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The latest Knight Frank global residential cities index has ranked Auckland as having the third-slowest rate of house price growth in the world. In the year ending June, house prices in Auckland fell by 10.5%, placing the city at number 105 out of 107 cities in the index. Only Gothenburg and Stockholm in Sweden ranked lower, with price declines of 11.7% and 14.3%, respectively. However, just two years ago, during a housing market boom, Auckland was ranked 30th out of 150 cities, with a price growth of 18.6% in the year ending June 2021. Since then, Auckland’s prices have fallen by 20%, aligning it with 25 other markets that have experienced declines of over 5% since their market peak. This article delves into the factors behind this change and discusses the prospects for Auckland’s housing market.
Market Dynamics and Outlook
Auckland’s recent poor performance in the housing market can be attributed to several factors. While the city was previously characterized by robust price growth, the current slowdown is a reflection of reduced rate uncertainty, a limited housing stock, demographic shifts, and significant price corrections in various markets, including Auckland. Despite this, there are signs of hope for the city’s property market.
In a recent Knight Frank report, Auckland was identified as one of the prime global city markets poised to experience significant price growth in the coming year, with a forecasted increase of 5%. Sales volumes are strengthening, and recent domestic housing data indicates that the Auckland market has reached a trough and is beginning to recover. Quotable Value’s figures show modest monthly price growth, and six out of seven former territorial authorities in the region recorded small monthly and quarterly price increases. CoreLogic’s data also demonstrates an increase in prices in several Auckland regions.
New Zealand’s Housing Market Challenges
The pandemic has disrupted housing markets worldwide, with New Zealand experiencing one of the most significant swings. Over the last 18 months, homeowners and investors have seen substantial fluctuations in housing prices, primarily due to the pandemic’s impacts on jobs, wages, and living conditions. House prices in New Zealand surged nearly 50% during the pandemic, driven by low mortgage rates and relaxed lending rules. However, since November 2021, rising inflation prompted the central bank to embark on an aggressive rate-tightening cycle, resulting in a 17.5% price decline and erasing more than $6 billion in household wealth.
New Zealand’s housing problems have been further exacerbated by inadequate construction, poorly constructed housing, and interest rate increases. The lack of affordable housing options has become a pressing issue, affecting both public housing applicants and renters who struggle to enter the property market. Additionally, affluent investors who bet on property are witnessing a decline in their investments’ value. The median price for a home in New Zealand stands at 780,000 New Zealand dollars, or about $480,000, significantly higher than the median price in the United States.
The Way Forward
Addressing New Zealand’s housing crisis has proven challenging for successive governments. Most New Zealanders own homes, and household wealth is significantly tied to land and property. While there is no capital-gains tax on property sales, it remains a hot-button issue in the country. A rare moment of bipartisanship in housing policy, which aimed to encourage urban development and curb suburban sprawl, now faces uncertainty as political parties adopt differing approaches to housing issues.
Conclusion
The housing market in New Zealand, particularly in Auckland, has undergone a turbulent period, with significant price fluctuations due to the pandemic, interest rate hikes, and market dynamics. The challenges faced by homeowners and potential buyers are emblematic of broader issues with housing affordability and construction in the country. The fate of New Zealand’s housing market, and whether it can rebound, will depend on government policy, economic conditions, and the ability to balance the needs of various stakeholders in the housing sector.
New Zealand’s effective management of the economy throughout the pandemic has paved the way for a multi-billion dollar capital gains proposition. At the very least, $3.8 billion in capital can be generated if the top NZ companies sold and leased back their occupied real estate. The bounty is ripe for the picking by anyone wise enough to take a look at the New Zealand property market. There are some 40 commercial/corporate entities from NZ and Australia who hold different land and property listings. The title on the deeds to the listings belongs to entities in the telecom, logistics, healthcare, and industrial sectors.
The opportunity has also fostered a market where NZ’s companies are generating a high ROI for investing in the country’s core businesses. The process is also freeing up and ferrying capital that was tied up so far in low-yielding assets.
Experts have narrowed down and identified the trend among corporate property owners to recycle low-yielding real estate in a low estate environment. The old-hat trick helps them accrue capital by re-funneling it into commercial property investment. This has led owner-occupiers across New Zealand to raise $1.2billion from sales and leaseback deals in the past five years. New Zealand housing market predictions short-term leasebacks are only going to be more frequent as more businesses resort to this trick to free tied-up capital.
One of the businesses belonging to the aforementioned sectors has leased back their Auckland properties for $178.3m in 2020’s third quarter. Another acquired a 17-hectare site in Otahuhu, in 2017, to develop a rail-served distribution hub; they recovered the acquisition investment and development costs in the present market and infused the funds into their business. All by tapping into the yield compression in the industrial sector. The capital gains have bankrolled some of these Australian enterprises into making new business acquisitions.
Experts are not surprised by this New Zealand housing market news, however. Flipping listed and unlisted, corporate and commercial property on-demand is a time-tested capital appreciation trick. You can both enjoy occupational control when you lease back and also fall back on liquid finance.
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