We need to talk about Auckland – Part 3

In the final of our series of updates about residential property, we discuss the impact of the Reserve Bank’s policy changes. What’s actually been happening to house prices in Auckland?

Recently Massey University academic, Dr Susan Flint-Hartle released the latest Massey University Home Affordability Report[1]. The Home Affordability Report is updated quarterly and available on the Massey University website[2]

Nationally, home affordability has been improving for some quarters and is now close to the levels it was at two years ago. Auckland affordability improved by 3.1% for the year.

Affordability is a mixed statistic; it incorporates average incomes, cost of debt (i.e. mortgage interest rates) and house prices. Low mortgage rates have, undoubtedly, contributed to affordability as have modest increases in average incomes.

However, in Auckland we have seen both a drop in median prices and a decrease in the number of sales in the two most recent quarters. While far too early to pat himself on the back, the Reserve Bank Governor did observe in the most recent Monetary Policy Statement that house price inflation has slowed following the introduction of macro-prudential measures in the later part of 2015[3].

The Reserve Bank asked the banks to honour the spirit of the agreement, and this apparent trend indicates to us that it’s working. Comments by the CEO of ANZ Bank about whether investors should be in the property market at all certainly indicate that bank’s readiness to comply[4].

Reserve Bank Governors are not known for self-trumpet blowing. The casual linking of proximity of lower house price inflation to the introduction of policies may be as close as we get to trumpet blowing from the reserved Reserve Bank Governor.

This shouldn’t surprise us. As indicated in the second of our series of blogs on Auckland property (We need to talk about Auckland – Part Two) this is something of a cause for the Reserve Bank. The Bank is tasked with the overall stability of the financial sector and has identified Auckland property prices as a risk to financial stability. Unless and until that risk is contained we expect cautious optimism only from the Reserve Bank.

With interest rates low, and likely to stay that way for some time, the pressures supporting high property prices in Auckland (low interest rates, high net migration and years of under-building) remain. The problem with Auckland property isn’t solved yet, but early indications show some progress is being made and the will of the Government and the Reserve Bank to solve the problem is certainly there.

The Reserve Bank Governor, when releasing the Financial Stability Report, made reference again to softening Auckland house price inflation and also to a request to the Finance Minister to add a Debt to Income tool to the Reserve Bank’s toolkit[5]. Both of these comments are aimed squarely at house price inflation, with the latter a warning to banks and borrowers of the consequences of not listening.

While this ends our series on residential property for now we expect it to come up again. After all it’s not solved yet.

Scott Rainey is an Authorised Financial Adviser

Disclosure statement is free and available on request


[1] http://www.massey.ac.nz/massey/about-massey/news/article.cfm?mnarticle_uuid=E074CD36-CAF4-8932-A5A0-5CC3EA3AD10A

[2] http://www.massey.ac.nz/massey/learning/colleges/college-business/school-of-economics-and-finance/research/mureau.cfm

[3] http://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Monetary%20policy%20statements/2016/mpsmar16.pdf

[4] http://www.radionz.co.nz/news/national/309073/property-investors-‘should-be-wary’-anz-ceo

[5] http://www.rbnz.govt.nz/news/2016/11/financial-system-continues-to-face-housing-and-dairy-risks







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