Auckland plummets on bank's economic scoreboard

Auckland’s economic performance nosedived in the September 2018 quarter, falling by nine places to the bottom of ASB’s regional economic scoreboard. It is currently in joint 15th place with Canterbury, which fell by two places, while Southland shot up by seven places to take the top spot.

ASB chief economist Nick Tuffley says Auckland’s downturn is largely due to its stagnating property market, where prices have remained virtually unchanged since the previous year.

“We’ve seen a weak housing market in Auckland for some time now,” Tuffley told NZ Adviser. “This is the key similarity between Auckland and Canterbury – the areas currently at the bottom of the scoreboard.”

“The Auckland market was beating the charge compared to other regions, so it’s cooled off sooner,” Tuffley explained. “We expect that prices will be relatively steady over the next year – we do see Auckland as going through a bit of an adjustment process and we’ve had some very stretched prices compared to incomes and rents, so that’s really pushed the limits on how far prices can keep growing in excess of underlying incomes.”

Tuffley notes that median house prices have gone from being 10 times the median household income to 9 times the median income, and the rest of the country is averaging approximately 5. Building activity is also kicking into action and has started to catch up with population growth, so a large-scale adjustment is underway across the market.

In terms of the Auckland investor market, Tuffley says that a raft of incoming changes will likely mean a slow and cautious approach over the next year.

“We’re seeing quite a lot of caution from the investor market as rental yields are low and there isn’t much prospect of capital gain,” he stated. “Tax changes are also coming through along with other changes – new rental home standards, changes to tenancy rights, etc., all of which will mean that investor demand is likely to be pretty cautious.”

“The markets outside of Auckland have been hotter from an investor perspective, but some of the changes that apply to investors will apply up and down the country. The only real difference will be the perception of capital gain.”