterns between Auckland and the rest of the country, especially for first home buyers.
It shows that across the entire country, 39,000 new mortgages were taken out by first home buyers in the 12 months to march 2014, but by the 12 months to March this year, that number had declined to 32,000 (-18%).
But in Auckland the number of new mortgages taken out by first home buyers had declined by a third, from 15,000 to to 10,000.
Which means the number of mortgages being taken out by first home buyers in Auckland declined by almost double the national average between 2014 and 2018.
When the Auckland figures are removed from the national total, this shows that mortgages taken out in the rest of the country excluding Auckland dropped from 24,000 to 22,000, a decline of just 8%.
So most of the decline of mortgage lending to first home buyers that's occurred over the last four years has been in Auckland, while there's been just a slight dip around the rest of the country.
That is almost certainly a factor of affordability.
According to interest.co.nz's Home Loan Affordability Reports, Auckland and Queenstown are the only parts of the country to have serious affordability issues for typical first home buyers, which housing should still be within reach for first home on median incomes in the rest of the country.
That suggests there is also likely to be a continuing difference in price growth trends between Auckland and the rest of the country, and if prices in Auckland have already reached an affordability limit, prices in Auckland may not grow as quickly as in other parts of the country and could also be at greater risk of suffering a price correction at some stage, particularly if mortgage interest rates start to rise.
You can receive all of our property articles automatically by subscribing to our free email Property Newsletter. This will deliver all of our property-related articles, including auction results and interest rate updates, directly to your in-box 3-5 times a week. We don't share your details with third parties and you can unsubscribe at any time. To subscribe just click on this link, scroll down to "Property email newsletter" and enter your email address.
172 Comments
don't worry the bank of mom and pop will be overflowing with equity for you to dip into.
Think of what we can do with that extra trillion $ sloshing about :)
https://www.rbnz.govt.nz/statistics/key-graphs/key-graph-house-price-va…
And those some people are having cold feet so though have introduced are now trying to dilute and / or delay (one mean that was ban on foreign buyers) IF can not avoid implimanting it.
Introduced than extended the time from February to May and NOW I think has been again extended till June end.
Wait and watch all Labour supporters how NOW labour too takes you for a ride.
Whom will you vote next time :)
That’s a bold bet doubling to 1.7mill median for Auckland in that time scale
I don’t believe the current Auckland property cycle has been normal at all
He’s not factoring in the now over $5Billion city debt & yet no answers how to get that under control
The number of foreign buyers that boosted the market to its current median price this time.
Foreigners & new migrants don’t have the same mindset as locals They will swap countries if it so suits selling up their properties. Aucklanders have moved out of Auckland already to other parts of NZ & the world as they see congestion & strains on hospitals & schools since the NatNil mass immigration experiment.
No there’s more to this paradigm to settle out yet
So he is using one bit of research that indicates that the peak of the market was 2016 , then using a rule of thumb to extrapolate into the future - hmmmmm what could go wrong. I don't think any amount of financial engineering will enable the doubling median housing price in Auckland by 2026.
What about the lack of actual Engineering going on around housing and infrastructure? I agree bias and simplistic modelling here, but I don't have much in the way of economic factors that contradict it;
- housing construction unchanged
- immigration barely slowing
- natural populations growth unchanged
- RBNZ loosening LVR restrictions
- OCR increases planned for end of next year (which they said last year and the year before that)
Point is even if they are 100% wrong we will still be no where near affordable.
Remember that margin between over and under supply can be pretty thin, particularly in a relatively inelastic market like housing.
If you need a house and cant get one, then you are desperate and the price sky rockets, conversely if the demand for houses is satisfied and no body wants another one then you will be equally desperate to sell, prices will plummet.
We have experienced the sky rocketing phase. We are at a bit of a price plateau at the moment, because of regulation change, LVR etc, and basically house prices are so stratospheric that people cannot afford them.
This is occurring despite demand continuing to outstrip supply. In other words the current prices are being held in place at a point where these factors stop them rising further.
However when and if the market balances supply and demand (our governments very correct primary objective), the crazy desperation premium will ease and we could very quickly slip to oversupply with a corresponding return to sane prices. As I said the market may well be very inelastic and fall into oversupply, resulting in a price crash.
The only way to keep this party going is to cynically continue to engineer unsatisfied demand like National did. Is this ethical or moral? Hopefully the government stick to their guns and show a bit more spine in addressing the shortfall
Lots of really wild assumptions here which really make this prediction rubbish.
I remember many years ago when Bob Jones was talking up his property company and it came out later that at the same time he was offloading his shareholding.
Maybe Ashley Church is looking to unload his property portfolio?
Yep, 'pump and dump'.
I tend to take the view anyway that you can never trust someone's opinion about something 100% if that person has financial interest in it, or even more so if they sell it for a living. However, Church is so blatantly spruiking his sector that the advertorial nature of his statement is as plain as day.
It has been predicted previously and proven to be correct...
https://www.interest.co.nz/property/61784/opinion-olly-newland-looks-ye…
Ashley Church is preaching to his congregation of true property believers ....
... you non-believers .... you go to the hell of renting henceforth and forever more ....
Thus sayeth the Lord , the Real Estate Institute King .... " You can't lose with property , mate " .... AMEN !
This is correct. They represent a whole selection of uninterested, unbiased parties:
"its membership is mostly made up of Valuers, Property and Facilities Managers, Property Advisors, Consultants, and Infrastructure, Plant and Machinery Valuers. But over time it has also attracted a number of other professionals such as property lawyers, investors and developers"
It's more an extrapolation than a prediction, and as such it relates only to past governments.
"We know from experience that property values roughly double in Auckland every 10 to 12 years"
It also appears to be ignoring inflation, with a doubling in nominal rather than real terms. Perhaps he assumes that inflation will return to what it was for much of the period the extrapolation is based on, with frequent rates of >10%. Surely he wouldn't extrapolate nominal price rises without considering background inflation, that would be extremely naive.
"Buying a house in NZ is a terrible financial decision"
Yes, I'm sure that anyone who purchased NZ property in the last few years or prior really regrets it. They are only hundreds of thousands of dollars in equity richer. If only they had listened to the advice in this website's comments section and invested in term deposits instead. Hopefully the silly buggers will listen to you this time.
I think as global interest rates rise property prices in Aus and NZ will flatline at best. As we know Aissue price have been falling for the last few months.
https://www.businessinsider.com.au/australia-housing-market-price-outlo…
1000 000 000 citizens of China eat MSG each and every day ... none of them gets so much as a mild headache , a colly-wobble , or complains ....
... 1 American complains of headaches and nausea after a bad experience in a USA domiciled Chinese restaurant , and the whole world sits bolt uprights , takes 100 % notice , and pillories MSG endlessly ever since ...
'Oh what a wicked web we weave when first we practice to deceive.'
Who allows these people to voice these silly opinions. There are so few buyers for the current swathe of unsold houses, where do they expect to magic up the buyers for this 'specu-debtors Utopia' of a resurgence. Prices may double again but I think the real question is from what new base will that be with the crash now appearing to have started.
Perhaps this simpleton Church guy and his associates should learn up on doubling and what it means.
https://www.youtube.com/watch?v=DZCm2QQZVYk
Wouldn't hurt you to watch it also Greg in the interests of improving the quality of your articles.
Amazing news, I was thinking recently about selling my little South Auckland portfolio and moving back to Europe at least until next election. Change of plans, I will move anyway to escape from Jacindas proposed taxes and restrictions but keep the houses tenanted and in my ownership.
Tra la la. Yes, well, doubling over 10 years is only 7% a year compounded, so very likely true. Ignoring any bumps along the way of course.
Labour and National, two birds of the same feather on this one. Well, actually, I think Labour managed to beat National by 100% to 63% increase in national house prices over the last two governments, although I think National won in Auckland. They both added about half a million extra people. They don't seem to learn anything. Homo Stupidus sub species I guess.
The difference with the Nats was they denied the influence of foreign investment up until the very end. Acknowledging it and addressing the implications on the residents of NZ would have been the right thing to do.
I hope labour follow through with their reforms, I guess their fears of toppling the economy by doing so are high on the agenda. As far as I can see, the plan is to keep interest rates low for as long as possible to allow the air out of the bubble while keeping all fingers and toes crossed that the global economy holds. If things get bad, the interest rate lever will be stuck on low already. Maybe we can start our own version of QE or ask for a bailout.
If building cost inflation continues then it is going to cause house prices to increase provided there is demand for new houses. Labour is talking about a house (probably an apartment or town house )being over $600k in Auckland. it will be $650 or $700 by the time they actually build any. These are supposed to be entry level first home buyer homes. It is pretty easy to see prices increasing. Whether they double or not, it is yet to be seen. It isn't getting any cheaper to build a house so fundamentally it suggests that it won't get cheaper to buy a house unless there is a temporary issue like another GFC etc. or NZ becomes less desirable to live in (reduced demand).
Building cost is not what has driven prices up in Auckland, it costs little more to build in Auckland than in other areas of the country. What has changed is the land under the house in Auckland has risen more than most areas, so even places only good for tearing down can go for 7 figure sums in the right area. Down here in Christchurch, you can get a new build house + land for 400-500k. If the government can get on top of land prices, then 600k in Auckland should be possible.
I don't think you can build in Auckland for 400k. I think those that tend to claim that are excluding costs like drainage, surveys, earthworks (mostly hilly in Auckland), architects (can't just plop a standard house down with all the unitary plan restrictions), resource consent, etc. Maybe in new subdivisions in near Huntly its possible.
Additional to eye watering land prices, compliance costs have increased substantially and the time it takes to obtain council approval can be really damaging in terms of opportunity cost.
187sqm section in Otahuhu $400k (cheapest on TM), plus say $50k for regulatory costs, you're $450k before ordering a stick of timber. We're really pushing the proverbial uphill in terms of addressing affordability.
"According to figures included in Property Council's 2015 Residential Information report, regulatory costs even back then were adding $32,500-$60,000 per dwelling and an additional $65,000-$110,000 to the cost of each apartment. I call these costs excessive."
https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12057786
Labour is trying to back down from Ban on foreign investement or are having cold feet so have already extended the submission of report date from May to 21st june.
Does it matter whom you vote. Think voting National is a better choice atleast they were open about not banning foreign buyers.
Now even if Labour is forced to ban (As have no choice) will dilute the bill and will try to delay it.
All Labour Supporters should be aware and ask their local MPs as Ban on Foreign buyer was the majot Promise that got them vote.
Would be interesting to see what the die hard Labour supporters have to say now.
I admit this discussion has got me recalling an idea that I spent one night thinking about, and that is the reversion to the mean of asset prices (this includes equities, property, etc.).
The assumption that is usually implied is that the growth trend is a linear function, and that growth above the straight line will sooner or later fall back to the long-term line (e.g. the Bitcoin price graph). But what, oh horror, if 'this time really is different' and growth functions are no longer linear, but some other mathematical function, like an exponential one? What unknown future might be ahead if asset prices become completely decoupled from income and float off into another dimension? House prices doubling every day, anyone? What about every minute?
Anyhow, as ham n eggs would say, it's all underwritten by physical energy, so that's highly unlikely. Perhaps the truly long-term growth function on this planet is a flat horizontal function. .
LOL no wonder at the 17 Belmont Tce auction yesterday afternoon we saw multiple bidders fighting for it with a starting bid at $2,300,000 and eventually sold under the hammer for $2,950,000 i.e. 26% over the CV of $2,350,000 wowser! https://rwremuera.co.nz/auckland/remuera/17-belmont-terrace-18213252/
It sold for $2.8 only a year ago (May 2017)?
Either a silly person bought it at that inflated price in 2017 and couldn't make a profit out of renting it, or perhaps it was renovated and flipped? Either way, bright line test will be triggered and I suspect the 2017 buyer will be taking a loss.
I get so sick of looking at white on white staged with accent colours. Obviously no one is living there presently. Who in their right mind falls for this madness - it's a 4 bed home with a ONE car garage!
If seems my comment interrupted your micro moment of pleasure.
Like a few here (yourself included), this guy is so backward thinking it's scary. I suggest you also direct such questions to him. What insightful facts has he offered to support a doubling of prices? None.
Apart from a scenario whereas an overseas shock pricks this ridiculous ponzi by -50% in the interim and it all recovers by 2027, I cannot see how any "doubling" of prices could happen. Even Ireland has recovered a decent % post GFC but not yet all the 60% it initially lost.
Shallow forecasts like this seem to emerge "coincidentally" as people are beginning to leave the party. I've seen this before.
Can you please link to the research showing that past trends are a good indicator of future direction? I've always thought trend analysis was BS, and that P.E ratio's, demand curves, and future earning discounting models were the best way to value assets. But I'm glad to hear you have discovered some evidence based research. Cant wait to read the ground breaking research.
Research done by Galen Burghardt has shown that between 2000-2009 there was a very high correlation (.97) between trend following CTAs and the broader CTA index.
https://www.opalesque.com/files/AlternativeEdge-Two_benchmarks_for_mome…
http://www.opalesque.tv/hedge-fund-videos/Galen_Burghardt/1
By the way, mentioning “P.E ratio's, demand curves, and future earning discounting models” as if you have the faintest idea about what they involve doesn’t make you sound smart.
That all sounds far too complicated - general asset research from the specu-debtors is far easier.
'My mate Terry re-mortgaged to buy one, so has Jim from the Dairy on the corner.. I'll re-mortgage to get one and then we'll tell Dave, Fred and Harry that we've all done it so they are bound to have a go as well and then we can all talk about it when we lose money on the horses in the TAB on Friday night.'
A bank sponsored Ponzi scheme, I think we'll find out a bit more on this when the Authorities report to their select committee on Wednesday. 8 times multiple of income mortgage anyone?
But nobody is saying that. Property in Auckland is very unaffordable for young people and it is completely understandable that so many struggle to get on the property ladder. What does annoy me is when instead of working towards ownership, they wait for a crash that isn’t going to come. What’s worse, they recommend that others do the same.
Yvil, you commented we are currently on a long slow spiral to a Great Depression in the following thread; https://www.interest.co.nz/opinion/93542/patrick-watson-says-free-marke…
Then you turn around and say I'm predicting an imminent 50% drop? Once again, I remind you of the 5% fall I predicted for Auckland house prices come Christmas 2018 here; https://www.interest.co.nz/news/91515/year-ahead-year-big-changes-calam…
A Great Depression is one sure way you'll get the 50% drop you keep harping on about. Seriously Yvil, what do you really believe is in store for us all? You appear to say one thing, next post something quite different. (flip-flopping) You claim to own a portfolio of both Commercial and residential properties yet you talk of a looming depression. What do you really think is going to happen to the value of your alleged portfolio when your next Great Depression hits?
I certainly side with the RBNZ experts when they state the risks are higher than at any other time that the use of unconventional tools may be warranted. They should know.
One thing's for sure, the days of property being viewed as the prefered destination for the smart money are now behind us. Just for how long, thats comes down to the many economic surprises that are in store.
A link to the Valocity report would have been useful if it is publicly available. Interesting that it reportedly calls the peak in 2016 (and a decline/slowing of mortgage lending thereafter). Does anyone else think that it is more than a coincidence that 2017 was the year the PRC introduced capital controls?
https://ourfiniteworld.com/2018/05/11/how-the-economy-works-as-it-reach…
"Why have long-term interest rates generally fallen since 1981? Why have asset prices risen? Can these trends be expected to continue? The standard evaluation approach by actuaries and economists seems to be to look at past patterns and assume that they will be repeated.
The catch is that energy consumption growth plays a hugely important role in GDP growth. It also plays an important role in interest rates that businesses and governments can afford to pay. Energy consumption growth has been slowing; it is hard to see how growth in energy consumption can ramp back up materially in the future.
Slowing growth in energy consumption puts the world on track for a future like the 1930s, or even worse. It is hard to see how GDP growth, interest rates, and inflation rates can ramp up in the future. More likely, asset price bubbles will pop, leading to significant financial distress. Derivatives may be affected by rapid changes in prices and currency relativities, as asset bubbles pop....
"Why have long-term interest rates generally fallen since 1981? Why have asset prices risen?
These are 2 great questions, the second being a result of the first. I don't know the answer to the first but I'm very happy to get some opinions. What I do believe is that, for a trend to be broken, there needs to be very significant change, in the absence of said fundamental change, the trend continues.
.....The chief executive of the Property Institute says Auckland's median house price could double by 2026-2027....well, I never ....what a headline ! ...I think our Cheif Exec has drunk too much of the koolaid over the weekend and has decided to bring out the big guns ...... of "vested interest", because that's all it is .....not at all "newsworthy".
As someone noted earlier, it only takes median house prices to increase by about 7% annually for ten years for prices to double. Valuers have been using this as a rule of thumb for years.
Land as a percentage of value has gone through the roof in high demand areas, which should incentivise building more and smaller housing units (the bulk of net demand over the next 30 years is from one and two person households) - and possibly a return to leasehold models in our largest, greediest city?
with zero gdp growth and no inflation, the real cost of debt is becoming onerous. We desperately need to inflate our debts away, it's not happening ad there is no sign of it happening, even a %3 real rate of inflation, makes big difference over 10 years, we will rue the day we speculated on non productive assets.
One cannot help wonder how many rentals and debt this chap has.
Accepting that council processing and materials are still a rip in NZ, this would export every non property owning middle income earner away from Auck. It would require a massive wage and price spiral to support it. Nurses, Police and teachers all at 150k plus...we would need a significant tax change to support that otherwise they are all gone.
Just get on with the reset, follow Icelands model. Banks and speculators took a hiding, everything else BAU.
Surely no one can believe the doubling every ten years theory can they?
So $2 million for the average Auckland house in 10 years, $4 million in 20 years, $8 million in 30 years. If wage inflation stays around 3%, the average wage in 30 years will be $118,000 PA - it will take quite a bit of saving to buy an average $8 million house!
In one hundred years the average house price will be $1 billion, the average wage $1 million PA, so it will take 1000 years of the average income to buy a house. Pity those FHBs then!
These numbers are hard to process but think about this, in 1969 my folks paid $12750 for a modern 3 bedroom house in AK, by 1974 it was worth $24k doubled ( oil shocks etc ) it was impossible to see that the same house could be worth $100k it sold for $170 in 1989, Equally it was impossible to see at that time it could be worth a $1million dollars but here we are 2018 and it's probably worth about $1.2m now food for thought !
Yes but inflation was much higher then. If wages were doubling every 10 years (I think that’s about 7% compounding PA) then so should house prices. But without that inflation should we really expect house prices to keep on doubling?
Although I wouldn’t be surprised if we got a big dollop of inflation soon
There are some major structural factors that have affected the housing market over the last several decades, financialisation, women joining the workforce (thereby greatly increasing household income), globalisation and then more recently, the unprecedented access to cheap debt since the GFC.
I would suggest that these are the factors that have contributed to the "doubling every 10 years" house price inflation.
The influence of all of these factors are now more spent forces, so are unlikely to continue to propel house prices upwards in future.
That does not, however, mean that another factor won't come about to either propel prices upwards further, or pressure them downwards.
While this prediction is not far away from reality ( which annoys few here), but Mr. Church is correct in pointing to doubling prices every 10-12 years in Auckland depending on how close the house is to CBD.
Anyone disputing that can go back to price graphs and study the trend.
However, this is sad news ... If true, this means that the NZD will practically depreciate by another 50% by then ... Real estate value remains almost the same, it only changes in prices which is a direct indication of the value of the Dollar and its purchasing power at the time.
Inflation proof asset used to be Gold and RE, gold has been made redundant and a joke, which leaves RE to be the vault all around the world.
Wages and income do not catch up as fast as dollar depreciation ( inflation), hence we have been working harder since the 1970s to make ends meet ! ... one income was enough, then one and a half, now two is not even enough, need almost three or the standard of living will degrade.
Agree, closer to city houses keep going up in my experience both here and other countries I have invested in. History is usually good guide for future, we have had slight drops for very small periods but overall it goes up. What people forget is how much incomes around us have gone up. 10 years ago earning $100k was difficult, nowadays (in Auckland) thats not a big number. Quality high net worth immigrants will keep pouring into Auckland as it's safe, friendly and multicultured. I can't predict doubling but overall fundamentals for growth mainly demand supply hasnt changed.
In saying all of this, I think this is a terrible time to sell. Too much negativity about property and sellers can miss out on gains right now. Definitely a buyer's market.
New Zealand grocery shoppers are the most promotion-driven in the world. Almost $6 in every $10 spent on groceries in 2017 were sold on promotion—well ahead of other developed markets around the globe.
This is actually quite frightening depending on how you interpret is. What it potentially means is the following:
-- FMCG manufacturers cannot survive in NZ without discounting their products (suggests that the high-cost structure is floundering)
-- Shoppers are actually relying on price discounting to fill their shopper baskets
http://www.nielsen.com/nz/en/insights/news/2018/the-470m-opportunity-ch…
Well this article has got the airways humming. The great thing about a statement like this is we all ( well hopefully most of us ) will be around in 2026 so we will all get to see if it's up or down !
I've already had my say before around future prices, this is a reasonable guess. I have made the exact same guesses/calculations every 9 years since 1983 and thats what has happened. 7%/annum is what the Reserve bank are happy with, using the power of 70 10x7=70 doubling will take 10 years. Good areas in AK are 10-11% annum on average. The COL are never going to make any difference on this no matter what taxes they introduce look at Sydney that has a CGT.
Of course everyone will say how and why ?? Ridicle the author and of course me but here are the drivers
- Good GDP growth ( thanks National ! )
- Steady/strong immigration
- The desirability of NZ as a country of choice to live in
- Shortage of property and growing worse daily
- Low interest rates with marginal increases to come - As Tony Alexander puts it the high rates we have had over the last 50 years are gone, an aberration caused by oil shocks etc
- Political stability
- Building inflation runnung at 7%annum in AK
- The effect of Kiwi's investing for their old age - been told to do that for decades now as Super becomes perhaps unafforeable in the future
And many many more smaller influences.
When property prices increase it does not correlate to equal rent increases more of a ratio of 4.5 to one ratio.
But wages don't increase at this rate they will say ! Which is true of course they don't. However this calculation is done entirely on increases in existing jobs. Deep analysis over the last 50 years shows the average true overall increase is 8.5%annum. How does this happen ? what is not included in the data is new types of jobs ie the new IT job in say AI, or Rocketlab or my food bag every new hightech or smart job starts at higher pay than most existing jobs and all types of jobs have a lifecycle and disappear ( posties ?? ) We all know of some young person getting an amazing salary !
I say he is way more likely to be right than wrong my calculation suggests around 60-80% by 2025/26. I have been graphing AK house price inflation from 1957 and it is amazingly accurate. So I look forward to the negative comments that I shall not comment too and we all will see the outcome. As a friend of mine says if you want to see what AK's real estate looks like in 50 years time go to Sydney for the weekend and look around !
I say he is way more likely to be right than wrong my calculation suggests around 60-80% by 2025/26. :
Not much good if you can't demonstrate your calculation. The above is little more than a BBQ spew. It doesn't have any quantitative basis that you have explained, therefore you can't attach any probability to it.
Doesn't take a rocket scientist to come up with a doubling of price in 10 years because that's just based on past history until this point in time and odds on that will be correct. Those that argue it couldn't happen because of wages keeping up would be wrong, wages are already not keeping up and prices are still going up. Personally wouldn't put odds on the prediction, however I will make the prediction that houses will be far more expensive than they are now. Those that think that houses are going to be cheaper in 10 years are dreaming.
I tend to agree with your last sentence, sadly. The current government seem a bit incompetent on housing, and both parties have vested interest in avoiding a crash. And NZ's pathetic lack of economy of scale will never help.
However, I don't see prices doubling as a credible scenario at all, for a whole lot of reasons:
- the days of cheap and easy credit are over
- demographics: the boomer peak has passed
- immigration: while it remains high, many of the immigrants are low skilled / low paid. Continual influx may impact rents but is unlikely to have a big effect on prices
- mortgage serviceability: assuming wages increase 2-3% per annum, then the math makes it hard to contemplate a doubling of prices
- even if the government underperforms on house building it's likely to introduce *some* policy that dampens the potential for house price booms
Why do you think we only getting low paid immigrants. I think NZ is seen as a great safe haven for the wealthy. Auckland is attracting more and more of these people from China and India. Have you tried to get a loan recently? Banks are fighting to give out quality loans, missing all their lending targets. It's only developers who are having trouble, that will hit the supply side even more.
Who said we are only getting low paid immigrants? I said many are low skill / low wage, not all. It's the overall trend which is important. Of course there are some 'wealthy' immigrants but they will be in the minority. Migrants on the business investment category are fairly small in number each year.
No I haven't tried getting a loan recently. However I know it's generally much harder than it used to be.
It's harder getting a loan for people who really can't afford. The banks are discounting foriegn income massively, applying LVRs for investment pretty strict and not lending as much to developers. These are good measures but owner occupiers with good incomes can get some really good rates and few throw ins right now.
You may be right, but Church seems to be missing the cycle of recessions which are also approximately 10 years. We somehow got away with the last one, but the next one could be big. If it hits the higher income earners with job losses, it’s game over for the housing market. May happen, may not. No one actually knows regardless of what they think.
That is a good point, and I would have done almost the same, I would have started from 2020 , and here is why:
Historically, the market capitulates and consolidates a bit after a strong surge in pricing and high demand ( regardless of the reasons , but mostly prompted by immigration and peak prices) - usually it takes few years of stagnation, correction or steadiness before taking off again in a noticeable rising trend. Usually, all home owners will be happy with their new valuations and refuse to sell unless they had to.
Amazingly, the reasons are almost the same every time that happens regardless who is in power. Buyers get sick of waiting and get fed up with crash prophecies and " Don't buy advice" while watching markets rise, good properties slipping off their fingers, and finally conclude that they will miss out.
Funny enough, when the patience wears thin, everyone rushes to buy because of Fear of Loss, and the cycle kicks off again.
This time will not be any different, people will wait and see what the CoLs will come up with, By 2020 they will all give up hope of a crash and will be hugely disappointed by KB shoe boxes and other numbing promises .... Let alone the possibility of change of Gov. .... Then everyone will realise that they were coned and jump in to buy ...but will find that the market has already moved and appreciated by 5-10% from today ... and most good properties are either gone or carry a very expensive price tag.
This time could even be worse, never before we had such expensive house building and replacement costs - land prices, compliance fees, and trade and material costs are unforgiving to the most astute developer .... even the CoL has thrown their hands in the air ! ---
The supply problems are exacerbated by builders' availability and labour constraints ... the Demand is also on the rise .. something will have to give way to all this mess.
So 2020 seems to be a reasonable restart of price escalation.
Clearly there is greater selection of properties now than a year ago, and many better buys than year ago.
At the current levels they are still faaaar from affordable.
What we need is a GFC2 - that may reset the market pretty quickly. And then yes - the property values will double from the 'reset' levels...
"We know from experience that property values roughly double in Auckland every 10 to 12 years, and based on this rule of thumb, I'm of the view that the next cycle will start in 2021/2022 and by 2026 or 2027 the median house price in Auckland could be around twice what it is now," he said
What does that Auckland house price level imply?
Using the median house price in Auckland of $850,000 and Auckland house price to household income ratio of 9.192 (both sourced from interest.co.nz) and allowing for 3% per annum growth in household incomes, a doubling of house prices in Auckland by 2027, would imply a household price to income ratio of over 14.1 times. What is the likelihood of that level being reached in a low inflation environment?
Another way to look at house prices in 2027 would be to use rents. Using the current average rental yield of 3.4% in Auckland, and assuming annual rent increases of 3% per annum, a house price in Auckland which has doubled by 2027 would have a gross rental yield in 2027 of 2.15%. What is the likelihood of that level being reached in a low inflation environment?
CN you make the mistake of using the median household income. You need to use the median household income of property owners. The median income is skewed lower by those on low and minimum wage levels, these people are irrelevant in determining the affordability of property (sad but true). Also you need to account for wealth levels/ net worth, as with growing inequality desirable property is becoming the domain of the haves. The majority of purchasers are those with built up wealth from previous bull markets or long-term work in high income positions,and those from wealthy families who provide funds. Many first home buyers in better suburbs are likely to be NZers who have returned from high paid work overseas, or high net worth individuals born outside NZ. Affordability data does not account for the asset base of individuals purchasing.
The fact of the matter is there is affordable property, it is just not in reasonable suburbs in major centres. Not everyone should expect to be able to purchase their own property in a desirable location. Just as many in the USA wouldn't expect to be able to purchase in New York City, Silicon Valley or San Francisco. This is just the way the world is.
Regarding rental price levels. Rents can increase faster than incomes in major centres, without a higher percentage of household income being spent on rent. As these properties become occupied by renters with higher incomes who in previous generations would have been owner occupiers. This forces those on lower incomes to more to a lower rent area or cram more people into each property. This will raise the median household income of those renting in major centres. This is what happens with gentrification, the affordability ratios remain in line, despite rents outstripping wage rises. Because these properties are now let to those in higher socioeconomic groups. Using ratios without thinking about what is going on in the real world, leads to errors in evaluating what likely lays ahead.
As automation proceeds, there will be less need for lower income workers in the CBD and inner city suburbs. Think baristas, retail workers, cleaners. These parts of major centres will chiefly be populated by high income earners working in IT/ professions etc/ high net worth individuals/ those who purchased a few cycles previously. This will likely add to the desirability of these suburbs, and it will feed on itself. This will again throw out income ratios. With a rapidly rising worldwide and NZ population, these income/ affordability ratios are redundant, as only a finite number of people can live in these desirable areas. Many lower income earners will be forced to relocate to towns that would be considered dying at present, as their services will no longer be required in major centres, as the robots takeover and automation proceeds.
Though I would not purchase property at this time, as NZ/ USA will likely enter recession in 2019.
OK, let's use the household median income for Orakei in Auckland then and apply that to the median house price for Auckland in 2027.
In 2027, that is still a median household price in AUCKLAND to household median income of ORAKEI ratio of 10.00x.
For an owner occupier who has that level of income, who chooses to live in a median house in Auckland (and not a house in Orakei) and can borrow 80% LVR, that is still a debt to income ratio of 8.00x in 2027.
Most people in Orakei would not be borrowing 80% of the properties value. Most would have a large sum from the sale of a previously purchased property. You could use 80% borrowing if examining suburbs where would expect first home buyers to purchase. But cannot apply this to trader-upper suburbs or aspirational suburbs.
For example in June 2017, the North Shore had the largest average mortgages in NZ. The median price was 1.195 million. The average mortgage for those aged under 55 years was 542,600, and 381,500 for those 55 years or over. Desirable suburbs are being populated by those with large asset bases, and those who have been resident for more than a decade. It may surprise many interest.co.nz posters, but many people have made a lot of money over the last decade, these are the people who will be buying into these expensive suburbs and they will be putting down a very large deposit. Basically the game changed over the last 15 years, as the saying goes some people makes things happen, some people watch things happen, and some people say what the f **k happened.
mja
Why would any interest.co.nz readers be surprised that those who owned property prior to the boom or managed to acquire assets during the upcycle would have made a lot of money over the last 10 years?
In all the comments I have read here, I don't think once, not once, have I read anyone suggest that anyone with existing assets or has managed to buy earlier during this recent boom, wouldn't have made money.
Which is exactly the point. It's exactly what those without the luck of that timing, have been so upset about. Because the generations who attempted to buy a house during this boom have been so frequently priced out by the rapid increase in value, without the wage increases to keep up.
Such a strange comment.
@mja
Seen this game before in the Northern Hemisphere. Rules changed in 2008 and those that thought they had a median price of $1,195,000 and debt of $542,000 quickly found the median of $750,000 very uncomfortable - why? because the debt doesn't change mja.. Good game for the last 15 years, time to play a different game now the rules have changed. Debt is unlikely to be your friend over the next few years.
Nonsense....living in a dream world. Unless wages or other sources of income increase accordingly or the government starts to drop helicopter money, it would be impossible to service that debt. Oh wait perhaps he's referring to foreign sources buying up NZ property and not the average NZ citizen.
Well paid people in the industry still spouting Nostradamus linear thinking tripe.
Do any of these folk read? Start with Nassim Taleb on anti-fragile and non-linear moves.
What is price based on? Are sales not considered relevant?
Home ownership in Auckland (43% of housing market by way, when you have finished with "leaving aside Auckland" has been falling for 20 years and this has accelerated since 2012.
74% of houses built are rented out.
NZ market for house assets rises with liquidity of overseas markets - see peak of buying in 2003 and 2013 (not 2016 which is PRICE peak). Liquidity is shrinking. USA and China reducing it. NZ dependent for foreign earnings on tourism and dairy. Both are not reliable in long term.
Prime buyers are 40-47 as they have peak earnings. Go to Stats NZ demographic forecast for Auckland and you will see that numbers in this demographic peaked in 2018 and will not rise again until 2026. Immigrants and Chinese average age 29-31 and are mostly not in the required income bracket. This is why mortgages to owner occupiers (movers) are static to falling. Interest rates have one way to go. He assumes, as usual that nothing major will go wrong for NZ. Er - yesterday's news on cows. Does he read Mauldin? Debt wreck is coming
As a follow - up, there is a family member who has been working in banks for over 30 years. This person has had a number of different roles in banks - a bank teller, a lending officer, manager of a retail branch, manager of business banking amongst others. This person has an undergraduate degree in business at a university in New Zealand. This person is not a property investor.
This person has never heard of the term credit bubble, let alone able to understand the ramifications of a credit bubble.
This is an example of a lack of understanding and interest in macro-economics and demonstrates that there are uninformed individuals with a lack of understanding and ramifications of a credit bubble even amongst the tertiary educated in New Zealand.
The large number of households who remain uninformed of important macro-economic variables and the infrequent nature of credit bubbles is the reason that credit bubbles can catch highly leveraged households out. The highly leveraged households are unaware of the increasing underlying macro-economic risks as they are highly leveraged near the peak of a credit bubble.
Regarding Mauldin see below piece written April 2010, about Maulsin's prognostications.
Mauldin: The Man Who Cries Bear
"John Mauldin, former print shop professional and current perma-bear investment strategist, unfortunately seems to have taken a page from Aesop’s book by consistently crying for a market collapse. After spending many years wrongly forecasting a bear market, his dependable pessimism eventually paid dividends in 2008. Unfortunately for him, rather than reverse his downbeat outlook, he stepped on the pessimism pedal just as the equity markets have exploded upwards more than +80% from the March lows of last year. Mauldin is widely followed in part to his thoughtful pieces and intriguing contributing writers, but as some behavioral finance students have recognized, being bearish or cautious on the markets always sounds smarter than being bullish. I’m not so sure how smart Mauldin will sound if he’s wrong on the direction of the next 80% move?"
mja,
Excellent post. At the ripe age of 73 and having spent my working life in financial services in the UK,I have heard many 'prophets of doom'. Study after study by psychologists have found that we react much more to bad than to good news.
Of course,at some point there will be a major market correction,but anyone who has stayed out of the market for the last few years,will almost certainly still be worse-off when the dust settles.
mja & linklater01 I have to agree with you both on Ye Olde Permabear Maudlin. Has he ever been bullish on anything ever? Although, that doesn't mean that he is wrong right now, it does make him a useless forecaster. I certainly take everything he says with a sack o' salt.
However I disagree with "Of course,at some point there will be a major market correction,but anyone who has stayed out of the market for the last few years,will almost certainly still be worse-off when the dust settles" Linklater01.
If the market peaked in 2016 (which is the general consensus) then it's likely that many who purchased in the last 2 years will be vulnerable in a correction. So I would say something like... anyone who got in to the market before 2016, is likely to still be better off after the dust settles, someone who bought at or near peak, might find themselves in an unpleasant financial situation for some time.
Property median prices in Auckland to double by 2026-2027??? Phew,what a mind-boggling figure!!!
Try telling it to the vendors whose houses did not sell at auction.
Some consolation indeed after coughing out so much in auctioneers' fees, hyped about marketing & advertising costs ,etc
One of my close friend works for IRD and he told me level and spread of negative gearing. If you are smart you'd understand why government is giving some time before implementing laws against negative gearing. if they implement this year, market will crash and they don't want that. They too need to win next election that is why they are giving some time to investors to get their act together. Smart investors have been quietly offloading their properties and getting ready to scoop when market goes down.
Quoting mja-
"as the saying goes some people makes things happen, some people watch things happen, and some people say what the f **k happened."
... and some will moan " why didn't anyone warn me this might happen " .... before lobbying their local MP to instigate a taxpayer funded bail out ... after the reality bites that all assets classes have the ability to go down , and sometimes very steeply and very quickly ... even houses ...
Who doesnt?
I assume the present (and past) Govn but also banks, farmers, FHBers who have already bought, gamblers, one man band companies (ie plumbers etc) all these are geared to aiming at no CGT as a retirement / profit scheme.. When a crash does happen then the entire residential and commercial property system becomes un-economic and the losses will be wide spread and catestrophic IMHO.
Of course it will never happen.
"Smart investors have been quietly offloading their properties and getting ready to scoop when market goes down."
Then they are making the same mistake as those already in, ie a grow for ever system on a finite planet.
The next Q is where are these "smart" ppl hiding their money so it survives the Depression and hence OBR events that will simply wipe out bank money?
I cannot see many (actually any) hiding holes myself as we are in a monolithic structure, that is when one goes down everything will.
Looking at the long-run average rate of growth, property prices have been increasing since records began many decades ago. There are obviously cycles with significant rise and significant fall, but looking at the average, growth has been consistent. I don't think a new variable has kicked in that is going to put an end to an 80 year trend.
I would say anything could happen. No one has a clue what the future holds, its all what you think. I would however expect interest rates to be more evaluated by 2026 than now given than central banks are turning off the taps for cheap credit, the best deals for 40 years cannot last forever. I would just do whatever you want to do in life is the right answer. Just do what you think is right for you.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.