Is the Auckland housing market too hot for first home mortgage buyers?

September 04, 2013 at 4:03 PM

Mortgages: First home buyers advised to think ahead, buy further afield and be prepared to commute

North Shore, Auckland: If you're a first home buyer in despair over high house prices in Auckland, there's unfortunately not much light at the end of the tunnel despite steps by the Reserve Bank of New Zealand to cool the housing market with 'quick fix' restrictions on low equity mortgages.

It’s not lending that's completely to blame for driving up prices. It’s really a dire housing shortage.

Anybody waiting for housing prices to come down when the Reserve Bank’s low equity restrictions kick in should not hold their breath because the undersupply of accommodation in Auckland is only set to worsen.

Professor of Planning and Dean of the National Institute of Creative Arts and Industries, The University of Auckland, Jennifer Dixon, says that "left as it is, the situation can only worsen. Forecasts show that Auckland will continue to experience significant housing demand growth, with an additional 169,530 dwellings required between 2006 and 2026. The demand for rental accommodation will increase at a significantly faster rate (63.3%) than demand for owner occupied dwellings (26.2%) over this period.[1]

"The decline of home ownership in the Intermediate Housing Market (the group identified as “can work, can’t buy”) is greatest for the 20 – 40-year age group, a vital cohort that is being locked out of future home ownership. It is sobering to note that Auckland’s IHM is forecast to grow by 85% between 2009 and 2026 to total 142,480 households," she said.

Jenny Keown writes in Auckland Now in 2012 (under the headline 'Auckland in grip of housing crisis'): "By best estimates the city is about 10,000 houses shy of what it needs and it's only likely to worsen. According to the Salvation Army, under current trends over the next 20 years Auckland will be short of 90,000 houses - more houses than were destroyed in the Christchurch earthquake.

"High demand plus sluggish response from property developers and builders due to problems getting funding, equals inflated house prices. While it's nothing new for Auckland house prices to be well above the national average, more concerning is how high they have risen above the growth in people's incomes.

"The median house price was $505,500 in August this year (2012), up from $453,000 a year ago - a rise of 11.6 per cent… In contrast, the median weekly take home pay for a typical buyer only rose 2.7 per cent over the same period, from $820.43 to $842.39."

In essence, supply and demand dictates price and it is our feeling that most of the high priced demand is being fuelled from offshore. Therefore we expect low equity restrictions to have very little, if any effect, and will really only drive up debt and making housing less affordable.

One idea for first homebuyers is to study what road networks are planned in the future and look to buy outside of Auckland, in expectation that planned infrastructure will reduce the burden of commuting in time to come - and make sure you have pre-approved finance so you can move quickly.

Whatever you decide, always talk to an experienced mortgage adviser (preferably an authorised financial adviser) for advice and some ideas about what to do.

Tags: mortgages auckland, north shore, first home buyers, low equity loans, Auckland housing market


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