Auckland house prices predicted to drop by 11pct by 2019

(Newshub.)
(Newshub.)

The overheated Auckland housing market may be about to cool with experts predicting an 11 percent drop in prices by September 2019.

New analysis by economic consultants Infometrics shows the supply response to the housing crisis is on its way, with home-building consents forecast to hit record levels in the next two years.

Chief forecaster Gareth Kiernan says so far, we have only seen short-term solutions.

"The Reserve Bank's moves last week to increase restrictions on lending to investors and low-deposit households were merely a sticking plaster on demand and are likely to have the unintended consequence of shutting some first-home buyers out of the market."

Mr Kiernan says lifting housing supply is the only way to get lasting improvements to home affordability.

"The construction sector must continue rising to the challenge and build like never before."

And that it will, according to Infometrics.

The forecaster predicts a 39 percent increase in the number of new dwelling consents over the next two years.

That would take consents to an all-time record high of 40,044 per annum.

Mr Kiernan says the growth will be driven by both Auckland's undersupply of housing and the lift in house prices across the country.

"If building activity hits the levels we are predicting then there could eventually be some softening to house prices in Auckland and regional property markets in the 'halo' around Auckland."

However he warns the increase in supply will drive up the cost of building materials.

"These cost pressures are a necessary evil that will encourage the flow of more resources into building sector."

Mr Kiernan is predicting that residential building cost inflation will average 5.2 percent per annum over the next three years. That'd be well above the Reserve Bank's target of 2 percent per annum inflation across all types of consumer prices.

The increase in price would be an incentive for builders, however, Mr Kiernan says there is a chance activity will struggle to expand to the necessary levels which would continue to increase house prices for consumers. 

Newshub.