Posts Tagged ‘Auckland’

The Centre for Housing Research Aotearoa New Zealand (CHRANZ) has come out with a large report detailing the housing needs for our country’s largest city and economic powerhouse, Auckland.   I invest in Auckland, and as President of the Auckland Property Investors’ Association, I was very pleased to read this report.  The news is excellent for Auckland property investors as it shows demand for Auckland housing is increasing which will put up values and rents in the long-term, and once we exit the downturn phase of this current property cycle, we will pass into the recovery phase and see a strong wave of rental increases and sound value increases, and then the boom phase will arrive where we shall see very strong capital growth (in excess of 10% per year).

The good news is that Auckland’s strong population is set to continue, and demand will increase from the 431,890 dwellings there are in the Auckland Region (ie. Auckland – the Super City) in 2006 at census time, by 39.3% to 601,420 by 2026.  This is a lot of demand that will only help property investors in terms of raising our rental income streams and also getting increases in the value of our properties.

Auckland our Super City - view north from Mt Eden

The world knows that Auckland is a fantastic place to live, as does the rest of New Zealand, even if some are too proud or scared to offend relatives in their former regions they have left to admit it.  In a repeat of last year’s result, Auckland was 4th (tied with Vancouver, Canada) in the 2010 Mercer Quality of Living annual survey out of all cities in the world.  Interestingly the 2006 New Zealand Census results showed 37% of Aucklanders were not born in New Zealand, and this number is thought to continue its rapid trend upwards.  With a lot of Kiwis wanting increased employment, income, business investment and entertainment options in an extremely desirable city, many current Aucklanders were not born in Auckland.  With an increased focus on high technology and service related jobs this century, manufacturing and indeed elementary and semi-skilled roles are not as necessary as they used to be.  As a result Auckland is getting what it needs younger and skilled migrants.  Auckland’s immigrants have a higher employment rate than New Zealand born Aucklanders.

CHRANZ’s Housing Projections for Auckland

The first report CHRANZ released was called Auckland Region Housing Market Assessment: 2006 – 2026. This stated that population growth will continue to strongly drive the Auckland region’s housing demand in this period.  This growth will require an extra 169,530 dwellings, which is a 39.3% increase to what we had in 2006.  A lot of the demand is from older people, and is for smaller, rental households.

Auckland needs to have a lot more dwellings...

By 2020 some parts of Auckland will not have sufficient residential land available to develop, meaning only one thing for prices and rental levels – they will go upwards as demand outstrips supply.  This is particularly so for the central Auckland isthmus (what used to be known as Auckland City – the area subtending the northern reaches of the Manukau Harbour and southern reaches of the Waitemata Harbour, including Auckland’s CBD, going as far east as the suburb of Glen Innes and as far west as Avondale).  51% of the employment growth will be in this subregion, but this area has a maximum capacity of only 32% of the Auckland region’s dwelling capacity.  Auckland Council’s planners will have to pay attention to this, as there will be more pressure as people continue to commute into the isthmus from the South, South-East, West and Northern parts of Auckland, and also East by boat from beautiful Waiheke Island.

Auckland's Waiheke Island

Key findings to help your Auckland property investments:

Other key findings from this Auckland housing report include the fact that renting continues to be increasingly popular.  Home ownership has reduced from 70.7% in the 1996 census to 66.9% in the 2006 census.  The fact that demand for rental accommodation (63.5%) will continue to greatly outstrip demand for owner-occupied dwellings (26.2%).  Affordability will be an issue with 39.6% of all renter households and 49.4% of all privately rented households (excludes Housing NZ) having to spend more than 30% of their household’s total gross income on rent and other housing costs (eg. water rates).  The size of the Intermediate Housing Market (‘IHM’) which is the number of private renter households that have at least one member in paid employment who cannot afford to purchase a dwelling at the lower quartile sale price, assuming standard bank lending criteria are applied, has increased from 39,700 to 77,100 households between 2001 and 2009.  Interestingly housing demand will be particularly shaped by the growth in older, couple-only and single-person households and will increase demand for smaller one and two bedroom dwellings.

Auckland Map

Lower demand for home ownership amongst younger households

In CHRANZ’s second report they covered the patterns and dynamics of housing demand among younger Auckland households.

It said the younger households age group (20-40 year olds) had experienced New Zealand’s biggest fall in home ownership rates between 1986 and 2006, with Auckland once again leading this national trend:

• 17.9 percent among 25–29 year olds;
• 17.7 percent among 30–34 years olds; and
• 15.5 percent among 35–39 year olds.

Quotable Value, the Government Valuation agency released statistics today showing that we are still in the downturn phase of this current property cycle.  Property values have declined by 1.1% since 31 March of this year.  Values however are 3.1% above where they were on 31 August 2009, but this is 5.0% down from the peak of the last boom in 2007.

Lets take a look at the past 5 years to process the QV statistics graphically:

You can see the market growing relatively rapidly (and not just because the left hand axis starts at 70% and not 0%) from August 2005 to August 2007 and then reaching a plateau like Table Mountain in the Coromandel Ranges that I used to like tramping in.  Then in April 2008 to April 2009 the market retrenched nearly 10% from the peak.

I Love Auckland – New Zealand’s Super City

I feel it is important to focus on Auckland as I am an immensely proud born and bred Aucklander, and the fact that Auckland is our nations economic hub and New Zealand’s biggest city by far. Interestingly Mayor of Auckland City, and leading Super City (Auckland region) Mayoral Candidate John Banks said in his address to the Auckland Property Investors’ Association (APIA) last month that people are looking at migration decisions (both immigration – coming into Auckland or emigration – leaving it) as being an issue between cities and not countries.  Therefore it is important to know where we our leading city stands.  Mercer, an international recruitment and consultancy firm, publishes an annual survey of all the leading cities in the world.  In the 2010 Mercer Quality of Living Survey Auckland defended its 4th position (equal with Vancouver in Canada).  Wellington deserves an honourable mention at 12th this year too.

The statistics for the Auckland region show a fairly similar story to the rest of the country which is unsurprising since Auckland property sales make up over a third of the index, so it is most heavily weighted in Auckland’s favour. However the statistics do show that Auckland suffered a slightly deeper decline than the rest of the country in 2008 and into mid 2009 before an encouraging recovery to be at 31 August 2010, only 2.4% down from its late 2007 peak:

Is it right to lump all of Auckland together?

From a personal perspective the statistics need a little bit of fair review and criticism here, as it is perhaps unfair to lump a city of over 1.4 million people together as one market.  We could be more relevant and break Auckland down into the CBD to include our apartment market, into East Auckland, which is so different from South Auckland, yet united by being part of Manukau City, West Auckland, Central Auckland (again so large that this should be split up as the more affluent areas are so different from the middle of the road areas), the North Shore, Papakura etc.  I wish QV would break down the statistics in this fashion – after all these sub markets are far bigger than small cities like Dunedin and Hamilton, and both Auckland City and Manukau City (South & East Auckland) are bigger than both Wellington and Christchurch. Since I don’t have this data for these sub areas, or separate housing markets of Auckland, I will have to give you my own take on things.

Interestingly last year some self proclaimed Property Gurus and real estate agents mistook the mid to mid-late 2009 price increases as being a sign that we are in the boom.  They got it wrong.  This in actual fact was only a slight recovery after a severe decline in 2008 and early 2009 – the statistics from QV above clearly show this.  My mentor in 2003, Kieran Trass of the Hybrid Group, showed me that in each of the previous four property cycles that the slump (or what I like to call downturn) phase of the property cycle lasted longer than the boom immediately preceeding it.  APIA’s principal sponsor ANZ, had Craig Moffat stating at the NZPIF Conference in 2009 the very same thing. I currently believe that we will be in the downturn phase for at least another 2 years, before the recovery begins.

I want to share with you my story which comes from helping my younger sister purchase her first house. I have been to many centrally located auctions in Auckland over the past 12 months or so with Barfoot and Thompson’s Wednesday afternoon ‘mega’ auctions at their lovely Chancery Court building in the CBD, and onsite in homes in Epsom, Mt Eden, Ellerslie, Remuera, Parnell, Kingsland, Ponsonby, Westmere, and Grey Lynn.  There were many people going to auctions and some crazy prices bid, particularly towards the end of last year and early this year.  However now in these centrally located affluent suburbs of Auckland there seem to be fewer buyers than before and in general the bidding isn’t silly, but the prices achieved are often pretty good.  This is an interesting “market depth” issue as the volume of sales is very low (see graphs from Realestate.co.nz Limited below for 1. New Property Listings which are well down,  and 2. Inventory – the number of weeks to sell all of the listed property.  Note that Auckland has a 36 week inventory as a region, so we are not as bad as the 46 weeks graphed which is the NZ overall inventory):

The reported sales for July from REINZ were 4,411 which was the lowest July on record, down 27% from July 2009.

So from around April 2009 onwards the Auckland prices had a slight recovery but there is downward pressure again without much wage inflation, with a necessary change in mindset to reduce debt and to get away from the I want it now mentality and going back to needs and not wants.  Also investors are shortly going to feel a bit of a pinch with depreciation changes and paying 2.5% more on rates, insurance, property management fees and repairs & maintenance costs.  That is counterbalanced somewhat by receiving some personal tax cuts, but the positive impact of tax cuts combined with the negative impact of depreciation expenses being decimated plus GST rises mainly provide a net benefit to investors with small portfolios (1 – 2 rental properties).   There will be a spin-off for houses in medium and higher value areas as they will have a vast number of people earning over $70,000 per year and having their personal tax rate slashed from a very high 38% to 33%.  More money will be spend on improving housing, new kitchens that were held out for the past two years, upgrading that cracked driveway, improving the gardens, and some more consumable spending like getting that new 55in LED TV will happen as well.  My sister is still looking for a home with her fiancee in central Auckland near her CBD office.

Increase Your Rents

I got called earlier this afternoon by the New Zealand Property Investor Magazine to talk about rents in Auckland.  I talked about splitting Auckland up into sub markets as above, and noted the performance in particular of the North Shore which has had strong rental demand in general.  The pressures to increase rents are present, but are stronger in the more affluent areas – the tax cuts tenants will be receiving, plus landlords facing increased expenditure from GST rises, the ill fated Emissions Trading Scheme and the slashing of our depreciation expenditure mean tenants acknowledge that they will be facing rent increases.  Since like the rest of New Zealand the Auckland Property Market is still in a downturn, waves of capital growth aren’t coming anytime soon as we have yet to even reach the recovery phase of the property cycle.  So lets not let our tenants down!  Give them the rent increases they expect.

Acknowledgements: www.realestate.co.nz and www.qv.co.nz for their excellent statistical collection and compilation

The past 8 days have been very interesting for me.  On Sunday 29th August I was walking on the new southern lanes of the Newmarket Viaduct that Transit New Zealand had opened for just a few hours.   Then after going to bed unfortunately late at 11:30pm or so, my wife and my sleep was interrupted at 2am on Monday, when she went into labour.  After one of those drives from hell with my wife having those painful contractions in the car on the swift 10minute drive into Auckland Hospital, we had great news that at 5:12am our beautiful baby girl was born – Emily, weighing 3.335kg and 54cm long (I will not use tall as she simply will not be standing for quite a while).

Newmarket Viaduct

Me on the Newmarket Viaduct - Public Open Day, Sunday 29 August 2010

Aucklanders reading this blog know how necessary this update is.  From Spaghetti junction going from 4 lanes into 3 was ridiculous, along with the falling debris issues from the aged structure with “concrete cancer”.  However for the non-Aucklanders reading this blog, the Newmarket Viaduct is one of the busiest stretches of motorway in New Zealand that services our nation’s economic powerhouse that is the Auckland CBD.  It was built in 1966 to link the Southern Motorway to the city, the Harbour Bridge and to Spaghetti Junction (as opposed to going up Great South Road and through Broadway in Newmarket Village itself).

Recently the bridge has come under criticism about the fact that debris flies off the viaduct to busy Newmarket below, seismic susceptibility (I wonder what would have happened had the Christchurch earthquake of 7.1 on the Richter scale hit Auckland), the bridge has been separating in sections to create big gaps and there was very little stopping space now the bridge contains the maximum amount of lanes.

Big Blue - the mighty crane on Auckland's Newmarket Viaduct

In 2009 Government statistics reveal that the Newmarket Viaduct carried 161,490 vehicles per day with the split being; southbound at 83,117 VPD and 78,373 VPD for northbound.  The image below comprises a series of 5 moving renders to demonstrate how the viaduct project is happening – we are in the start of Stage 3 currently (images in this blog are with acknowledgements to Benjamin Paul, AucklandMotorways.co.nz, NZTA/Transit NZ).

I will leave you now with some photos I took from Newmarket Viaduct.  I have to say that the views of our beautiful city Auckland, are simply amazing:

View towards Sky Tower from the Newmarket Viaduct

View to Broadway, Newmarket

View North to Rangitoto Island above Remuera Road

Great to see lots of Aucklanders getting out to Newmarket Viaduct despite temperamental weather

View North from the Newmarket Viaduct over South Remuera Houses

My baby girl

I am delighted to let you know that our family has expanded to four with the arrival of baby Emily. Her brother is currently a shade jealous of her, as she gets a lot of attention, especially from Mummy, but he’s doing so well with a lot to take on board just before he turns 2 years old.

Here’s little Emily doing what she does best:

Me and baby Emily - she is just under 2 hours old here in Auckland Hospital

The sleep deprivation is proving a bit of a challenge, but not an insurmountable one.  I am looking forward to her being able to sleep through the night like her brother did reasonably early on – fingers crossed.  No matter though,  we are very happy to have her and the tiredness is so worthwhile when her little hand wraps partially around my finger and she looks with her dark blue eyes into mine.

Last Tuesday the 10th of August 2010 I had the sincere pleasure of introducing two of Auckland’s finest sons, in the Honourable John Banks Mayor of Auckland City and Len Brown Mayor of Manukau City, to the stage for the Auckland Property Investors’ Association August Keynote Meeting – the Super City Mayoral Debate.  With Len Brown (29.6%) ever so slightly edging out John Banks (28.7%) in the latest NZ Herald – Digipoll Mayoral Survey, and Andrew Williams the North Shore City Mayor only polling a very distant 3rd at just below 4%, we have a two horse race for the battle to become the first Lord Mayor of a United Auckland.

We had 15 minutes from each of the mayoral candidates, before structured questions from the APIA Board were asked by debate facilitator Andrew King (NZPIF Vice President, best-selling author and a previous APIA President), and then we had questions from our audience of some 270 – 300 people.

The topics were broad and included questions on transport, rates, planning rules, charging water to tenants like all other utilities (telephones, broadband, power, gas, Sky TV etc).  With rates being the second or third biggest expense to most property investors in light of depreciation claims being slashed earlier this year by the Inland Revenue and Government, this is very topical.  The last thing we want to see is big rate rises for property investors.

Len Brown

Len Brown talked of a need for a unified Auckland and that our city needs a Mayor that is a builder and a uniter.  His aspiration was to build the most liveable city in the world.  It would be a place to invest that invests on all great outcomes:

• environmental sustainability and a commitment to be an ecocity
• a powerhouse of an economy
• diverse social communities

The key is to build the city on inclusiveness and on communities, fairness especially in rate setting, and that Auckland needs to regain its “mojo” (eg not building the waterfront stadium and the Queens Wharf issues for the Rugby World Cup 2011 headquartered in Auckland).

John Banks

John Banks gave a strong presentation and his answers to questions gave a strong indication that he has issues with the Auckland Regional Council, and it spending massive amounts of money on legal fees, and building a united Auckland based on:

• opportunity
• security
• prosperity

Banksie wants to make Auckland an even better place to invest your money, make a dollar, pay your taxes and pass on a legacy to your kids.  Banks also rightly said that we would be competiting with cities not nations in the future, particularly our Australian counterparts in Sydney, Melbourne and Brisbane.

Minor skirmishes

Skirmishes in the debate included Len Brown questioning the issuance of over 40,000 fines for vehicles driving in bus lanes in John Banks’ Auckland City, and John Banks trumping Len Brown’s assertion that it is appropriate to have this meeting in the under the shade of Maugakiekie (One Tree Hill) and just down the road (Puriri Drive) of the statute of Sir John Logan Campbell, the founding father of Auckland, by emphatically saying “I wear the robes Sir John Logan Campbell wore”.  There were a few very minor altercations in this debate, but the mayors were of course very well behaved and both spoke excellently and would be fine leaders of the magnificent city that is Auckland.

How the Super City is changing the Local Governance Model for Auckland?

Statistics NZ Population Projections to 2031

Statistics New Zealand have just released their population predictions out until 2031, 21 years away.  The nation’s economic hub Auckland, is projected to provide for 60% of our country’s population growth and number 1,940,000 people.  I am very excited by this as it doesn’t take a tax lawyer to work out that these nearly 2 million will need houses.  The 2006 census showed that Auckland had 1.37 million residents and Auckland is thought to have just over 1.4 million residents currently.  This means over the next 21 years Auckland will have 570,000 more people and need 211,000 more houses (assuming a 2.7 people per household ratio).  Around 2/3 of this increase is natural (from births exceeding deaths) and the remainder is from migration internally inside New Zealand to our country’s best city, or externally from overseas.  What a great time to be a property investor!

Consent issuance is already lagging in Auckland, some skilled tradespeople are going for better wages in Australia, where there is lower unemployment too.  However

North vs South Island

The population of the North Island is projected to increase by an average of 0.9 percent a year between 2006 and 2031, from 3.19 million to 4.00 million.  Seventy percent of this growth will be in the Auckland region with an increase of 1.4 percent a year.  The remainder of the North Island is projected to grow by an average of 0.5 percent a year during this period.  By 2031, the North Island is projected to be home to 78 percent of New Zealand’s population, compared with 76 percent in 2006.

Aging Population

Mortality

Enjoy the 20/20 Cricket versus Australia tonight and Sunday