New Zealand’s economy is currently growing at an annual rate of around 2.5 percent, supported by low interest rates, construction activity, and high net immigration. However the growth outlook is now softer, as the rebuild in Canterbury appears to have peaked, and the world price for New Zealands dairy exports has fallen off sharply. House prices in the Auckland region continue to increase rapidly, but outside Auckland, house price inflation generally remains low. Increased building activity is underway in the Auckland region but it will take some time for the imbalances in the housing market to be corrected, as consents continue to fall below the targeted housing accord aspirations. The RBNZ reasoning for the July reduction in the OCR to 3% was due to the softening economic outlook and low inflation, with further reductions likely in future.
Ponsonby and surrounds (Freemans Bay, St Marys Bay, Herne Bay, Westmere, Pt Chev and Grey Lynn) has some of the highest value real estate in the country, and the median sale price hit unprecedented levels in the first quarter of 2015, peaking at $1,350,000, but has eased slightly in last quarter. In the quarter to June 2015 the median sale price for these suburbs combined was $1,315,000 according to the Real Estate Institute of New Zealand (REINZ). This equates to a $139,500 increase from the June quarter twelve months prior, or about 12% growth.
Quarterly sales volumes have been trending upwards following the Global Financial Crisis (GFC) low of only 120 sales in the March 2008 quarter – activity levels have recovered strongly but are yet to reach pre GFC 2006 – 2007 highs. The December 2014 quarter hit a healthy 278 sales in the Ponsonby and surrounds region, following a slight dip to 195 in the March quarter, June 2015 closed off with 200 sales, a 75% increase in transactions from the June 2014 quarter.
Attractive borrowing rates, combined with record immigration numbers have all fed the demand side of the housing market, bringing about some of the tightest market conditions ever experienced.
This is illustrated by the Auckland region weeks to sell hitting rock bottom at 9.6 weeks. Sales volumes are up, with historically lower new listings coming on board, and an already dwindling total inventory, this all equates to the lowest weeks to sell out of all stock ever recorded for the region. Raising vendor expectations are mitigated to a degree by concern about what they in turn can afford to move on to. Agency reports are seeing more deals incorporating longer settlements to give their clients more time to find somewhere to move onto in this tight market.
When comparing percentage of sales in price brackets for Ponsonby and surrounds in the pie charts pictured, between 2006 and 2015, the change is extremely visable. In 2006 67% of sales made were between $400,000 and $1m, this has now halved, to only 30% now. The gaps opening up are obviously in the higher sales brackets, such as the $1m – $1.5m category which has increased from 11% of sales to now make up 31% of all transactions in the area. Most notably the $1.5 – $2m and $2m plus combined made up a fraction of sales in 2006 being only 6% of total sales, to now total 37% of all transactions made in the area following continued competition for property due to a general shortage of housing across the region. The Ponsonby and surrounding suburbs have always been a desirable location for home buyers with a real mix of historical homes through to the classical and ultra modern, coupled with a real village feel, and super close proximity to the Auckland CBD, continually drawing people to invest or live in the area. As a result, a high level of competition among purchasers for property brought to the market is the norm.
With local and central government aiming to alleviate the supply shortage of homes in the Auckland region by releasing land and streamlining the consent process for Special Housing Areas reporting mixed results, another approach which the council favours is greater intensification of developments.
Overall building consents in Auckland are on the increase according to Statistics NZ, although the rate of increase is not great enough to keep up with the backlogged lack of housing supply, a supply imbalance exacerbated by the sudden influx of international migrants who have moved to the Auckland region in the past year, equalling nearly 27,000 new residents. All of this puts sustained upward pressure on sales prices.
Classed as metrotechs, these residents are social, and tech savvy with high earning capacity and are getting increasingly younger. This is a real change in demographics where these suburbs used to be more families and older citizens who lived in the area all their life. It is understandable consequently that more apartments and townhouses are being assembled, although this new wave of construction is to a higher standard of quality than those built pre GFC. The final product these developments are aiming to achieve is more for owner occupiers than investors, while still offering a more affordable accommodation option than houses in these locations are.
Spotlight on Herne Bay
Home to some of Auckland’s most expensive real estate, Herne Bay was the first suburb in New Zealand to hit a monthly median sale value of over $2m in May 2015. Located to the west of the Auckland Harbour Bridge, a majority of the majestic homes in this suburb enjoy views of the harbour and city while being a short trip to central Auckland, only 3 kilometers away.
Demand to be in a suburb with such proximity to the city, amongst the population’s most affluent people and fashionable heritage homes has not waned, seeing quarterly median values for June 2015 up 23% or $368,500 on the same period a year prior. The median value in Herne Bay in the three months to June sat at $1,950,000 taking only a month to sell a property on average, which has fallen by 16% since the June 2014 quarter. Sales transactions are keeping relatively steady in Herne Bay, with 116 sold in the year to June 2015, up 24 sales from the 12 months prior.
Spotlight on Grey LynnGrey Lynn, an inner residential suburb located three kilometres to the west of Auckland CBD is centred around Grey Lynn Park has seen an unparalleled increase in median price and sale volumes over the past few years. Grey Lynn’s median is now $1,265,000 for June 2015 up 13% on the same period a year earlier, equating an increase of $150,000. Just two years ago in the June 2013 quarter, sales in Grey Lynn were sitting at a median price of $995,000 27% less than the values now according to REINZ. Sales volumes in the June quarter were up slightly on the same quarter a year prior, although average days on the market dropped slightly from 40 down to 38 days to sell a home on average.
Grey Lynn has been gradually gentrified from the days of dilapidated villas used as student flats and older Victorian properties, visibly changing the area and attracting new affluent residents. Recent years have seen greater intensity of developments throughout Auckland, locally a number of apartment and town house developments have been constructed and are planned for Grey Lynn, such as Nexus, Soma, 217 North, The Turing Building among others. Resulting from this we have recently seen a significant lift in apartment values since 2012. The median price for apartments in the suburb lifted 36% in the year to date since 2014. Six months into 2015 the median price is now $770,000, taking 55 days to sell an apartment on average. Twelve months earlier in 2014, apartment sales were booming in Grey Lynn with 82 sold in the year taking on average only 39 days to sell. Not since 2003 has such a number of apartments been sold in the suburb, when the median price was $312,500.