Apartment market warnings disputed

City Sales managing director Martin Dunn said that Auckland’s dwelling supply shortage means recent reports an oversupply of low-quality apartments could flood the market, causing prices to crash, belied common sense.

On the contrary, he believes the ongoing shortage combined with the possibility some banks might drop the minimum deposit to purchase a new build apartment from 20% down to 15%, mean apartment prices are likely to go “ballistic”.

City Sales data showed the SuperCity’s apartment market was flat, in terms of apartment costs per square metre, between 2005 and 2012.

Since 2012, there has been a cost increase of about 50% from $4,000 per square metre, in the 2005-2012 period, to $6,000 per square metre now.

Given current circumstances, Dunn said there was likely to be an increase in apartment costs from $6,000 per square metre to $9,000 per square metre.

And, while the SuperCity continues to struggle with a shortage of apartments, apartments costs were not going to crash, he said.

“Auckland needs up to 20,000 more dwellings – including apartments – to be built each year to keep up with demand. Currently, the number being build is considerably down on that.

“There are not enough skilled tradespeople to rebuild Christchurch, let alone build the number of dwellings Auckland needs.”

Dunne added that he does not believe the apartment market will face a bubble.

However, Property Institute chief executive Ashley Church has warned that an apartment bubble is possible.

It could occur if the Reserve Bank enacted loan-to-income restrictions, as has been speculated in recent days, and if banks did drop the minimum deposit needed to buy a new build apartment.

Church said the combination of these initiatives would trigger the law of unintended consequences, leading to an apartment bubble.

Property investors – who could also feel some impact from any such new rules – could also start buying apartments in large numbers, further fuelling an apartment bubble.

“While it is unlikely, it is not impossible.

“There’s no rocket science in this: if you close one door and make going through another more attractive – the result is going to be pretty obvious”.

Should an apartment bubble develop, the quality of new apartments would suffer and rental costs for free-standing homes would increase, Church said.

“Within 7 to 10 years Auckland would become a highly ‘intensified’ city with large numbers of low quality apartments dotting the landscape and free-standing residential homes becoming the preserve of the well-off and wealthy renters.”