Record apartment supply eases the pressure

Record apartment supply eases the pressure

Auckland, October 24, 2017

A record number of apartments are due to be completed in Auckland over the coming three years, Colliers International’s half-yearly Auckland Residential Development Report shows.

The report, released today, found a total of 5,033 units in 75 projects are due for completion in 2017-2018, while a further 5,922 units in 62 projects are expected in 2019-2020.

Those levels are higher than the previous apartment supply peak in 2005, which preceded a five-year slowdown in supply.

Colliers International Research and Consulting National Director Alan McMahon says Aucklanders will continue to pay a premium for newly built houses and apartments despite the overall residential market softening.

“Prices may have stabilised and sales slowed, but homebuyers still seem to be prepared to pay a premium for a new home,” he says.

“New build prices per square metre have increased since our last report. For a new apartment the average price in individual projects ranges from $9,222/sq m to $13,435/sq m and for a new terraced and detached dwelling the prices range from $5,787/sq m to $10,773/sq m, depending on typology and location.

“A key driver is the Auckland public’s wariness of poor quality home environments and sometimes poor quality construction.

“The apartments being built or planned at present tend to be larger and of higher quality than those built around the 2005 peak – the era of smaller, typically lower-quality ‘shoebox’ apartments.”

McMahon says Auckland’s rapidly maturing infrastructure has also made many new projects more desirable.

“In the period since our last residential report, we’ve seen good progress on City Rail Link construction, and the opening of the Waterview Tunnel.

“Once completed, the rail project will increase the desirability of apartments near train stations in areas such as Mount Eden and Onehunga, while the Waterview Tunnel makes it easier to travel to and from northwestern suburbs like Hobsonville Point.”

McMahon says slowing sales do not indicate reduced demand, with population growth continuing apace and immigration policy changes unlikely to significantly reduce demand from buyers.

“The residential slowdown is less about base demand than pricing,” he says.

“We do think the median house price will reduce eventually, but by building less expensive homes at scale, not by price reduction of existing properties.

“How to increase that supply significantly when funding is tight, materials and other costs of construction are high, and all the larger builders are at capacity already, is the problem.

“New construction firms and techniques as well as new institutional private renters will be required, along with some imaginative thinking around policy, tenure and finance.”

ENDS

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