Auckland effect positive for regions

The February issue of Property Focus published by the ANZ Bank has some interesting insights into the residential property market, particularly in Auckland and how it is affecting the regions. Here are some highlights, with my comments added.

The ANZ state, “Current annual net international migrant inflows into Auckland are equivalent to 2½% of the resident population. That compares with 1½% for the country as a whole.” That net gain in migrant inflows in itself places a significant demand on the need for housing and infrastructure (like roading).

Based on “medium” growth rate assumptions by Statistics NZ, Auckland’s population is expected to grow by a further 600,000 people (37%) by 2043. However, current growth rates are already higher than this prediction, and more than their “High” (50%) growth rate assumption.

The picture of inter-regional migration of existing residents is revealing.

The ANZ says, “…the maths becomes hard to ignore; Auckland house prices trade at a multiple of 9 times incomes; the rest of New Zealand sits at less than 6. Aucklanders already spend close to 20% of their weekly disposable incomes on housing-type costs compared with 17.3% for New Zealand as a whole. So while employment opportunities are of course a relevant consideration, the Auckland region is not a big sucking vortex everyone shifts to; people are more likely to depart, particularly retirees or others who do not need to be located close to employment opportunities. That’s economic rationality in operation; when the relative price of one thing turns prohibitive (i.e. an Auckland house), the relative price of another (a house in another region) becomes more attractive. Moreover, high housing costs make it difficult to attract and retain employees. Not to mention time stuck on the motorway getting to and from work.”

The long-term patterns show people are moving to five regions: Northland, Waikato, Bay of Plenty, Nelson and the southern lakes district. Auckland is losing residents. Other research by the ANZ found that one in five Aucklanders planned to leave the city when they retired. That’s good news for those who wish to see economic growth in the regions – and Northland is likely to become an even more attractive option for escaping Aucklanders, given that the significant rise in house prices in the Bay of Plenty will be forcing some to look elsewhere. The ongoing improvements to the road between Auckland and Whangarei, will help to encourage more people to move North, and the general trend towards working online will also go some way to mitigate any lack of local job opportunities.

For retired folk it makes a lot of sense to sell in Auckland where the average house is worth $1m, and buy an equivalent one for half the price in a warmer, largely hassle-free location like Northland or the Bay of Plenty. That unlocks $500k as a retirement next egg to draw down over time or invest to supplement their pension.

The other significant development in Auckland is the rapid increase in intensification. In 2016 multi-dwelling units accounted for 43% of all consents. Auckland is growing up, literally.

Despite the increased number of apartments, the ANZ believe it will be some time before supply catches up to housing demand. The ANZ put this down to the shortage of skilled labour, which is making it difficult for building firms to increase their output, and a rationing of credit due to Reserve Bank lending restrictions. That is not likely to change anytime soon.

That pressure on the building sector is evident in increased building costs. According to the ANZ, the construction cost component of the Consumers Price Index was up 6.5% nationwide in the year ended 2016, and 8.2% in Auckland – at a time when inflation is barely 1%. This would suggest builders are responding to demand by increasing their prices, rather than hiring a new gang and increasing their output (which is difficult given the skill shortages).

In summary, Auckland is the place that new immigrants want to live, and existing residents want to leave. That will benefit the regions.

Auckland will continue to have infrastructure issues, so don’t expect the traffic problems in Auckland to disappear anytime soon.

 

The February issue of Property Focus published by the ANZ Bank has some interesting insights into the residential property market, particularly in Auckland and how it is affecting the regions. Here are some highlights, with my comments added.

The ANZ state, “Current annual net international migrant inflows into Auckland are equivalent to 2½% of the resident population. That compares with 1½% for the country as a whole.” That net gain in migrant inflows in itself places a significant demand on the need for housing and infrastructure (like roading).

Based on “medium” growth rate assumptions by Statistics NZ, Auckland’s population is expected to grow by a further 600,000 people (37%) by 2043. However, current growth rates are already higher than this prediction, and more than their “High” (50%) growth rate assumption.

The picture of inter-regional migration of existing residents is revealing.

The ANZ says, “…the maths becomes hard to ignore; Auckland house prices trade at a multiple of 9 times incomes; the rest of New Zealand sits at less than 6. Aucklanders already spend close to 20% of their weekly disposable incomes on housing-type costs compared with 17.3% for New Zealand as a whole. So while employment opportunities are of course a relevant consideration, the Auckland region is not a big sucking vortex everyone shifts to; people are more likely to depart, particularly retirees or others who do not need to be located close to employment opportunities. That’s economic rationality in operation; when the relative price of one thing turns prohibitive (i.e. an Auckland house), the relative price of another (a house in another region) becomes more attractive. Moreover, high housing costs make it difficult to attract and retain employees. Not to mention time stuck on the motorway getting to and from work.”

The long-term patterns show people are moving to five regions: Northland, Waikato, Bay of Plenty, Nelson and the southern lakes district. Auckland is losing residents. Other research by the ANZ found that one in five Aucklanders planned to leave the city when they retired. That’s good news for those who wish to see economic growth in the regions – and Northland is likely to become an even more attractive option for escaping Aucklanders, given that the significant rise in house prices in the Bay of Plenty will be forcing some to look elsewhere. The ongoing improvements to the road between Auckland and Whangarei, will help to encourage more people to move North, and the general trend towards working online will also go some way to mitigate any lack of local job opportunities.

For retired folk it makes a lot of sense to sell in Auckland where the average house is worth $1m, and buy an equivalent one for half the price in a warmer, largely hassle-free location like Northland or the Bay of Plenty. That unlocks $500k as a retirement next egg to draw down over time or invest to supplement their pension.

The other significant development in Auckland is the rapid increase in intensification. In 2016 multi-dwelling units accounted for 43% of all consents. Auckland is growing up, literally.

Despite the increased number of apartments, the ANZ believe it will be some time before supply catches up to housing demand. The ANZ put this down to the shortage of skilled labour, which is making it difficult for building firms to increase their output, and a rationing of credit due to Reserve Bank lending restrictions. That is not likely to change anytime soon.

That pressure on the building sector is evident in increased building costs. According to the ANZ, the construction cost component of the Consumers Price Index was up 6.5% nationwide in the year ended 2016, and 8.2% in Auckland – at a time when inflation is barely 1%. This would suggest builders are responding to demand by increasing their prices, rather than hiring a new gang and increasing their output (which is difficult given the skill shortages).

In summary, Auckland is the place that new immigrants want to live, and existing residents want to leave. That will benefit the regions – and Northland in particular.

Auckland will continue to have infrastructure issues, so don’t expect the traffic problems in Auckland to disappear anytime soon. Even the regions are likely to face increased demand for infrastructure, particularly in Northland, where there is a significant increase in tourism numbers as well as more freight being shifted by truck instead of rail.

The increase in tourism numbers alone is likely to create pressure on roading. It is reported that tourism brings over a billion dollars into Northland’s economy – around  46% to the Far North, 43% to Whangarei and 11% to Kaipara. Domestic tourism accounts for about 75% of that one billion dollars, much of which will be coming from Auckland.

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