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Auckland’s Market and Where Are We Heading?

The Auckland property market continues to plough full steam ahead with values increasing at an average of 18% per annum.

Research carried out by Knight Frank in certain Auckland suburbs is actually identifying a greater rate of increase. Within the three months from February 2015, some suburbs have experienced an approximate increase of 3.5% per month.

Demand for property far out strips supply, which is being fuelled by low interest rates, strong migration and changes to the Kiwi Saver scheme to name but a few. There is also a lot of speculation awash within the Auckland residential property market and we constantly hear the words “bubble” and “correction” being quoted by the media and commentators.

The government has introduced policy to try to take the heat out of the market and make property more affordable, but with inflation nearing zero and dairy prices on the rapid decline it appears when the OCR came up for review the Reserve Bank Governor Graeme Wheeler’s hands were tied and he dropped the OCR again earlier this month almost immediately after the drop in OCR many of the major banking institutions cut their retail rates.

With the low cost of debt forecast to carry on, anecdotal feedback from Mortgage Brokers are predicting another 25 basis point cut by Q1 2016 and sub 5.00% interest rates for a fixed 5 year term. This is a very strong contrast to the GFC period when the OCR was 8.00 and above for over a year. The Auckland property market shows little sign of slowing down and predictions of further cuts in the OCR only aid in adding fuel to the fire. As much as the Government is trying to “cool” the property market, it appears this is proving challenging and is caught in a perfect storm of economic factors all driving values up. First home buyers are having to compete with investors that have high equity ratios from existing property portfolios and access to low interest rates. This results in a very real potential of creating a ‘two tier society’ of home owners and non-home owners.

That being said, Auckland is New Zealand’s largest city and the gateway to our international trading partners.

There is strong positive migration, job opportunities and an excess demand for housing from both domestic and foreign buyers. Like many major cities within other first world countries, Auckland is following the trend in terms of a buoyant housing market fuelled by centralisation of industry or jobs and low interest rates, equating to strong demand. Auckland is unique in terms of its housing infrastructural makeup. Standalone dwellings on reasonable sized sites make up the greater proportion of residential stock which is a by-product of a young city internationally.

The likes of London or even Sydney have adapted to more close quarter living by way of intensive housing development such as apartments or terraced housing, serviced by quality public transport infrastructure. Knight Frank sees the trend shifting in Auckland with more and more apartment or terraced housing type developments being released or undergoing the consent process.

As more Aucklander’s adjust to this shift in living lifestyle, together with improved public transport and infrastructure, we see the demand-supply imbalance being corrected. However, it will take time for our love affair with the “kiwi dream” to abate in preference for the more intensified living.

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