Value increases spread beyond Auckland, but not far

The latest monthly QV House Price Index results are out and they continue to show the strength of the Auckland market.

Across the Auckland Region values are up 18.8% annually and 5.7% over the past three months. The average current value of the housing stock now sits at $855,672. That rate of growth is the fastest since 2003 and reflects the current supply and demand imbalance in Auckland.

The increase in values in Auckland did slow considerably immediately following the implementation of the LVR speed limits in late 2013. This limited banks to no more than 10% of their new lending to customers with a low deposit. The annual rate of increase had been 15.2% in November 2013 and this slowed to 9.2% in October 2014. Values then began to re-accelerate, suggesting that the LVR speed limits had an effect for less than a year.

As values have continued to climb in Auckland there has been increasing talk of ‘bubbles’ and a ‘housing crisis’. In some sort of reaction to this the Government and the Reserve Bank announced back in May further restrictions on both the Auckland and wider market. Let me quickly recap those proposed changes that are due to come into effect on October 1st 2015.

The LVR speed limits have been left as they are for owner occupiers in Auckland but loosened in the rest of the country.
Auckland property investors will require a 30% deposit on their new purchases.
Any property bought and sold within two years that wasn’t owner occupied will be subject to a capital gains tax.
Foreign buyers will need a New Zealand bank account and IRD number.
While these new rules don’t come into effect until October 1st 2015, the banks have been encouraged to work to these new rules immediately wherever possible. That suggests that we should begin to see a change in the market if there is going to be one.

One likely change is Auckland buyers looking outside Auckland and possibly dragging prices up in other areas they move to. Another possibility is investors purchasing properties prior to the capital gains tax rule kicking in. Another is an increase in activity outside Auckland as the LVR speed limits loosen up.

So what can we actually see? There is a definite increase in activity in many parts of the upper North Island. Specifically in Whangarei, Waikato District, Hamilton, and Tauranga. Historically an increase in sales activity is followed by an increase in values a few months later. It is still too early to see if this is an upswing in investor activity or is being driven by first home buyers or movers being more active.

So what about value change according to the latest index?

We have already seen values in Tauranga rising since last October, and they are currently up 7.7% year on year.

In Hamilton there has been a shortage of stock on the market for some time combined with steady population growth. You might have expected this to lead to increasing values but prior to the LVR speed limits they were only rising 3% to 5% annually. While the slow down following the LVR speed limits makes the picture a little confusing it now looks like values are genuinely on the rise. The 3.8% increase in the last three months is the fastest since the previous boom in 2007 as is the annual increase of 7.4%.

This supports the anecdotal evidence we are hearing of auctions in Hamilton with multiple bidders (including Auckland based buyers) and the final price exceeding expectations.

Looking to the smaller centres, picking a genuine increase from noise can be tricky.

Values are up 3.7% over the past three months in Far North and an eye-watering 7.3% in Kaipara. Could that be the effect of Aucklanders moving north? Perhaps, but the relatively small size of these areas means the index is a little more variable so the apparent increases may not be real or sustained. Time will tell.

Whangarei has increased a more modest 2.1% in the past three months, and while that too could be noise, it looks a little more like a genuine increase.

Just over the southern border of Auckland, Waikato District values are up 3.5% over the past three months, continuing a rise that started last October. Aucklanders are moving into Pokeno, Tuakau and Huntly so price rises in Waikato are to be expected.

Thames Coromandel District is flat, while Hauraki District is up 4.6% in three months.

Further south there is little evidence of an increase in activity or values.

In Wellington values have been flat for most of 2015 after dipping slightly following the LVR speed limits. So far there is no sign of an increase in activity in the last few weeks either, despite some stories doing the rounds of Auckland investors now considering their choices further south. Perhaps an increase in activity will happen later in spring after the LVR speed limits officially loosen.

Christchurch values also remain flat and the market activity, while seasonally strong like the rest of New Zealand, has not picked up in recent weeks in response to the impending rule changes. In Dunedin values have picked up in the last three months by 2.5% after being flat for a long time. But I still think that it’s too early to call that the start of a new upward trend.

So while there are all sorts of stories and anecdotes flying around, many of which you will have heard or read about, there’s little hard data to back them up yet. The only thing we can definitely see is values in Hamilton and Tauranga rising, most likely as a direct result of Auckland buyers.

Spring is nearly upon us, and from about now on we will see more new listings coming onto the market. That combined with the new looser rules in the regions may yet see a pick up outside Auckland.

Auckland values will continue to increase until the supply side can increase significantly. And that is still a fair way off.