The second quarter of 2016 witnessed the highest quarterly price increase in the Auckland residential market since 2014. A short lived slowdown towards the end of 2015, a reaction to regulatory changes, was followed by a strong pick up in the first quarter of 2016. As market pressures have continued to increase over subsequent months, the second quarter experienced an even sharper surge. The regional median lifted by 7.5% in the June quarter reaching a new record of $837,000. Much of the price increase occurred in the last month of the quarter, resulting in additional measures being taken by the Reserve Bank, in an attempt to cool the investor market. The “Bank” announced that the existing lending restrictions, which require Auckland residential property investors to have at least a 30 per cent deposit have been further tightened with a 40 percent deposit now being required. In addition the restrictions will no longer be limited to Auckland properties only. The new regulations will take effect on 1 September 2016 although it is likely that the high street banks will begin implementing the new rules almost immediately.
The overall Auckland market remains tight, with figures from realestate.co.nz indicating that the total inventory for sale in June was only 5,934 properties, a 1% fall, over the last 12 months, from 5,992 and 42% lower than the 8 year historic average of 10,160. The number of weeks to sell the inventory (based on current sales activity, assuming no further listings are taken on) are still on their lowest levels, with the June 2016 figure being 9.5 weeks, significantly lower than the historic 8 year average of 23 weeks. This tightening is also illustrated by the latest REINZ data, which shows an acceleration in the speed of sales in May and June, resulting in the average days on market figure falling to 32 days in June from its 36 days level in April.
Ponsonby and surrounds outperforming Auckland
While the Ponsonby and surrounds (Freemans Bay, St Marys Bay, Herne Bay, Westmere, Pt Chevalier and Grey Lynn) market trends generally follow that of the wider market, quarterly figures are more volatile reflecting the make up of sales in any given period. In the March quarter, for example, apartments, townhouses and units, which normally comprise approximately 33% of sales, accounted for over 40% of transactions. Given that these properties are generally more affordable than stand alone houses the quarterly median actually fell by 9.6% compared with the final quarter of 2015. The June quarter, however, has seen the “product mix” returning to the longer term norm resulting in a sharp rise in values. The local median reached a new record of $1,477,500 an increase of $277,500 or, 23%, over the March quarter figures. Over the opening half of 2016 therefore the total increase in the local median has been 11.3% outpacing the regional rise of 10.1%While sales volumes eased across the Auckland region as a whole in the June Quarter, down 18.3% compared with the same period in 2015, activity in the local market remained stable. Although down in the March quarter, the June quarter saw 226 transactions being completed up 15.3% on the opening period of the year.
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, the premium between the Ponsonby area and wider Auckland region has constantly widened. The divergence in median prices become more apparent when the long-run historical price movements of stand alone houses are analysed, as this limits the impacts of changes in the sizes of transacted properties over the analysis period, allowing for a better comparison.
Consent numbers signal change
Changes in the annual building consents in the Waitemata and Gulf Ward which encompasses Ponsonby and surrounding suburbs clearly show that there is a move towards higher intensity developments. As shown in the graph below, the number of consents issued for stand alone houses have remained steady over recent years while there has been a significant increase in plans for multi unit development. With local and central government aiming to alleviate the supply shortage of homes in the Auckland region, one approach is greater intensification for developments. The ramifications of this policy are gradually becoming apparent in the Ponsonby and surrounds market, as illustrated by the increasing market share which multi unit properties, townhouses, apartments and units, command. In the first half of 2016, for example, such properties comprised 37% of sales up from the 2015 annual average of 31%. This trend is clearly going to accelerate as the number of apartment and townhouse development increase.
The impact of surging prices and the increasing share of apartments and townhouse sales within the Ponsonby and surrounds market are also apparent when the value distribution of sales is analysed. The general uplift in values is well illustrated by the fact that over just two quarters, the share of sales falling within the $1.5 – $2m and $2m plus value bands has increased from 39% to 49% of total sales. The increase was due to the large fall in the share of the $1-1.5m band suggesting that price increases resulted in more properties falling into higher price brackets. At the other end, the increase in the share of properties selling between $400,000 and $1m, despite the rapid surge in prices, pinpoints the lift in the number of apartment and townhouse sales which are generally more affordable properties.
Sales Hot Spots – Ponsonby, Grey Lynn, Pt Chevalier, Herne Bay, St Marys Bay, Freemans Bay, Westmere – Median Prices