Future NZ: The rise and rise of Auckland house prices

Housing prices in our largest city have been the source of much hand wringing this year and I don't expect the next couple of years to be much different.

Newspapers are saturated with stories of unexpectedly high prices for inner-city 'do-ups' and real estate sales statistics are obsessively pored over when they are released each month. Buyer sentiment is probably best expressed as, "If we don't buy now, we'll never be able to."

The impact on first homebuyers, as well as the wider economy, has been a hot topic in the media, with government at all levels, and around water coolers across the city. While accurately predicting the future direction of a market is notoriously difficult, there are some underlying trends that point to Auckland house prices continuing on their current path.

The Reserve Bank is unlikely to increase interest rates to a level that will impact people's desire to buy property. A dramatic hike would also negatively impact the rest of the country. The fundamental problem is a chronic shortage of supply - and there is no way of fixing this in the short term.

There are two ways of increasing Auckland's housing supply: open up new greenfield sites or build higher-density properties. It seems the government is moving more towards opening up of greenfield sites but the length of time needed for factors like consenting processes means neither will have a major impact in the next few years, and both will require an adjustment of consumer expectations.

Aucklanders must accept changes to the way they live. A house close to the city centre with a large yard will no longer be affordable for many - there's just not enough land in inner-city suburbs to increase the supply of traditional subdivisions with standalone properties.

As we slowly transform the way Aucklanders live through higher density residential developments, there will be a moderate easing of pressure over time. But Auckland's population is growing so there will always be a demand for property.

Right now prices are increasing rapidly due to demand. While this is creating problems for first homebuyers, it will assist the shift to higher density living, which will be a more affordable option. Immigration from countries where apartment living in major cities is the norm will also help.

If Auckland lives up to its potential it will become an even more significant city in the Asia Pacific region, a place where increasing numbers of people want to live. There is a certain long-term inevitability that its population will either live in high density accommodation near the city centre or commute from the extremities or even outside the city boundaries. A rapid rail link from Hamilton, for example, would put that city in reach for Auckland workers.

In the meantime, it's hard to see any reason for a steep fall in Auckland property prices. Unforeseen macroeconomic factors aside, there's no quick solutions to the chronic housing shortage that will materialise in the next couple of years.

In a decade or two, when high-density housing is the norm, we may still look back to 2013 and think, "Actually, prices really weren't too bad back then."

Alan Pope is a Registered Valuer and a lecturer in Massey University's School of Economics and Finance.