Auckland city business and economy report 2007

Executive summary | Relative economic performance | Economic structure | Affordable housing | Population | Labour market | Retail trade and tourism | Building and property | Inflation, interest rates and the exchange rate | Potential economic impacts of climate change | Economic outlook

Building and property

In the eight years between March 1999 and March 2007, Auckland city house prices increased, on average by 7 per cent each year. The year ending March 2004 was extraordinary where prices increased by an average of 19 per cent. In the year to March 2007, house prices increased by 7.4 per cent with a median sale price of $449,083. The annual median value does not capture the volatility in monthly changes; house prices can move well in excess of the annual median. For instance, in March 2007 the median house price was $507,500.

The current boom in house prices began in 2002 with Auckland city leading the way. However, in early 2005 the rate at which house prices were increasing fell below the rate in the rest of the region and across the country. Growth rates elsewhere in the country have fallen, but not to the same extent as in Auckland city. Actual prices in Auckland city remain well above the national median of $320,548.

House price inflation Annual percentage change

Source: Real Estate Institute of New Zealand

Auckland's volume of house sales has been showing a modest growth trend, and for the year ending March 2007 was up 7 per cent against the previous year. The average number of days to sell a house, another measure of market strength, has been constant over the past couple of years in Auckland city, and at 32 days is similar to the national average of 33 days for the year ended March 2007.

The number of new residential consents issued in Auckland city dropped sharply in 2005 from a very high peak and continued to decline over 2006. Consent numbers are now running well below the long-term average. The 1,725 consents issued in the year to March 2007 were 9 per cent lower than the number issued in the preceding year.

There are multiple reasons for this reduction including lack of available land on which to build new houses, and lower levels of long-term migration. The number of consents issued tends to lag the trend in house volumes, so a pick up in consents could be expected later in 2007 to reflect recent housing market activity.

Residential building activity in Auckland city Annual new residential consents issued

Source: Statistics New Zealand

The non-residential construction sector has shown significant growth in value terms since 2002, although part of the increase can be attributed to higher construction costs.

The sector has been in a downward trend for the past year, and total annual value of non-residential building consents, including new buildings and alterations to existing buildings, decreased by 4.4 per cent to $584 million in the March 2007 year. This was the result of a 13 per cent decline in the annual value of new non-residential building consents to $357 million, partially offset by a 13 per cent increase in alterations to $227 million.

While the total number of non-residential consents issued in Auckland city has increased by 10.4 per cent in the year to March 2007, the average value has fallen. This reflects the large number of consents issued for alterations (86 per cent).

Value of non-residential building activity in Auckland city Annual running total of the value of non-residential building consents $m

Source: Statistics New Zealand

Investment sentiment in buildings improved amongst Auckland city firms in the latter half of 2006 and the first quarter of 2007, however, non-residential construction will be lower over the next year.⁷ Uncertainty about the further softening of the economy, higher interest costs for borrowing, and other pressures on business profitability, mean that businesses will be cautious about investment in the short-term, and may opt to reduce or defer capital spending.

The dip in the value of non-residential construction is forecast to be short-lived, and growth will be boosted as infrastructure upgrades for the 2011 Rugby World Cup begin later in the year.

Published June 2007