Auckland housing market 'in haitus,' says Colliers

Latest report shows issues of affordability remain

By Krizzel Canlas

12 Jun 2018

Housing supply in Auckland is at risk of falling short of projections as the cost of land compounds existing supply constraints, according to a new report from Colliers International.

In its latest Residential Market Snapshot, Colliers said the Auckland housing development market is in a “hiatus period.”

Although residential building consents hit a 13-year high for the year ended in April, the report suggests that problematic issues of feasibilty and affordability remain.

“Slower pre-sales and rising construction costs make achieving a positive feasibility more difficult and bank funding harder to secure,” said Colliers research and consulting national director Alan McMahon. “If sale prices are steady and building costs go up, the only variable left to balance the equation, is land cost.”

According to McMahon, the problem is that a lot of land sold in Auckland between 2013 and 2016 was priced on the the assumption of continuing house price inflation. Since then, house price inflation has slowed down while construction costs have increased by 5% in the last year alone.

“As a consequence, some land owners can’t sell for a profit, nor can they develop at a profit,” he said. “So they are essentially sitting tight for now.”

McMahon says robust demand ensures that there are unlikely to be any dramatic price movements, but the urgency to make decisions has been reduced.

“What may happen in this hiatus period is that Auckland’s anticipated housing supply will reduce, due to an insufficient supply of developable land that can actually be bought at a realistic price,” he stated.

McMahon also noted that steady house pricing is expected as demand continues to exceed supply.

“Sadly, this does nothing for first-time buyers, and nothing to accelerate building at scale, which is urgently needed,” he said. “Innovation is coming, in terms of construction methods, financing and tenure, but we will need all of them, plus a fully operative KiwiBuild programme to really change the game.”