What’s Happening In The Auckland Property Market?

What’s the Auckland property market doing right now and why do I think investors should be excited about the phase we’re in?

It’s always a hot topic around any dinner table. Ears perk up… everyone wants to know how well they’re doing… “am I up or down”?

As with most things in life, property values work in cycles.

My read into the situation is that we entered the slow down phase of the cycle in the final quarter of the 2016 calendar year.

Measures including the formal implementation of the Brightline Test (essentially placing a tax on any capital gains on property sold within 2 years of purchase and as at 1 April 2018 has since been increased to ownership over 5 years) and lending restrictions requiring investors to stump up with a minimum 40% deposit was sufficient to slow the overheated market down. Some would say to a halt.

Then you have the Auckland Unitary Plan  – the city’s new town planning rule book – launched in Oct 2016. These new regulations have paved the way for us to create significantly greater housing, more than we’ve seen in this current generation.

Why Was The Unitary Plan Needed?

According to the Reserve Bank of New Zealand, Auckland had a shortfall of 54,000 houses in 2016 and growing. Furthermore, Auckland expects to need to house an additional 600,000 people by the year 2033 – that’s an additional 200,000 houses. It’s interesting to note that at full capacity, we only build around 10,000 a year when we need to be building around 16,000 by my calculations!

No sooner do we have vast swathes of technically subdividable land, not all of it good or possible I might add, have the brakes been put on as we struggle to get the necessary funding to effect change.

What this means is that for those who can combine capital with the ability to identify and execute the superior opportunities, makes for a winning formula.

And the recent housing stocktake report commissioned by Phil Twyford told me nothing new. We have poor housing stock and the situation is rather dire. Housing affordability is out of reach for many and the rental market is growing as a result.

The interesting point here is that it reinforces the point about Auckland’s poor-quality housing stock, creating opportunities for investors to replace it with better alternatives. Alternative housing strategies are also being investigated, but that’s for another discussion.

Auckland is not unique, you only need to Google housing crisis and you will find that most major cities are undergoing housing stress. The flight to the larger urban centres by many seems to be here to stay. People seek out work to feed their families, and the majority of work happens to be concentrated in the larger cities, as despite technology helping us all to work remotely, we are social creatures by nature and we still need (and enjoy) facetime to do business with one another.

To me this is an important observation and why I think there are significant opportunities for those willing to invest in the Auckland property market that we know is poorly supplied in so many ways.

Back to my initial point of where we are in the property cycle. I see we are well into the so-called slow-down phase. We will probably be here and in the relative slump for the next 18-24 months.

There are all sorts of challenges in front of us, from local issues such as planning regulatory complexities, lack of resources (funding and skills), infrastructure and roading, and even large parts of the community obstructive to change.

What Am I Recommending To My Clients?

I’m seeing more opportunities in a ‘softer’ property market and I’m suggesting to investors to have a greedy mindset (whilst others are being relatively fearful).

I don’t want to be the one in 5 years’ time wishing I had invested or acquired the best sites with all the planning upside and potential it has now, when within a few short years someone else had the foresight to acquire it (at what will be seen later as a bargain price) and develop it, recognising that property development (especially Auckland) takes a few years to deliver.

Just when the market is buoyant again, with new developments coming on the market, I choose to be the one who had the foresight to invest the time and effort now to sort through and identify the significant opportunities that are currently out there in this relatively subdued market.

Now’s the time to act.

Graeme Fan