The good news sales slump
You’re always going to upset someone with a property story. It doesn’t matter whether the market is up, down, black, white or a muddled grey mess, someone is going to think you’ve got it in for them.
I hope this one goes okay for you.
I get a taste of that passion in the sector when I fill in for Herald Property Editor Anne Gibson, as I did last week to cover the release of latest Real Estate Institute (REINZ) data. It is comprehensive and detailed.
There are choices to be made about how it is covered.
People see all sorts of conspiracies in the media but there’s only one bias that really drives us — we like to put the most interesting bit at the top of the story.
The October REINZ figures showed median prices in the Auckland region fell 3.2 per cent year on year to $850,000 — the biggest fall since December 2010.
But the really dramatic news was that within the old Auckland City boundaries (the CBD and central suburbs) the median price had fallen 17 per cent from $1.025 million to $850,000 since October 2016.
That’s an incredible slump, when you consider that the median price was rising by similar percentages for several years — something ratepayers are paying for now as council re-valuations reflect massive growth through 2014 and 2015.
Still, I nearly buried the 17 per cent drop. I wanted to make sure that the figure was presented in the right context.
I fully understand the housing market has not crashed.
Economists tend to look through the raw median price and rely on the REINZ House Price Index.
That’s because the index accounts for changes in the type of property being sold.
The median is simply the mid-point on a list of all the sale prices recorded in a region over a set period.
Sometimes that is skewed by unusual sales volumes at the top or bottom end of the market — particularly on a monthly basis when the numbers are smaller.
So the index adjusts the data by chopping off the extremes. That provides a more stable benchmark for assessing ongoing trends.
On an annual basis the indexed data shows the Auckland region is only down about 1 per cent. It actually ticked up 0.4 per cent for the month of October.
The big trend for economists is the unusually low volume of transactions, something being attributed to a “wait and see” approach many are taking while uncertainty about the election and new Government policies plays through.
Fair enough. The Auckland market is basically flat in that macro-economic context. Regardless, it seems important to me to take another step back and look again at the median price in central Auckland.
That 17 per cent fall in median value is real. It was treated as a big deal when it rose through $1m last year. Now it is just $850,000.
According to Real Estate Institute chief executive Bindi Norwell the big driver of the slump in median prices has been the influx of apartments and smaller units on to the central Auckland market.
They are naturally of a lower value than free-standing homes.
So the number of apartments and units coming on to the market in a suburb like Mt Eden has risen at a time when the volume of sales for expensive villas is unusually low.
That changes the make-up of the list of sales and drags down its mid-point.
But if you want to live in Mt Eden, a dwelling is a dwelling.
Economists need to account for the change in the type of properties being sold to maintain a macro view. But in the real world a buyer who wants live in Mt Eden now has more available options at a lower price.
The shift in median value is highly meaningful. In fact it is something to shout about.
This is a trend that could spread out from the central suburbs as the Unitary Plan (and other zoning and building policies of local and central government) bring more higher-density, cheaper dwellings into the market.
It shows us it may be possible to engineer a more affordable market in Auckland City without crashing the property values of existing homeowners.
That’s important because even if you don’t care about the property values of smug middle-class Aucklanders, the socalled wealth effect they have been experiencing is something economists take seriously.
If house prices fall sharply across the board homeowners don’t feel as flush, they spend less, business growth stalls and GDP growth is slower.
That means the Government takes less tax and pressure goes on what they can afford to spend.
This Government has committed to fiscal responsibility but also wants to implement a whole bunch of worthy social spending programmes. Those have been budgeted for based on solid GDP growth and a healthy tax take in the next year.
The last thing new Finance Minister Grant Robertson needs is a property crash that sees Aucklanders closing their wallets.
Auckland still faces population pressure, but there’s a risk we see a slump in demand just as new supply hits the market.
Labour does need to move cautiously on immigration and foreign buyer rules while it is putting the foot down on its KiwiBuild programme.
But for now a falling median price against a stable, albeit flat, market backdrop looks like good news to me.
It may be possible to engineer a more affordable market in Auckland City without crashing the property values of existing homeowners.