Photographer: Sandra Mu/Getty Images

Auckland’s Surging House Prices Top Sydney, Parts of New York City

  • Market squeezed by supply shortage, immigration and low rates
  • RBNZ lending restrictions may be starting to curb demand

The average house price in Auckland, New Zealand’s largest city, has surged above NZ$1 million ($730,000) for the first time.

The price for the Auckland area, home to a third of New Zealand’s 4.7 million people, jumped 16 percent in August from a year earlier and 6.1 percent in the last three months to NZ$1.01 million, according to data published Tuesday by government property research agency Quotable Value. The city’s average price has risen 86 percent since 2007.

Record immigration, low interest rates and a supply shortage are driving Auckland’s housing market, and in turn fueling a nationwide boom. The central bank, which has been unable to raise borrowing costs because of weak general inflation, has introduced lending restrictions, focusing particularly on investors, in an effort to curb demand.

The Reserve Bank in October 2013 required banks to limit lending to borrowers with low deposits. It followed in November last year with measures targeting investors in Auckland.

In July, the central bank announced a further round of restrictions, due to take effect Oct. 1, which require investors across the country to have a deposit of at least 40 percent to obtain a mortgage. Those measures may have caused an initial pick-up in buying but could now be starting to bite as banks begin to enforce the new rules early.

“Despite the average value across the region hitting a milestone of NZ$1 million dollars following a surge of activity ahead of the new lending restrictions being announced in July, there’s been a noticeable easing in market activity across Auckland over the past couple of weeks,” said QV General Manager Jan O’Donoghue. “More homes are passing in at auction, or receiving no bids, although properties are still selling post auction by negotiation.”

More lending restrictions are also in the pipeline as the RBNZ mulls further cuts to interest rates to boost inflation. Governor Graeme Wheeler is looking at introducing debt-to-income limits next year, which may require lenders to pay more heed to a borrower’s ability to service a loan.

Global Comparison

New Zealand isn’t alone in introducing new measures to try to cool surging house prices.

The Canadian province of British Columbia on Aug. 2 imposed a 15 percent tax on foreign buyers after average prices in Vancouver doubled over the past decade. The average price of a detached property in the city declined 17 percent in August from July, and 0.6 percent from a year earlier, to C$1.47 million ($1.1 million), according to the Real Estate Board of Greater Vancouver.

Auckland’s average is still below London’s 705,600 pounds ($939,435) and some way behind New York’s $1.02 million, although that figure is boosted by Manhattan’s $2.2 million. Auckland prices are higher than those in the Bronx, Queens and Staten Island, according to the Real Estate Board of New York.

CoreLogic data available for Sydney, which use the median rather than the average, show a price of A$780,000 ($593,000) in August.

In New Zealand, the government is trying to boost house building to alleviate what opposition parties have labeled a crisis a year out from a general election. But with cashed-up Aucklanders now investing in other cities, and interest rates at the lowest level in half a century, there are few signs of the price surge abating.

In the North Island city of Hamilton, prices surged 29 percent in the past year, while the South Island tourist mecca of Queenstown saw growth of 27 percent, today’s data show.
Nationwide, the average house price soared 14.6 percent in August from a year earlier to NZ$612,527.

Before it's here, it's on the Bloomberg Terminal.