Spring has sprung in Auckland with sunny days outnumbering rainy ones after some very erratic weather in September and October.
In Auckland spring welcomes events such as the Auckland Marathon and the Taste of Auckland Food Festival. Spring also means that it is cruise ship season, each morning we see massive liners from our office window that appear overnight and thousands of people disembark for day trips around the city.
With all the extra foot traffic Auckland is buzzing – add in new retailers H&M, Zara and Tiffany & Co who have all opened their first shops in New Zealand (NZ). Latest Statistics NZ figures show that building activity across the country rose 5.5% between the March 2016 quarter and the June 2016 quarter – Auckland being the highest region by value at $1.8 billion.
So Auckland is going gang busters right? What on earth could go wrong?
Those of us with grey (or little) hair will know that economies are inevitably cyclical and the good times always come to an end.
In the property industry the good times are showing little signs of slowing. The high demand for housing has not changed – massive historical undersupply and continual population growth through (mostly) immigration is fuelling that.
But demand and supply metrics have resulted in both land and construction price rises. If you can find the right land it’s usually unaffordable. Couple that with 6%+ construction price rises (anecdotally much larger) over the past 12 months and you can start to understand why development feasibilities are often marginal at best. Add the banks' over commitment to bad loans across the Tasman and their increasing reluctance to lend to these marginal developments then all of a sudden we have a slowdown in the property industry.
Some in the industry note that this is an economic method of separating the wheat from the chaff in as much as the experienced developers understand the situation and act accordingly whereas those less experienced disappear from the stage.
My sources tell me this is just a correction. Demand is the ultimate driver. The housing crisis will not just go away; immigration (in the context of Brexit in the UK, the US election destabilising some there and a growing Asian immigration interest) will further fuel the need for more houses. The US election result may ultimately result in less free trade with America which will hit the New Zealand economy – how soon that may occur only time will tell.
I don’t see recession hitting anytime soon. Nevertheless we need to be mindful that the good times won’t last forever.