Auckland, Auckland, Auckland – it's all we seem to talk about nowadays. Everybody has been going absolutely mad over the 0.3 per cent median value decrease reported by QV over the last three months. A whole 0.3 per cent! Say it ain't so. People and media outlets all over New Zealand are declaring the 'end of the Auckland property boom', saying that this slight drop is the herald of a complete housing crash.

Here at Goodlife Financial Advice, we know different. It's less of a matter of a property apocalypse (try saying that three times fast) and more of a case of the demand curve.

It's time to relearn how the economy works.It's time to relearn how the economy works.

Meeting demand

House prices, just like every commodity price, are simply a matter of supply and demand. If we have more demand than supply, prices go up, if it's the opposite, prices go down.

Tony Alexander from BNZ puts it best in his latest weekly report on the Auckland housing market. According to Alexander, current approvals will result in nearly 8,000 new dwellings built per year in the Auckland region (supply), while the population will grow by 15,000 people (demand).

Demand is larger than supply, so prices will go up. As soon as demand drops with smaller population growth, or supply increases to match it, prices will balance out. Simple as. Of course, this works on the assumption that people living here are the ones who are buying houses (not necessarily the case via foreign investment), but it's good enough to work on for now.

The end of the story?

The property investment market is a complex beast.

But then why if demand is going up we are seeing values drop, even if only by a little? If we're going to be savvy residential property investors, we have to look at the greater property market in New Zealand. QV tells us that on the whole, while Auckland has dropped (and even then only select areas), the rest of the country has increased in value.

For example, have a look at the performance of places like Hamilton or Tauranga. These places have seen even greater value increases than Auckland over the past year. Working with our simple model, this would indicate that demand is increasing, so more people must be moving there. Population grows, supply drops, prices rise.

Of course, what also might be happening is that people are purchasing investment properties there instead but still living elsewhere, as they have seen the strong growth coming out these areas. This would increase demand and decrease supply – perhaps it's more to do with the demand for lower prices than Auckland rather than demand for housing in these areas? The truth is there are a lot of factors to consider, and any one of them could be to blame.

The property investment market is a complex beast, and it pays to get the right advice before you dive straight in. You can get that advice from us here at Goodlife Financial Advice, so give us a call if you have any questions about how to build wealth in the convoluted New Zealand property market.

Here's to your financial independence!

Daniel Carney
Authorised Financial Adviser / Investment Property Expert

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