Housing markets around New Zealand have been on a roller coaster ride over the past few years.

Sales and prices soared from 2010 initially in Auckland and then other parts of the country with Northland and Bay of Plenty most notably following quite closely.

Things settled down from 2016-17 even as interest rates were cut by the Reserve Bank to reflect worries about deflation in the country – falling consumer prices.

Those worries saw the official cash rate reach 1% in 2019 and when the pandemic struck it was quickly cut to 0.25%. Sales again soared but lack of enough people selling meant prices on average rose 46% between the middle of 2020 and late in 2021.

After that the combined effects of lending restrictions, tax rule changes for investors, and the cash rate being pushed to 5.5% come early-2024 saw sales and most notably prices fall away.

On average house prices in Auckland and Northland are now where they were in late-2020, but average Bay of Plenty prices are at levels of mid-2021 and about 20% above late-2020 levels. So, if we step back from the violent ups and downs we see that the Bay of Plenty region has enjoyed a better run price-wise over the past five years than these other two regions.

Is this continuing? In Auckland average prices compared with a year ago are down 0.5%, Northland down 0.6%, and Bay of Plenty up 0.9%. Yes, some difference is persisting but it is very small. Why might this be? Probably because of good growth in dwelling supply – particularly townhouses in Auckland.

In the year to September the number of consents issued for new dwellings to be built in Auckland was ahead 7% from a year before. But Bay of Plenty numbers were down 8% and Northland down by a large 22%.

What do these numbers suggest when we factor in the wider developments in the economy and trends from demography? First, an aging population is likely to see a continuation of population shifts already evident in recent years from census data. Older people will tend to sell in Auckland and move to the closest neighbours of our biggest city – Northland, Bay of Plenty, and also Waikato.

Second, the strong upturn underway in farming incomes will more greatly boost the economies of Northland and Bay of Plenty through 2026 into 2027 than that of Auckland.

Third, low interest rates will stimulate housing demand in all locations. Fourth, while the currently weak net migration flows are acting as a greater restraint on Auckland’s economy and housing market than any other part of the country, the opposite will happen once the cycle turns – as it always does.

The thing of interest is that the turning of the migration cycle may coincide with the traditional lagged feed-through into Auckland of the earlier stronger growth in the regions. Furthermore, Auckland has a boost to come from the likely extra growth in numbers of foreign students studying in New Zealand as Australia restricts numbers attending their universities and the Americans pull away the welcome mat.

The pattern then starts to look like this. After the Global Financial Crisis of 2008-09 Auckland strongly led the housing market recovery because of unusually weak construction levels heading into the global recession. Other regions then followed. This time around the opposite is happening.

The regions are leading the housing market recovery because of surging rural incomes and recent strong house supply growth in Auckland. With a lag Auckland will then catch up with perhaps some extra assistance from the opening of the expanded commuter rail system and rejuvenation of the CBD. 

Tony Alexander is an independent economist and produces a free weekly publication with a housing focus called “Tony’s View”, available for signup at www.tonyalexander.nz