RBNZ warns on “dangerous” Auckland housing

By Leith van Onselen

After the REINZ reported annual house price inflation of 25% in Auckland (on a stratified median basis), Reserve Bank of New Zealand officials ramped up their warnings, telling Parliament’s Finance and Expenditure Select Committee that Auckland house prices were in “dangerous terrritory” and vowing to rein the market in. From Interest.co.nz:

Wheeler pointed to house prices being nine times incomes in Auckland, which was double the ratio in the rest of country and put Auckland among the 10 most expensive cities in the world. He also pointed to investors accounting for 41% of the buying in Auckland, up from 33% a year ago, which was amplifying the swings in the house price cycle.

“The ANZ survey late last year suggested that investors saw property prices cumulatively growing 75% for the next five years. If we do our job properly the price level will go up 10%, so this is just dangerous territory,” he said.

National MP Alastair Scott asked Reserve Bank officials whether there was a risk of a crash in some drivers of demand and supply that could cause a turn-around in Auckland house prices.

“House prices in Auckland are not sustainable. The rate of price increase of 25% roughly is clearly not sustainable, but it’s always very difficult to pick the top of any asset price cycle,” Deputy Governor Grant Spencer said… “The faster it goes up, the more likely it is you’ll have a steep reversal”…

“We expect the action we’ve taken with investor LVRs and that the Government has taken with the two year bright line rule and the requirement to supply IRD with tax numbers will tend to moderate the Auckland market, but the exact path is difficult to pick,” Spencer said.

There is little doubt that the Auckland housing market is out of control. Price growth is nuts:

And valuations are beyond absurd:

There has also been widespread anecdotal evidence of speculative investment, perhaps best illustrated by the below report by Stuff.co.nz, which profiled a basic Auckland home that was flipped four times in three months, achieving a total increase in value of $153,000:

The three-bedroom home in Henderson was sold by its owner of three years Sue Wilson to Xiaoli Zhen in May for $475,000, only for it to be sold again to a trust just weeks later for $522,500.

The trust then flipped the Bruce McLaren Rd property again earlier this month for $559,000, according to CoreLogic data.

Most recently the house was listed last week by Barfoot & Thompson and was sold for $628,000…

The former owner of the house, Sue Wilson, told the New Zealand Herald she bought the cross-lease property at 1/161 Bruce McLaren Rd in 2012 for $291,000.

Wilson said the fast turnover and escalating price of the property, which was advertised as a “first home or investment”, was shutting first-home buyers out of the market.

“I was horrified. What annoyed me most was we’re trying to get young people into houses and this sort of thing is going on with them bumping up the price,” she told the New Zealand Herald.

Neighbours told the newspaper the property sat empty during July and value was not added through renovations or improvements other than professional staging.

With New Zealand’s economy now weakening on the back of collapsing dairy export prices, it’s hard to envisage how things can end benignly in Auckland.

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