“No single factor has led to house prices flattening,” says Mr Norman. “Interest rates, loan-to-value ratio restrictions on investors and tighter control on money flows internationally have all played a role."
“And while together these factors will mean softer prices, there is little reason to expect a sharp fall in house prices.”
How big is the house price fall?
“The latest fall in Auckland house prices is not big at all. Taking into account seasonal effects, prices have fallen around 3.2 per cent in the year since October 2016, when house prices appear to have peaked,” says David Norman.
"This is certainly a market adjustment but I wouldn’t call it a crash."
“To add a bit of context, in the aftermath of the 1997 Asian Financial Crisis, prices fell 6.6 per cent in Auckland, while the Global Financial Crisis in 2008 caused an 8.6 per cent decline.
Interest rates, investors and overseas-based buyers
“Interest rates aren’t the main reason for the slowdown; the role of rising interest rates as a primary driver of weaker house prices is small."
“The data on Loan-to-Value Ratio Restrictions (LVRs) contradicts recent commentary that the LVRs have shifted the market back to other buyers because investors are borrowing less money from banks."
“The LVRs have removed some potential buyers at the margins, but higher-equity investors are still contributing to near-record shares of dwellings sold in Auckland, at around 41 per cent to 44 per cent of all sales."
“Access to foreign capital has also been tightened, so much less money is available for investment in foreign property and this means a smaller pool of buyers in the New Zealand market, but again at the margins."
The government’s role
“The new government’s proposals to ban foreign buyers, reduce immigration, and begin a Kiwibuild programme will take two to three years at least to have an have an impact on prices."
“The extra pressure on housing and infrastructure from strong migration and from foreign purchasers has already eventuated, and the evidence suggests both of these factors are likely to play a smaller role in the market anyway over the next couple of years."
“And while Kiwibuild will be a welcome addition to provide more supply, it will take time to ramp up. The sheer scale of Auckland housing shortfall means it can’t be a complete solution on its own."
What about demand for housing?
“The strongest argument against a house price collapse is Auckland’s housing shortfall. It’s the basics of supply and demand – when something is in short supply, prices rise."
“While each of the market and governmental factors will have some small impact on removing excess demand, the shortfall is just too large for us to expect house prices to tumble as these factors take effect."
The full report
Read the full Auckland Economic Quarterly (PDF) including this quarter’s commentary on Auckland’s performance across key economic indicators.
Also, watch Auckland Council Chief Economist David Norman’s webinar ‘Auckland Economic Outlook: not the same old story’ where he discusses what’s driving Auckland’s economy, the big challenges and the way ahead.