Articles by Matthew Gilligan


Housing Scarcity in Auckland

Tuesday, October 30, 2012

For a long time now we at GRA have said that Auckland is the best place in New Zealand to invest in residential property and this has been confirmed with recent headlines about its current "property crisis". Prices have been rising and will continue to do so because with a rapidly growing population, Auckland's housing supply simply can't keep up with demand.

Auckland currently needs to build an extra 10,000 homes per year to cope with the population growth. According to an article on interest.co.nz,  "Westpac economists noted that over the three years to June 2011, for every new dwelling in Auckland, the city's population increased by seven new residents."

This, of course, is great news for property owners - the scarcity means their properties are becoming more and more valuable resulting in substantial capital gains. The good news doesn't end there, however - the housing shortage is also reflected in rising rental rates, so investors benefit from increased cash flow as well.

Naturally, the government and Auckland Council are desperately trying to make housing more affordable, and so have plans in the wings to build 400,000 more houses in the next 30 years, 300,000 of which are to be within Auckland's current boundaries. To facilitate such a plan, 1 in 5 of the city's existing houses would have to be demolished to make way for higher density townhouses and apartments.

On October 29th 2012, Bill English also announced the following initiatives that are a great step forwards:

  • Requiring council to approve development within six months
  • Developing prime low density assets held by the crown into high density housing
  • Reducing red tape for developers
  • Improving infrastructure to support new housing

You can read the full article here:

Will these plans actually have the desired results, though? While the state can do what it likes with the properties it already owns, demolishing such a large number houses relies on private owners being prepared to sell - and some investors are already adopting a Not In My Back Yard (NIMBY) mentality by digging in their toes, doing nothing, and watching the value of their properties increase before their very eyes.

Developers are also going to struggle to keep up with the demand and are already finding it hard to finance their developments On top of this, the costs involved with building and resource consents can make development prohibitively expensive, and the council can be challenging to deal with. Even a 6-month approval time limit could be problematic, because in our experience the council only needs to say "you have not provided x document or feedback" and they can reset the clock, extending the development timeframe statutorily. 

Expanding beyond Auckland's current urban boundaries may not result in more affordable housing either. As Holly Walker of the Green Party points out, "Urban sprawl will not make housing more affordable because the types of houses that tend to be built in new developments are large and expensive."  

It is GRA's opinion that Auckland will continue to be the prime area to invest in housing in New Zealand in the foreseeable future. Prices will keep on rising because of the increase in population, housing and land shortages, plus more jobs available with expanding infrastructure. Small town and rural property is not the place to invest for long short to medium term growth in our view.  We think that investors should seriously look at selling investment properties in the smaller towns across NZ and seek to shift their capital to Auckland, - we have been saying this right through the recession. You will see great returns and growth over a shorter period of time here.  Having said that, there is a good story behind Hamilton, Wellington and Christchurch. More on that to follow. 

If you would like to discuss this further with myself or the team at GRA please contact us.

Matthew Gilligan
Director

Contact Matthew at mg@gra.co.nz or call +64 9 522 7955

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