Supply to soften slowdown
How far will house prices drop? Not very, according to Alan McMahon. Catherine Harris reports.
Asenior commercial property researcher is picking the looming housing slowdown to be a soft landing rather than a harsh slashing of prices, at least in Auckland.
Colliers national research director Alan McMahon said slowing house sales were no indication of demand, despite pending changes to immigration policies.
‘‘The residential slowdown is less about base demand than pricing,’’ he said.
‘‘We do think the median house price will reduce eventually, but by building less expensive homes at scale, not by price reduction of existing properties.’’
McMahon said his confidence was based on the large number of people who still wanted a house but couldn’t afford them at current prices. ’’People who can afford houses [at current prices] will just swap them between themselves.’’
Other commentators have predicted price falls of up to 10 per cent over the next three years.
Infometrics chief economist Gareth Kiernan said investors had been squeezed by a lack of finance and lending restrictions. ’’Now we are seeing expectations of future capital gains have disappeared.’’
But McMahon felt house prices were much more likely to ease 3 to 5 per cent over the medium term, and even that would be patchy.
Prices had simply reached a limit. ‘‘They only fell 8 per cent in the GFC and people were losing jobs. It’s not nearly as bad as that.’’
The real problem was how to increase the supply when funding was tight, costs were high, larger builders were already booked up and staff were hard to get.
McMahon said the answer would be new construction firms and techniques, ‘‘as well as new institutional private renters’’ and ’’some imaginative thinking around policy, tenure and finance’’.
Apartment living was one of those new ways of doing things. McMahon is forecasting a record 5,033 units in 75 projects will be completed in the 2017-2018 year, while a further 5,922 units in 62 projects are expected in 2019-2020.
That’s higher than the previous apartment supply peak in 2005, which preceded a five-year slowdown in supply.
McMahon said people were still paying a premium for new homes, even if the rest of the market softened, because of a general desire to avoid building problems.
That tied in with the rising cost of building an apartment, which had grown from from $9,222 a square metre to $13,435 per sqm, and from $5,787 per sqm to $10,773 per sqm for a new terraced and detached dwelling.
Auckland’s rapidly maturing infrastructure has also made apartment blocks more attractive, he said.
Good progress on City Rail Link construction, and the opening of the Waterview Tunnel, would make apartments near train stations more desirable in areas like Mount Eden, Onehunga and Hobsonville.