Auckland pays price of popularity

CATHERINE HARRIS
Last updated 12:22 08/07/2014

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Auckland, your housing crisis is all your own fault. That's the word from top economists.

Former Reserve Bank chairman and economist Arthur Grimes and Bank of New Zealand economist Tony Alexander say Auckland's popularity as a place to live and to invest is a key reason for the city's house-price boom.

Grimes said the Auckland Council's battle to meet population growth was up against the fact that the city was attractive.

It would increasingly draw people from within New Zealand, returning Kiwis and from Australia and elsewhere.

Other cities were good-looking, but Auckland had jobs as well as amenities, he said.

The city needed to decide whether it would lift its restrictions on intensification or urban spread or accept its high cost of living.

"You've either got to be big or expensive," he said.

"Queenstown's sort of the same. You can either be expensive and not too big or you can be big and not so expensive, but you can't be small and affordable, if you're attractive," Grimes said.

"Why is San Francisco expensive? Because you can't get new supply, but it's very attractive. Auckland's sort of similar."

Alexander said in a recent newsletter that Auckland's house prices were underpinned by the fact that its economy was strong and that buyers expected better gains there than elsewhere.

"Auckland is popular," he said.

"We have a set of expectations for our purchases there, and unless something happens to make Auckland unpopular or shatters those capital gain expectations, then prices will continue to rise."

The regions, in contrast, were not proving attractive to house buyers yet, he said.

"On my travels around the country, locals are more often than not telling me stories of how their businesses are not doing as well as the stories they hear regarding the economy's overall strong pace of growth."

Alexander said that if migration continued along its present track, New Zealand's population would increase by 1 per cent this year.

"That means even more upward pressure on building material prices, architects' fees and so on", leading to tighter monetary policy and continuing strong support for the New Zealand dollar, he said.

Infometrics economist Gareth Kiernan was less concerned about the inflationary effects of higher migration.

Many migrants were in construction and would fill skills shortages, he said.

He expected another pick-up in house prices next year, despite rising mortgage rates and the Reserve Bank's loan-to-value restrictions.

By 2017, New Zealand's rapid economic growth would be waning as the Canterbury rebuild passed its peak, slowing income growth and depressing house prices, he said.

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By early 2018, the economy would be suffering "a post-rebuild hangover", with growth slowing to just 1.2 per cent a year, leading to declines in interest rates and the New Zealand dollar, he said.

- Stuff

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