ANALYSIS: Since the house price cycle nationwide bottomed out in May Auckland prices have risen 4.2% compared with 3.5% in the rest of the country. This is only a small outperformance, but we can’t rule out that it will get bigger for at least two important reasons.
First, population growth in Auckland is receiving more of a boost than the rest of the country from record net migration inflows. In fact, latest data from Stats NZ tell us that in the middle of last year Auckland’s population had grown 2.8% from a year earlier versus 1.7% growth outside our biggest city.
This is quite a turnaround from a year earlier when Auckland’s population shrank 0.7% while growth of 0.5% was recorded outside Auckland. The year before that Auckland shrank 0.6% while the rest of the country grew 0.9%.
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So far, this extra population growth hasn’t produced all that much superior price growth but that will partly be because the supply of new houses in Auckland has grown fairly strongly in recent times.
From 2004 the number of consents issued for new dwellings to be built in Auckland unusually fell away while the rest of the country held strong. This meant that as we emerged from the GFC over 2009-11 Auckland was seen to have a housing shortage while the rest of the country did not. This was why Auckland house prices rose so strongly and then the remainder of NZ followed with a lag.
But over the past 10 years from the start of 2014 the number of consents issued for new dwellings in Auckland was 136% ahead of the previous ten years while outside of Auckland the increase was only 45%. Hence extra supply in Auckland which has kept prices relatively in check and probably contributed to Auckland’s house prices falling 23% from late-2021 to mid-2023 versus a 14% decline elsewhere on average.
But more recent data give us our second reason for expecting Auckland house price outperformance. The number of consents being issued for dwellings is falling more rapidly in Auckland than elsewhere. In the past year Auckland consents fell 27% versus a 22% decline outside the city. More recently in just the three months to November Auckland’s consents were down 37% from a year before versus a 25% decline elsewhere.
Independent economist Tony Alexander: "Population growth in Auckland is receiving more of a boost than the rest of the country from record net migration inflows." Photo / Fiona Goodall
This analysis doesn’t give us any strong idea about the degree to which Auckland house prices will rise more than elsewhere before the usual catch-up occurs sometime later in the price cycle. But it does suggest that it is reasonable to expect some outperformance over 2024-25 of Auckland house price inflation compared with the rest of NZ on average.
Of course saying “on average” covers up a lot of what already are and will continue to be some big price change variations across the regions. For instance, Wellington region prices have gone up 7.1% since May and Queenstown District 8.8%. But Northland is down 1.3% and Waikato up only 1%.
These things come out in the wash eventually because what I have seen from the data for the past three decades is that locations of strong population growth eventually have strong construction growth (Queenstown not entirely so), while areas of low population growth have low construction growth.
This is why on average since 1992 while Auckland house prices have risen by 6.5% a year they have still gone up 5.7% in Southland and 5.6% in Taranaki. Differences exist but are not what you’d expect with no other information than that Auckland’s population has grown 1.7% a year on average, Southland’s 0.2%, and Taranaki’s 0.6%.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
