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17 Oct 2016

Auckland Struggles with Lack of Supply

Auckland continues to struggle with a lack of housing supply in key areas. Despite long-term plans to build more dwellings in an effort to relieve housing pressures, 35 projects recently failed to get off the ground due to funding and construction cost issues. While new building consents remain strong and Auckland prices were flat in September, Finance Minister Bill English has signalled a significant increase to house building in an effort to further cool the market. 

A total of 970 new dwellings were consented in Auckland during August, including 534 houses, 273 townhouses, and 163 apartments. While this figure has picked up in recent months, it's still well below the 1100 dwellings needed each month to keep up with population growth in the city - not to mention the current estimated shortage of 40,000 dwellings. The Auckland region is expected to continue as the fastest growing area of the New Zealand with population growth in excess of 3 percent per annum.

Despite renewed efforts to increase housing supply, apartment and townhouse developments have been facing challenges. According to Pete Evans, Colliers International's residential project marketing national director in Auckland, "There's been 35 [developments] that haven't gone ahead in the last 12 months ... Our research tracks that. Funding is often a risk and building costs going up is another reason." While tighter lending restrictions are designed primarily to help cool the housing market, if they have a negative effect on supply levels they will have the opposite effect. 

The 91-unit 'Flo' development in Avondale is one high profile cancellation, with developer Jon Sandler blaming the banks for tightening their lending practices. Riskier apartment developments and off-plan rental property investments are not being financed as readily, with banks increasingly concerned about exposure in the case of a property market fall. While Prime Minister John Key has downplayed recent project failures, Finance Minister Bill English has signalled the need for additional "medium density, medium-priced" housing in Auckland.

"The Government will be a provider for the next 10 years of significant numbers of medium-density, medium-priced housing into the Auckland market," said Mr English in a recent interview, adding "Over the next six months, you'll also see a growing understanding of the size of the Government building programme and that will have an effect on the market ... And we are going to do it." Current initiatives include the Auckland Unitary Plan which has created room for an additional 69,000 houses on Housing NZ land.

Despite ongoing lack of supply, the Auckland market continues to cool, with sales prices and volumes both flat and new listings well down according to a recent Barfoot & Thompson report. The median price of homes sold in Auckland was $850,000 in September, unchanged from August but still at record levels. While prices remain $60,000 stronger than they were in September last year, according to the report, "the Auckland housing market is subdued and we are now looking at a totally different market to 12 months ago." New listings were also subdued, down 10 percent compared to August and 20.8 percent compared to September last year.

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