By Greg Ninness
The Auckland apartment market faces some major challenges if it is to continue growing and play a meaningful role in solving the region’s housing shortage.
Over the last five years the number of new apartments consented in Auckland has increased six-fold, rising from just 358 units in the 12 months to September 2012 to 2309 units in the 12 months to September this year.
That’s a useful increase for a city with a housing shortage, but unfortunately most of what has been built has been priced at the upper end of the market.
Over the last five years the average value of apartment consents in Auckland has more than doubled, rising from $188,159 per unit in 2012 to $410,334 this year, an increase of 118%.
Over the same period, the value of consents for standalone houses in Auckland increased by a comparatively modest 33%.
And of course those figures only capture part of the costs associated with new developments.
The effect those costs have on the apartments’ ultimate selling prices is evident in a survey of Auckland apartment projects Colliers International completed in August.
It found that the average selling price ranged from $824,000 for projects in suburban areas such Hobsonville, Albany, Onehunga and Stonefields, to $1.32 million for those in the CBD.
The average selling price across the entire region was $1.12 million.
Clearly the apartments that are being built have not been aimed at the affordable end of the market.
Those prices put a natural limit on the size of the market, with buyers restricted to people on above average incomes and/or those who have built up a substantial amount of equity in an existing home.
Many of those who have been buying are the better off baby boomers or retirees selling their existing family home and making the move to an apartment.
Sadly, this is often the result of a marriage break up, with the female partners in such cases increasingly attracted to the apartment option because of the greater security and lower maintenance requirements that apartments are perceived to offer.
Another group that has been active in the new apartment market are overseas investors, mainly from Asia.
They often buy off the plans as a speculative punt, hoping to give the unit a quick flick once the project is completed.
However developers planning new projects now cannot bank on this latter group staying in the market.
The clamp down by Chinese authorities on the outflow of capital from that country, and the uncertain outlook for ongoing capital gains here, makes such a speculative punt far less attractive now than it was a year or two ago.
There are also signs that many of the overseas buyers who purchased apartments off the plans two or three years ago are now selling them as soon as their apartments are completed, and they are often not as easy to sell as they had expected.
And when that happens, word soon gets around.
That leaves the higher income earners/baby boomers as the main buyers.
The trouble is there are only so many of them looking to buy an apartment at any particular time and supply and demand have probably been reasonably well balanced.
But that supply and demand balance could be tested over the next couple of years.
The Colliers survey found that the highest number of apartments in a decade would be completed in 2018 and a total of 138 new apartment buildings would be completed by 2020.
That could be one of the reasons why banks have become more cautious about funding new apartment projects of late.
When you are catering to a relatively restricted market, it doesn’t take too much extra supply for it to start to exceed demand, and that’s when projects can get into trouble.
However the bigger challenge for developers now is to bring more affordable projects to market that will appeal to a much bigger market.
In other countries apartments are a mainstay of the affordable housing market.
Auckland needs some of the same.
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