THE WEST AUCKLAND RESIDENTIAL LANDLORD NEWSLETTER No. 24

Hello,        

Welcome to the twenty-fourth edition of the West Auckland monthly Residential Landlords Newsletter.

I am a landlord myself and have been for over 30 years. I currently own rental properties in South Auckland, the North Shore and of course West Auckland. Being a high preforming Real Estate Agent (top 1% in New Zealand) for over 26 years and always working in West Auckland I know the real estate market and the rental market very well. 

In this and future newsletters I hope to provide ongoing up to date information relevant to landlords who own rental properties in West Auckland.  

Regular features will include: 

• Current sale prices
• Current mortgage rates
• Current rents
• A monthly suburb spotlight review
• A relevant feature article each month 

 Source REINZ

Source – J Goodrum – Internet search

 Source NZ Government building & housing

Source NZ department of statistics

The Auckland Housing Shortage

We hear about the Auckland housing shortage constantly in the media. A lot of the politics tends to skew the real picture and a lot of headlines grabbing outrageous proposals are made as to how it can be fixed. In reality the Auckland housing market obeys the most fundamental concept of economics – Supply and Demand.  

Here is how it looks on a graph:

Clearly the demand has outstripped the supply of houses in Auckland for several years so prices have increased. The only 2 ways of getting equilibrium = stable prices is to either increase the supply (build more houses) or reduce the demand. As it takes years to build thousands of houses the “authorities” – the reserve bank and to some extent the government have therefore attempted to reduce the demand. 

Before we go further let us look at: 

1. How big is the problem – ie how many more houses are needed?
2. What caused the problem in the first place?
3. How can the problem be fixed?
4. How long will it take?
5. What does it all mean to the rental investor ie house prices and rents? 

1. How many houses is Auckland short of?

That depends on which set of data you use. The Auckland Council’s Housing Project Office (HPO) shows a shortfall of 15,000 dwellings. The analysis is based upon a method used by Tony Alexander the BNZ chief economist. The Governments productivity commission claims an existing shortfall of 32,000 dwellings.

Frankly of the two I will go with the HPO figures because Tony Alexander came up with the data and he has been one of the very few long term credible economists. In any event there is likely a shortage of between 15,000 – 30,000 dwellings in Auckland. 

2. What caused this problem? 

It can be traced back to the GFC in 2008. A lot of spec builders (builders who built houses without a sale or buyer in place ie speculation) who had or were completing property ended up not being able to sell them and many eventually having to sell below their costs. The result was very, very few spec builders built houses between 2008 – 2012 and so a shortage developed. Normally when the market picks up again the spec builders start building again but a lot had left for greener pastures – many to Australia. Then in 2010 on the 4^th of September the 7.1 magnitude earthquake hit Christchurch. Many builders and trades people moved out of Auckland to Christchurch for the re-build, leaving a shortage of builders is Auckland. On top of that the NZ economy has performed very well and net migration increased to record levels. So there was a shortage of supply added to an increase in the demand. 

3. How can the problem be fixed?

Answer – build more dwellings, Nick Smith is correct, it is a supply problem, but you cannot ignore demand. Great efforts which fast track development of land, freeing up more land, allowing more intensification (the proposed Auckland Unitary Plan does both) and the designation of SHA – special housing areas plus building and trade apprenticeship recruitment, $1 billion for infrastructure development and many other incentives will result in more homes being built. This however all takes time – perhaps 3-5 years at least. This in my opinion however is the only real solution. Temporary relocatable prefabricated housing in the interim is perhaps possible but what about all the required infrastructure? Meanwhile the reserve bank and the government to a smaller extent have tried to reduce the demand. 40% LVR (loan to value ratio) for investors is aimed at reducing investor demand – but the investor rents out the property they buy so all that restriction does is produce less rental properties pushing up the price of rents – not what they intend! The real answer – it may be complex but it is still the same – build more dwellings. 

4. How long will it take?

To get equilibrium of supply and demand I believe will take at best 5 years unless further artificial constraints are introduced. What constraints? – Higher LVR beyond 40%, debt to income restrictions, higher liquidity requirements for bank lenders, immigration restrictions, government incentives for migrants to settle out of Auckland and restrictions on overseas buyers (like Australia for example where non-residents cannot buy existing houses – only new ones).  Further restrictions on immigration is not very practical – many are NZ citizens returning to NZ, others don’t leave NZ who otherwise would have. There are high hurdles to get into NZ now – immigrants must have required skills – builders? Doctors? and so on or have a lot of money to invest in the NZ business economy. Some of these factors could play a part in curbing demand but the real answer is still – build more dwellings. At best I believe a balance of supply and demand is 5+ years away. 

5. What does this all mean to the rental property owner?

My best prediction is that more tampering with the market will take place with greater borrowing restrictions. House prices will continue to increase but at a slower rate – perhaps 5-10% P.A for the next 1-2 years. Followed by perhaps 5% P.A or less increases after that as more supply becomes available and more in the pipeline. Rents? They traditionally go up as house prices go up but lag well behind house price rises. 

Keep in mind a lot of outside factors could change the whole landscape – like the Canterbury Earthquake did, like the GFC did. The only thing that is certain is change.

Until next time,

Best wishes, 

John Goodrum
Licensee Agent REAA 2008
021945140
09 838 8895
thelegendofthewest@gmail.com