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What's Hurting Auckland's Housing Market?

It would not be surprising to see new build properties "pretty heavily" discounted, property economist Kelvin Davidson says. Photo: 123rf

Hundreds of townhouses being listed on the market in Auckland could be partly behind a slump in the city's sales prices.

At the peak of the consent boom, in September 2022, the number of consents being issued for homes in Auckland hit an annual rate of 21,985. Of those, almost 60 percent were townhouses.

But now building industry sources say that developers who subdivided sections in more remote parts of Auckland are colliding with a lack of buyer demand for those properties.

The number of two-bedroom townhouses listed for sale on TradeMe in south Auckland was up 23 percent in May compared to a year earlier.

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Across Auckland, the website had more than 1500 homes listed that were described as townhouses.

CoreLogic's latest House Price Index shows Auckland experiencing the most price softness in the country.

While nationally property values were calculated to be up 1 percent year-on-year, up 0.1 percent for the quarter and down 0.2 percent over one month, Auckland prices were down 0.8 percent for the month, 1 percent for the quarter and 1.9 percent for the year.

Over the most recent quarter, Manukau and Papakura had the biggest falls.

Auckland prices remain 15.8 percent below their peak, compared to 10.7 percent across the country.

Wellington's prices were down 0.6 percent month-on-month.

By contrast, Christchurch was up 0.5 percent, and Hamilton and Dunedin both had gains of 0.8 percent.

It was the second month of weakness for Auckland in a row, CoreLogic chief property economist Kelvin Davidson said, as the number of houses for sale increased, giving buyers more power.

"It's a combination of a reasonably steady flow of new listings and still-low sales volumes so stock volumes have built up."

He said the construction boom had played a role.

"Auckland has had a big rise in construction especially among the new build sector, townhouses ... there's choice for buyers and that's taken the heat out of prices."

He said around the time of the global financial crisis (GFC) new build properties had been discounted "pretty heavily" and it would not be surprising to see similar conditions now.

Affordability was also more stretched in Auckland than in some parts of the country. "House prices are at a higher level in relation to incomes and mortgage rates compound that effect.

"There's always been a perception that Auckland leads the rest of the country in terms of property market performance, and although the evidence shows that isn't always the case, it's certainly still pretty striking that our largest city is now seeing renewed weakness in prices," he said.

Property investor Steve Goodey said he bought a two-bedroom apartment in Epsom recently and had seen what appeared to be an oversupply.

"Look at how many two-bedroom townhouse listings there are in south Auckland, it's nuts. Developers are doing many deals right now."

Purchasers have a lot more choice

Real estate agency Barfoot and Thompson managing director Peter Thompson said the median price of homes sold by his salespeople was up 0.4 percent in May on the previous month.

His firm's salespeople had about double the stock of last year. "It gives purchasers a lot more choice and time to make a wise decision."

But he said vendors who were willing to listen to the market could still get a good price.

Thompson said he would not be surprised if some new builds were selling for less than the cost of building them.

"Some of the builders have had to take a knock to move them on. They have quantity over supply so they are able to make it on the ones they do sell above."

TradeMe data for April showed that the asking price for Auckland properties with five bedrooms dropped 6.4 percent year-on-year and the asking price for one- to two-bedroom properties dropped 2.8 percent while the city's overall asking price was up 5.3 percent.

Westpac senior economist Satish Ranchhod said the boom in townhouses in Auckland had accounted for much of the lift in consents in recent years.

"That will have been in part due to planning rules that have allowed greater densification. Consents are dropping back now, including a sharp drop off in townhouse numbers. However, townhouses still account for around 60 percent of consents in Auckland."

Davidson said the rest of 2024 could remain fairly subdued for the housing market, both in terms of sales volumes and property values.

"Affordability remains stretched and significant falls in mortgage rates probably remain a story for next year not this, especially if there's risk the upcoming tax cuts do prove to be slightly inflationary.

"The removal of first home grants is unlikely to have a lasting or significant impact on new buyer demand, and the caps on debt-to-income ratios won't bite straightaway either.

"But even so, our expectation that 2024 will only really see the housing market ticking along remains firmly on track, with activity and prices set to remain variable from month-to-month and across regions."

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