If Auckland really has a housing supply shortage, why haven't rents increased?
This was one of the unsettling questions the Reserve Bank had to answer this week as it discussed the economy's major roadblock - Auckland's apparently tight housing supply.
Surprisingly, it was Auckland's Epsom-based National list MP Paul Goldsmith who asked the question of bank officials at this week's finance and expenditure select committee hearing, after the release of the bank's monetary policy statement for the September quarter.
The National Government's entire thrust of the past six months has been to force through an increase in the number of houses built in our largest and fastest-growing city. It is widely believed that Auckland has a housing shortage and is building only half the number of houses it needs to keep up with population growth. The Government's message this year has been all about Auckland housing supply.
In theory, this shortage is the reason Auckland house prices rose 17 per cent in seven months between November and May, and the reason the Government has legislated to open up land supply and take some pressure off interest rates.
The Reserve Bank confirmed this week it is likely to increase interest rates by about 1 per cent in the lead-up to next year's November election, but it also said that increase would have been more like 1.3 per cent if it hadn't introduced high loan-to-value-ratio (LVR) loans as a "speed limit" on growth.
But if supply is the only driver behind Auckland's latest boom, why haven't rents increased at the same rate as house prices? They certainly have in Christchurch, which has an obvious shortage of houses because of the earthquakes. Trade Me figures show rents in Christchurch were up 22 per cent in the June quarter compared to a year ago, because of a 7 per cent fall in listings and a 16 per cent increase in rental enquiries. That is in tune with a rise of more than 12 per cent in median house prices in Christchurch this year.
Yet Trade Me figures for Auckland show average rents have actually fallen 1 per cent while house prices have risen at an annual rate of 13 per cent. This makes no sense if house-price inflation is only a supply problem, as the Government has been pounding on about this year.
The Reserve Bank suggests there are a couple of reasons: a lot of renters are looking to buy first homes, which means less demand for rentals; and a lot of Auckland homes have been bought by rental-property investors, which means the supply of rentals has risen.
Trade Me reported new rental listings rose 5 per cent across Auckland in the past year, and rental inquiries fell 2 per cent. The surge of former owner-occupied houses becoming rentals was most evident in Mt Eden (up 19 per cent), Mt Wellington (up 24 per cent) and Remuera (up 10 per cent).
All of which confirms that Auckland's house-price boom has been sparked by a surge in demand from low interest rates, easier bank-lending policies, higher migration and stronger non-resident buying.
Auckland clearly hasn't built enough new houses, but this is not a new problem. This created the tinder but it was the demand surge that sparked the fire.
That's why the Reserve Bank's moves to limit high-LVR lending already appear to be working. Since the Reserve Bank warned in July of higher interest rates, the median house price in Auckland has fallen more than 2 per cent. Auckland's house-price problem is not just about supply - it's also about demand.