Auckland's apartment boom could be remembered as "a mere blip" unless market conditions improve, warns Tamba Carleton, senior research analyst at CBRE.
While consents issued for Auckland apartments doubled in the last 12 months, Carleton sees the scarcity of new projects entering "the supply pipeline" as a matter of concern.
"Despite a tangible shift in market preference toward apartments in recent years, the constrained development environment means future supply is struggling to match underlying demand," she says.
Carleton quotes a report by the real estate group, highlighting Statistics NZ data, which shows that rolling annual building consents exceeded 12,000 in the year to May 2018 — a 15-year high.
Of this total, standalone housing comprised 47 per cent, apartments 24 per cent and terraced housing 21 per cent.
"But, while there was little change in the rolling volume of standalone house consents between May 2016 and May 2018, the figure for apartments almost doubled during the same period, overtaking terraced houses to be the second-largest consented type of dwelling after standalone houses.
"The data certainly highlights a shift in preference toward apartments in recent years. Quality of design is an aspect helping to fuel demand, particularly by owner-occupiers. A wide range of purchasers — not limited to the stereo-typical Baby Boomer demographic — are opting for the lifestyle and location benefits of apartments, as being cheaper to purchase than other dwellings, particularly in city fringe areas."
Figures show that 1650 apartments were completed last year, but CBRE's supply projections indicate the peak is yet to come — with 2700 units due in 2018 and more than 3300 next year.
Carleton points out that, while the volume of projects entering construction stage has been high over the past year, there have been fewer new project launches. Hence the pre-construction stage of the apartment supply pipeline has declined significantly since late last year.
"If this trend is sustained, the increase in building consents will only be a short-lived blip. The number of new projects getting launched to the market is slowing significantly, with no CBD and city fringe launches occurring since October 2017.
"Much of this is being driven by a slower property market, which is constraining buyer activity, pricing and affordability at a time when development costs continue to increase and the funding environment has tightened-up.
"The feasibility of some apartment developments is being questioned, apparently as some purchasers become less willing to pay the prices sufficient to make them viable."
The current figure of 7722 apartments working their way through the consenting and construction pipeline, is the smallest it's been for two years, notes Carleton.
With more than 5200 units of this total due for completion before the end of 2019, Carlton sees potential for the pipeline to shrink much further again, unless there is a material increase in new project launches.
"In this regard one of the more important swing factors will be the impact of Government actions around investment and rental market regulation, the effectiveness of the Kiwibuild programme and various efforts by local and central Government urban development agencies."