Auckland prospects will be influenced more and more by developments offshore.
Auckland prospects will be influenced more and more by developments offshore.
ANZ Senior Economist Sharon Zollner identifies six world trends that will shape Auckland's future.
Auckland is undergoing major changes as it rapidly grows and develops. One constant is the increasingly global outlook of a city whose prospects will be influenced more and more by developments offshore.
1. The global stretch on house prices
To say Auckland housing affordability is severely stretched is an understatement. The median Auckland house price is around nine times the median household income, making it one of the priciest cities in the world. Auckland Council has just adopted a long-term target ratio of five.
Local issues including population growth and a relatively slow supply-side response are a large part of the story. But high, fast-growing house prices are something of a global phenomenon.
Stimulatory monetary policies pursued in the US, Japan, Europe and the UK to boost sluggish growth and inflation have seen cheap credit wash around the world looking for a return. This has pushed down interest rates, stimulating the housing market. And some of this money will have found its way directly into New Zealand property.
We have no data to tell us how much influence these global factors have had. But it's no coincidence in this global environment that cities as diverse as Auckland, Sydney, London and Vancouver have seen very strong housing markets in recent years.
There is anecdotal evidence that the Auckland market is cooling; the same is true over the Tasman. One suspects that when the cheap and easy credit stops, the global correlation won't be any lower on the way down. This doesn't spell imminent doom, but certainly heightened risk.
The world is increasingly a planet of migrants. United Nations figures show international migrants worldwide increased by a third to 232 million between 2000 and 2013. Auckland is getting more than its fair share: international arrivals were around 40 per cent higher in 2013 than in 2000 -- and are currently running about 80 per cent higher.
ANZ Senior Economist Sharon Zollner.
Immigration has been the driving force of Auckland's population growth, with the city receiving around 40 per cent of new migrants to New Zealand in the past year. Though the Government has recently introduced bonus points for settling elsewhere for a period, Auckland will remain the destination of choice, as growing populations of migrants act as a magnet for new arrivals.
There are few signs of imminent changes to immigration policy, bringing both opportunities and challenges for Auckland, a city in which nearly 40 per cent of residents were born overseas. International connectedness benefits from such cross-border flows, and Auckland is a more outward-looking and vibrant city as a result.
The same internationalisation is happening in other world-class cities. But there will be challenges in maintaining a cohesive city identity in the face of such a rapidly evolving population. The issue for Auckland's leaders will be to ensure the Super City doesn't devolve into a series of ethnicity-based "silos".
3. The rise and rise of the Asian consumer
The rise of Asia and its enormous pool of consumers, coupled with our increasing connectivity to the region, is another global trend that looks set to continue -- albeit with bumps along the way. Some of the ties relate to the fact that a growing number of Aucklanders were born in Asia, and have business and personal connections with the region. The new migrants have also brought about more direct flights, which benefits not only tourism, but also exporters focused on the vast potential that Asia offers.
An increasing number of free trade agreements and a relative geographic advantage compared to New Zealand's more traditional markets means the tilt to Asia is likely to continue. Ongoing urbanisation and a growing middle class will drive a trend lift in demand for our exports such as meat, dairy, seafood, fruit and vegetables. Auckland is well positioned as an export hub for transport and logistics, while also playing to the growing strengths of its own food and beverage sector.
4. Ageing population and its impact on housing
Rising life expectancy and low birth rates mean population ageing is a theme across much of the world. Though migration can provide some offset, Auckland's population is set to age markedly over coming decades -- though less so than other centres, particularly in the South Island.
The fiscal challenge will fall primarily on central Government. From a regional perspective, it is perhaps ironic that Auckland has been building ever-larger houses at a time when the demand, including from older residents, will tend towards relatively smaller units. Demand for apartments is likely to keep rising as household sizes decrease. The resulting densification will hopefully offset some of the infrastructure challenges that come with a growing population.
Changing and increasingly erratic global weather patterns, and rising sea levels, could spell challenges aplenty for a coastal city such as Auckland. The physical impacts are not an economist's area of expertise, and forecasts are uncertain, but it seems highly likely we'll see an impact on the economy. At the very least, bolstering infrastructure against more challenging climate and sea conditions will divert funds from projects that would otherwise increase capacity in areas such as transport. Auckland has an enormous transport investment programme under way, and despite this, is expected to go backwards in terms of congestion over coming decades. Having to strengthen the current network would detract from the much-needed investment program.
6. Brave new world of technology
Change has been the new normal since the Industrial Revolution, and that includes the age of digital disruption. History shows that the cities that adapt, flourish; those that don't, wither. Nimble governance is an important factor -- Auckland's move to a Super City council should equip it to make cohesive responses. Technological change will present both opportunities and challenges. Self-drive cars and Uber-type services will bring many more transport options but require infrastructure investment to unleash their full benefits. However, don't count on less congestion. Self-driving cars will cut the time-wasting cost of sitting in traffic jams, making more people willing to do so!
