No Regulation Needed
Investors are not the problem causing the Auckland housing shortage, Andrew King explains.
1 March 2016
Rental property investors are again in the spotlight as 44% of Auckland sales in March were rental properties. We were seen as the reason for house price rises because we were pushing up demand. Rental properties, however, account for more than 40% of the housing market in Auckland, so it isn't surprising investors normally make up this percentage of property buyers.
The real reason for increased demand is not the proportion of different buyers, it is the fact that our population is increasing at record levels. Latest Department of Statistics records for February show the annual increase in net migration for the year had reached over 67,000.
Auckland property prices started to soften around October last year, and the regulatory changes aimed at property investors were assumed to have been the key reason.
The Auckland market had been growing for a few years, however, and was at the point in the cycle where it was likely prices would soften. Although it cannot be quantified, it also appears Chinese buyers fell away quite sharply at the same time. This was no doubt partly as a result of new requirements for IRD numbers and bank accounts, but it is more likely because of the economic and political changes in mainland China. The fact that other countries also saw a fall in Chinese property buyers tends to suggest New Zealand's specific regulatory changes were not the key reason.
Reducing overcrowding in rental properties needs more atention than improving affordability from home buyers. - Andrew King
Although there is still a supply and demand imbalance in Auckland property, we should not read too much into the results of one month. Statistics can be difficult to interpret. The large increase in Auckland's median property price may be because of a higher proportion of expensive properties being sold in March rather than an overall increase in values.
REINZ reported that March saw “a noticeable surge in sales of higher priced properties, with the number of sales over $1 million increasing by over 90% compared to February. This is especially true in Auckland, where one in three properties that sell are valued at more than $1 million – a record 35% of the market.”
Before we get concerned at the results of one month's statistics and receive the inevitable calls for more regulation to help home buyers, we should take a look at affordability studies.
Massey University has just come out with their latest affordability study and it states that "Auckland sustains improvement in affordability for the third consecutive quarter, contributing to a modest annual improvement of 3.1%".
Nationally, property prices are 9.2% more affordable than a year ago according to Massey. This is because of income increases of 3% and falling mortgage interest rates that are more than offsetting property price rises.
So the housing market is behaving more or less as you would expect and there is no basis to the calls for more regulation.
One change that would be nice for our tenants is the potential for an increase in the accommodation supplement in this month's budget. Reducing overcrowding in rental properties needs more attention than improving affordability for home buyers.
Andrew King, Executive Officer NZ Property Investors’ Federation