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Articles by Matthew Gilligan

Housing Scarcity in Auckland

AUTHOR: Matthew Gilligan

POSTED: 28 October 2012

For a long time now, we at GRA have said that Auckland is the best place in New Zealand to invest in residential property and this has been confirmed with recent headlines about its current "property crisis". Prices have been rising and will continue to do so because with a rapidly growing population, Auckland's housing supply simply can't keep up with demand.

Auckland currently needs to build an extra 10,000 homes per year to cope with the population growth. According to an interest.co.nz article on housing affordability issues, "Westpac economists noted that over the three years to June 2011, for every new dwelling in Auckland, the city's population increased by seven new residents."

This, of course, is great news for property owners - the scarcity means their properties are becoming more and more valuable, resulting in substantial capital gains. The good news doesn't end there, however - the housing shortage is also reflected in rising rental rates, so investors benefit from increased cash flow as well.

Naturally, the government and Auckland Council are desperately trying to make housing more affordable, and so have plans in the wings to build 400,000 more houses in the next 30 years, 300,000 of which are to be within Auckland's current boundaries. To facilitate such a plan, 1 in 5 of the city's existing houses would have to be demolished to make way for higher density townhouses and apartments.

On October 29th 2012, Bill English also announced the following initiatives that are a great step forwards:

Requiring council to approve development within six months
Developing prime low density assets held by the Crown into high density housing
Reducing red tape for developers
Improving infrastructure to support new housing

Will these plans actually have the desired results, though? While the state can do what it likes with the properties it already owns, demolishing such a large number houses relies on private owners being prepared to sell - and some investors are already adopting a Not In My Back Yard (NIMBY) mentality by digging in their toes, doing nothing, and watching the value of their properties increase before their very eyes.

Developers are also going to struggle to keep up with the demand and are already finding it hard to finance their developments. On top of this, the costs involved with building and resource consents can make development prohibitively expensive, and the council can be challenging to deal with. Even a 6-month approval time limit could be problematic, because in our experience the council only needs to say "you have not provided x document or feedback" and they can reset the clock, extending the development timeframe statutorily.

Expanding beyond Auckland's current urban boundaries may not result in more affordable housing either. As Holly Walker of the Green Party points out, "Urban sprawl will not make housing more affordable because the types of houses that tend to be built in new developments are large and expensive."

It is GRA's opinion that Auckland will continue to be the prime area to invest in housing in New Zealand in the foreseeable future. Prices will keep on rising because of the increase in population, housing and land shortages, plus more jobs available with expanding infrastructure. Small town and rural property is not the place to invest for short to medium term growth in our view. We think that investors should seriously look at selling investment properties in the smaller towns across NZ and seek to shift their capital to Auckland - and we have been saying this right through the recession. You will see great returns and growth over a shorter period of time here. Having said that, there is a good story behind Hamilton, Wellington and Christchurch. More on that to follow.

If you would like to discuss this further with myself or the team at GRA please contact us.

Request a Meeting

Matthew Gilligan
Director

09 522-7955

[email protected]

© Gilligan Rowe & Associates LP

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Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.

Comments

Testimonials

Hi Matthew, my name is Mark Soster and I would just like to congratulate you on your wonderful book Property 101. A few weeks ago I had a "financial awakening" and began devouring all the books I could find on the subject, however I keep coming back to yours. After 3 reissues from the library I think it easier now just to buy it. Wonderfully simple yet complex enough to require multiple reads and note taking. It has taken a lot of the fear away with regards to property investment but also tempered me with caution. Without it I would probably have stupidly invested anywhere but Auckland, telling myself it’s too expensive, I now appreciate why would you invest anywhere else? The numbers never lie, in a 20 year plan then Auckland is King for capital gain. As a fan of maths (the only perfect thing on earth?) I can see how each opportunity can be ruthlessly examined on a purely financial level. Anyway, thanks again, I will definitely be contacting your company with regards to coaching and expertise. - Mark Soster - October 2017

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