'We Don't Get Richer Buying Each Other's Houses': How Auckland's Affordability Story Has Improved
For many years, it was common for the city to feature among the most unaffordable in the world.
But in the most recent Demographia research, it came in at 16th.
Hong Kong, Sydney and San Jose, California, were the most expensive. Brisbane, Perth and Melbourne all ranked more unaffordable, on a house price-to-income basis, than Auckland.
Auckland had house prices 7.7 times incomes, on average, compared to 14.4 in Hong Kong.
So what's driven the improvement, and is it likely to last?
Ryan Greenaway-McGrevy, associate professor in economics at the University of Auckland, said part of it was due to the big increase in the supply of housing in the city.
"We've been building a hell of a lot of houses in Auckland, mainly since passing the Unitary Plan. That's allowed the supply of housing to catch up with population growth because for a long time we haven't really built enough houses relative to population."
He said, since the plan came into force in 2016, there had been a "massive construction boom". "I think over the eight years since then we've issued permits for about 127,000 new dwellings… in 2016, we had just over half a million dwellings in Auckland, so that's a massive figure."
Greenaway-McGrevy said most of the consents would turn into houses that were built. "We don't really know how many houses are torn down but that just gives you an indication of the amount of construction activity that's been happening."
The fact that rents had dropped in real terms in Auckland too showed the impact of the increased supply, said. "There's been a big divergence between rents in Auckland and the rest of the country."
He said it also helped that many of the properties built were townhouses and apartments. "They require less land and they're smaller so that's going to be reflected in median prices. So you've got this compositional shift that the median price is picking up."
Demand was also weak due to the economic downturn and the increase in interest rates, he said. "A lot more supply and factors limiting demand should all add up to pressure on house prices."
The economy should improve and demand would pick up again, but government settings would help affordability, he said.
"We've got a set of policy settings where the housing market on the supply side should be more responsive to demand. We've shifted from a situation where housing supply was really unresponsive to demand, to one that's markedly improved so hopefully we'll see fewer constraints on housing supply as Auckland continues to grow in the future."
Infometrics chief forecaster Gareth Kiernan agreed the unitary plan had improved supply of housing and made intensification a lot easier.
"There are more smaller, and therefore cheaper, housing options available than ten years ago."
He said consenting at the current levels combined with close to zero net migration over the next couple of years would further reduce the undersupply of housing.
"Let's be clear though: Auckland might not still be in the top 10, but it's nowhere near affordable…house-price-to-income ratios are still worse than at any time prior to 2016."
Kelvin Davidson, chief economist at Corelogic, noted that the Demographia comparison did not include the impact of interest rates. Higher interest rates can mean lower house prices but the cost of ownership can still be higher.
But he said it was clear the picture had changed for Auckland, "The word shortage is just not talked about anymore. There seems to be a bit of an equilibrium going on at the moment."
Government changes around planning reform should help to stop unaffordability reaching the highest levels it hit before, he said.
"Housing isn't necessarily affordable in its own right. It's still pretty expensive, but there will be people that still access the market, and I think we can see it with the first-time buyer numbers at the moment. They're really, really strong.
"There is, I don't know, an equilibrium at the moment … if you have saved for a bit, and you can satisfy the bank, you're going to be able to find a decent property at a price you can afford and you know money is available. There's a balance between supply and demand, so it sort of feels like there is some kind of balance, which is good. We've needed a period like this for a long time.
"I think Chris Bishop's comments a couple of days ago, about decoupling this idea that, you know, to have a strong economy, we have to have a strong housing … I think is a great thing. We don't get richer as a country by buying and selling each other's houses."
Demographia considers a ratio house prices three times income affordable but Davidson and Greenaway-McGrevy said that was unlikely to be achievable for Auckland.
"As much as I would love to tell you that that would be attainable and feasible, that seems a heroical aspirational goal," Greenaway-McGrevy said.
"But if we thought about a multiple of five or six, if we could attain that, that would be great."
Davidson agreed it was far outdated. "In some parts of the world for whatever legacy reason it may sort of make sense but I think you have to just acknowledge the world we're in now, it might have been the benchmark at some point but your benchmark has got to change sometimes to reflect reality. A multiple of three is just incredibly unlikely ever again."
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