Alistair Helm analyses the remarkable rise in Queen City house prices and wonders if the sharp uptrend can continue

By Alistair Helm*

In the space of just 5 years the Auckland property market has risen by 52%.

Back in November 2008 the Stratified median price in Auckland as measured by the Real Estate Institute was $435,700.

The November sales data for 2013 shows that median price is now $664,100. Five years, a total increase of $228,400; that's more than the average annual earnings in Auckland over that period.

As ever peaks and troughs in property markets are only ever able to be judged in hindsight, but buying a property in November 2008 now seems like a smart move, although at the time there would be many calling it a risky move given the trend of declining prices at the time.

Future Trends

The question often asked in relation to the prediction of property prices is how best to judge future prices based on past trends. This is, as often stated, not an exact science.

However with over 30 years of data from the Real Estate Institute it is certainly worth exploring.

For comparisons to be made from one time period to the next requires a degree of normalising; which when it comes to prices, whether that be for property or households goods means adjusting for the impact of inflation.

The general rise in prices as a function of inflation is far different from specific price rises caused by pressure of supply or demand, as is often the case with property.

Using the Reserve Bank Inflation Calculator and applying it to the monthly data of Auckland Stratified Property Prices produces this chart below which shows a somewhat different picture as to price movement for the past 6 years.

The rise of 52% in today's dollars equates to a 37.8% increase when adjusted for inflation - still a significant rise over 5 years; however as can be seen almost all of that rise occurred in the past 2 years, as before that property prices adjusted for inflation hardly rose at all.

This steep rise of the past 2 years is pretty significant.

From the starting point of October 2011 - 26 months ago - the CPI adjusted Auckland median house price has risen by over 29%!

I thought it would be interesting to compare this rate of increase with the last time we experienced a very active period of house price growth back in 2002. That point was the start of what became a relentless rise which over a 5 year period saw property prices rise close to 70% in real terms, only ending with the start of the Global Financial Crisis.

Taking just the comparable 26 month periods which commenced these periods of steep growth the period of December 2001 to Jan 2004 was a 27.2% rise.

So by this measure we are current witnessing a faster rate of property price appreciation than the period cited by many as a period of rampant property inflation that we would never see the likes of again!

The question then has to be asked as to the likelihood of the property price appreciation continuing for another 3 years from now based on the parallel of the past 26 months of the 2001 run in property prices?

As ever that is a very hard call to make.

The factors driving the rise in 2003/4 were very strong global economic activity backed by a strategy of targeted low interest rates as the US Federal Reserve sought to ensure the US economy staved off the recession and impacts of 9/11.

Technology was driving prices lower and the powerhouse growth of China and the rest of BRIC countries. That was 2003/4, as to 2012/13 the world is emerging, still slowly from the GFC, the US economy and the British economy are picking up steam and the forecast for the NZ economy is for very strong growth, some say growth not seen since the 1970's.

Add to this the migration expectations as they are likely to be felt more strongly in Auckland and then overlay the ever present issues about new construction of residential property and you have the seeds of strong factors for continuing property demand.

Finally the cost of finance is targeted to rise, certainly a dampener on property prices, but when and by how much is debatable.

In relative terms a 1% or 2% increase in mortgage rates will be significant when the current rate of 6%, but finance for property at 7.5% or 8% is in the long term still considered manageable.

In the short term the trend of property prices will likely be a slowing of growth.

That is to say that when property prices take off as they have over the past 2 years the rate of growth has to slow as rises of 15% or put to 20% are unsustainable - a 10% or below rate of annual growth is more likely - still seeing prices rise.

The chart below tracks the first 36 months of the property rises from December 2001 as measured as year on year growth and then tracks the 26 months of the 2011 to date run. An similarity of price growth trend - but very likely to tail off in the next 12 months.

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The above article was written by Alistair Helm, and is republished with his approval. The article was originally published on Properazzi here

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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59 Comments

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Perhaps it is time to relook at immigration, I mean we must have enough migrant checkout operators, gas station attendants and franchise holders to last us for a bit now, and it's definitely time to look at foreign non-resident buyers of land and housing

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Is that an example of NZ salaries and wages being dragged down by migrants and how does is stack up against living costs, for where it is

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Globalisation is causing a deflation in wages and salaries , not immigration ....
 
... NZ has benefitted greatly in recent years from a greater diversity of new citizens ...
 
If they have a passable command of the English language , and no criminal convictions .... let them in ....
 
... blaming immigration for everything you think is wrong with our beautiful land , reflects upon your seriously erroneous thinking ...

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What sort of numbers are you talking, there is a serious limit in this world that needs LESS people not more, thinking that we can just let people immigrate here willy nilly reflects your erroneous thinking, as more people clearly does not mean more prosperity. We like our open spaces and the ability to own some of it ourselves
BTW the only way globalization will perhaps work is via a one world government, whose sort of govt is it you recommend that the world be ruled by

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... globalization is better with more individual governments , not fewer .... when large governments appear on the scene ( think the formation of the former USSR , or the current EU ) seriously nasty consequences follow ....
 
Population stagnation is already occurring quite naturally in some countries , such as Japan and Italy ... expect more jurisdictions to join them in gradually de-populating ....

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Sorry but all you are getting with globalization is slave countries and master countries, no good. I am no advocate of a one world govt whatsover preferring small everything including small capitalism and small collectivism where people choose it, but as long as you have one country exploiting the poverty of another it aint working, and globalization will only bring more big, with more and more corporate control of things which in the end will not look or feel much different to average Joe to being dictated to and controlled by a govt.
Lots of small governments, presumably autonomous, who can choose who can or can't come into their countries, who do essentially the will of the people (or not in the case of dictatorships etc) can hardly describe a world that is globalized, that's the one we have always had, lots of autonomous countries making their own rules.
If rules about what governments can or can't do in terms of making their own laws apply then surely what you have, is a one world govt, can't really see it any other way, myself
And tell me, why would you let just about any old body who wanted to come to do so, madness, utter madness all we would be doing is importing more poverty. Nah, dead wrong, mate

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don't worry raegun - GBH didn't make scarfie's list of rational thinkers

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... neither did you , Mr puketepapa ....
 
And for what it's worth , Mr scarfie didn't include himself in his list of Rational thinkers ....
 
... an omission , or an admission .... hmmmmmm ?

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Which is why the Nats like ppl coming in. I'd block them, simple then you'd have to pay $55k or do it yourself.
regards

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The Nats have recent history of their rhetoric that will prevent them doing any real U-turn on housing other than spouting from Smith. That alone gives Labour a wide open door to offer a policy that links housing to immigration. Patience here is needed as policy announcements right now would have a very low audience rating.
We also need Winston to stir the pot over immigration, eligibility for pension (he once spouted a 25 year residency as opposed to 10 years now) and also tightening on granting residency an possibly even making citizenship probationary for a number of years.
What is needed right now is for the foreign and recent resident horses to be frightened to make them think that the property investment gamble is just that, a real gamble  with massive potential losses. Any policy changes need to hurdle the restrictions put in place elsewhere and not just match them.

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Yes , yes raegun, Factboy...we gave the subject a royal  nudge over at http://Reserve Bank analysis suggests recent migrant inflow could increase house prices 7% and produce 150 extra building permits a month next year
 But as you can see, we stand facing the wind uninating toward piss poor policy from the OIO to the immigration review policy.
They stand there , dry in their suits chortling about our protest , fingers in their ears  shouting back at us progress has it's price puntuated with xenophbic insults to dampen our pissed off spirits.
Aaaaaaand another tedious property thread about  just how fabulous it is to be living in such times, while those that follow us will never forget the greedy bastards who could not see past their own interests. F..E..All.

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ffs guys...if you own a property you are living in and have no intention to sell, does it really matter if the prices go up by 52% or 520%?

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Yes, it does.
Just ask the people who continue to borrow by using that property "wealth" as security.

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The fun begins when the music stops.

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That is fine as long as you aren't using the rising value as a bank and it is so very not fine for the next lot coming along, so I guess if you want to maintain that stance, you can explain to the next generation why they are having to rent off some Russian living in Russia, or whatever

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Zanzayne, that guy is an example of the exact sort of person we do NOT need in this country and whatever barricading he is doing of any beach should be pulled down immediately. Where can I find him I might go and do a bit myself

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Quite so Doublegz.....if I'm living in it the only flying frig I give is what Len Brown thinks he can charge me for the privilege.....
 But that is not the topic of complaint, if those who were born and raised here are disadvantaged by short sighted poorly thought out policy based on that need for Foreign investment sustainning the NZD at unrealistic levels for future balance sheets, although keeping your petrol bills down...
 It's about the coming generation of N.Z.ers being disenfranchised from the opportunity to afford a home at a reasonable rate to income.....gees mate.

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ffs doublegz it does matter if your a decile 10 earning family and can only afford a decile 1 s##tbox if you want to have a realistic amount of disposable income and a holiday every couple of years.  Why should hard working, high earning ( and low-middle income ) earners have to pay 60% of their income on housing  when there is more to life. Why should a home cost 50% more than it did two years ago? I'm sure most people haven't had salary increases like that? Just waiting now for the  2013-2014 part of the graph above to follow the 2001-2004 trajectory........

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Maybar, to fair to doublegz I think he was referring to those with existing homes. I've always thought the same, I feel no richer as my house goes up 10% p.a. because I have no intention of downsizing (But I can see investers being excited so long as they exit in time). But agree from the perspective that you looked at it, it's totally ridiculous and totally unsustainable and making life extremely difficult for young people who have either bought at these levels and now are very vulnerable to a downturn or higher interest rates, or if they havent, causing a lot of frustration at seemingly having missed the boat....I think the latter will prove to be the luckly ones but I feel for them.

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ffs guys, I'm totally referring to existing home owners only and looking at it from my own perpective as a home owner, not from future generation or new Kiwis or existing Kiwis or investor perspectives.
WOW WOW WOW Rangitoto in Your Front Garden
http://www.trademe.co.nz/Browse/Listing.aspx?id=676823530
How much do you think this will go for?

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Goodness they are losing money hand over fist on that rental income.

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How about some commentary on industrial/retail/office once in a while?
In the residential market, anyone considering cashing in their chips?

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I would of put money on auck settling down at 5% gains for another couple of years before interest rates put the brakes on completely.

Spanner in works which now makes historical comparisons as shown above to be irrelevant is the LVR limits imposed by rbnz.

I'm now going with flat auck prices (on qv index) for next 5 years. Apartments will keep increasing at 5% or so p.a as not effected by lvr limits and already valued more sensibly on a rent to price basis.

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You are all wasting your time complaining.
The rise in property prices is spreading to many countries
 
 
"Australian house prices rise almost 10 per cent in 2013"

January 02, 2014
 
AUSTRALIAN home prices jumped almost 10 per cent in 2013, boosted by a record-low cash rate.

Sydney's property market was the most expensive and grew the most, helping deliver the strongest year of national capital city prices since 2009.

House values rose by 14.5 per cent in Sydney in 2013, pushing the city's median dwelling price to $655,250, according to the RP Data-Rismark December Home Value Index.

Perth was the second best performer, with an annual growth rate of 9.9 per cent.

Home prices in both cities are currently at record highs, up 10.9 per cent and 3.6 per cent, respectively, over prior peaks.

Across the country, capital city home values rose by 9.8 per cent in 2013.

Hobart had the weakest growth, with prices rising by just 2.2 per cent, taking the median dwelling price there to $330,000 - the most affordable of all the capital cities.
  
RP Data senior research analyst Cameron Kusher said low interest rates increased demand for housing.

Read the rest here:

http://www.heraldsun.com.au/realestate/australian-house-prices-rise-almost-10-per-cent-in-2013/story-fnhytr0m-1226793695639

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Well,
Our interest rates will be increasing this year;
Australia will possibly be in recession inside 18 months;
A Labour Govt will bring in stricter foreign buying rules than in Australia;
Our reserve bank will target property investors and speculators with new  LVR restrictions;
Property spruikers with chinese language websites will find business very tough.
 
Keep it up Mr Wheeler.
Higher interest rates, and max 70% LVR for speculators and investors.

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Happy New Year BigDaddy : I have already predicted that by year's end you'll be wearing the big " I told you so " grin of a richer man !
 
... if ( as predicted ) the RBA cuts rates again , the Oz property market may be the best place for investors .... particularly with the rather high cross rate of the $Kiwi to the $Oz ...
 
Cheers : Gummy

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In the UK property prices are attaining "bubble" proportions.
Here is what the UK government proposes to do:
(Maybe shades of things to come here)
 
 
"Britain to tax foreign property investors as London housing bubble looms"
 
By Brenda Goh
 
Dec 6, 2013
(Reuters) - Britain will impose a capital gains tax on foreign property investors from 2015 in a bid to allay fears that wealthy foreign buyers are inflating a London-led property bubble which is pricing locals out of the market.

The acquisition of housing ranging from opulent mansions to modest apartments by purchasers including Russia oligarchs, Indian tycoons and Europeans fleeing the euro zone crisis has helped fuel a London-led rise in prices. That has stoked concerns ahead of the 2015 election that many Britons may never be able to afford their own homes,

Link

http://uk.reuters.com/article/2013/12/06/uk-britain-budget-property-idUKLNE9B401220131206

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I dont agree with back dating legislation....that isnt fair.
PAYE / business Tax is around 30%, so really a CGT needs to be no more than a std tax rate.
Council tax, no....consider the impact on the poor and OAPs.
 
regards

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From your post above such detail isnt clear.
The point of a CGT is to tax what isnt being taxed and equally. So everything should be a) done as simply as possible and b) be tax Neutral such that a business person chooses the business endevour for business reasons and not for tax dodging reasons.
So for a) I dont think we need to make anything complex and hence dodgable.  Also a foreigner coming here to live and pay NZ tax then I have no problem. As an example whats stopping a kiwi buying here but not living here and paying no NZ tax?  yet when they want to retire back here they will expect free health care, roads, libraries etc etc.  Hence I'd simply make it a condition of owning NZ residential property that you are resident and paying NZ tax. That would however make things more complex which I'd rather avoid.
I dont read and retain what you say, of indeed many ppls. Maybe you dont realise just how many threads there are?  or the fact that often ppls threads and close to or actualy gibberish?  or racist?  In which case they get ignored and forgotten.
regards
 
 
 
 
 

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We are not alone:
 

China Major Cities Home Prices Jump, Fanning Bubble Concerns
Bloomberg News Oct 22, 2013  
Home prices in China’s four major cities jumped the most since January 2011, heightening concerns a bubble is forming as the government refrains from introducing more property curbs that would hinder economic growth.
link:

http://www.bloomberg.com/news/2013-10-22/china-home-prices-rise-led-by-record-gains-in-four-major-cities.html

Canadian real estate most overvalued in world, study says
Prices as much as 60% too high, according to Deutsche Bank

  •  

Real estate prices in Canada are the most overvalued in the world, according to a new study from Deutsche Bank, which estimates homes in the country are valued 60 per cent too high.
Some economists here have crunched their own numbers and come up with results similar to those of the German bank.
“It's true, housing does look very overvalued in Canada, particularly here in Toronto and in other major cities like Vancouver for example,” said David Madani of Capital Economics.
Madani urges caution for any potential buyers, warning the "red flags” are up.

Link:

http://www.cbc.ca/news/canada/toronto/canadian-real-estate-most-overvalued-in-world-study-says-1.2462374

Indonesia

Indonesia Property Prices Rise as Demand Bucks Higher Rates
By Novrida Manurung
Indonesia’s most aggressive monetary tightening since 2005 is set to slow economic growth without denting soaring property demand in the world’s fourth-most populous nation.

A young population, elevated inflation and property-price gains that outpace interest rates are spurring real-estate sales from Jakarta to Manado. Home prices in the third quarter probably rose 14.6 percent from a year earlier, according to a Bank Indonesia survey, while the Indonesian Real Estate Association predicts housing sales will climb more than 50 percent this year

link:
http://www.thejakartaglobe.com/business/indonesia-property-prices-rise-as-demand-bucks-higher-rates/

 

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So huge quantities of $s being got from somewhere(s) and used to buy houses, everywhere.
Interesting times.
regards

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Gold is down how far?
Wrong on cash, in an inflatioanry environment, yeah sure but we face deflation and liquidity is king, so cash.
Its not printed either btw, but QE'd which can be recalled.
 
regards

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Too bad if we're on the Space Shuttle Challenger.

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As you grasp your rattling last breaths ,
with a deep sea diver's sound
and the flowers bloom like madness in the spring.....
Aqualung my freind, don't you start away uneasy ,
you poor old sod you see it's only ......me. 

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Meanwhile, back in the shuffling madness......................................
 
 

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And just because I can
 
Bring me a wheel of oaken wood
A rein of polished leather
A Heavy Horse and a tumbling sky
Brewing heavy weather.

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Death's head belt buckle - yesterday's dreams - the transport caf prophet of doom.

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Tulips .............tulips..............tulips  is all I see 

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Dont forget they need lots of manure....and we have property bull doo doo  in bucket fulls.
Bound to go well.
Just watch for house sales to accelerate as Labour/Green's gain the opinions polls, or indeed the opposite.
regards

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... on the flip side , should the Watermelon Men win , overseas investors will withdraw from NZ lickety-splick ... pushing the dollar down , and taking foreigners out of the property sector ...
 
Would you invest in a country with such anti-business policies ?
 
... Cunliffe and Norman know best ! .... ah ha deeeeee haaaaaaaaaaaaaaaaaaa !!!!!!

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The Q is are they investing, or are they parasitic.
Or are they at the expense of NZ businesses?  I'd suggest they are, mainly.
 
regards

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Much as I love you GBH....yes I would...yes I did., now less inclined  to do so once again because deeper pockets from offshore maginalise my opportunities.
 So yes I would...invest ....in previous both Nat and Lab Govt's I had not done badly at a realistic NZD rate.....now it only suits Monopolies with massive hedge positions built into thier business plan.....The Corporate concept if you like , maybe ok if your an investor in their  tcket clipping services as Fonterra's Co-Operative will find in due course.
 I like to start and run my own export concepts.....
 Cunliffe and Norman have not professed to know best, they have argued reasonabley against this fastrack Corporatization of N.Z.....I for one am comfortable with that.......the agenda By Key's controllers is to in your face, be a shareholder or be something much less that a citizen.
 Incidentally GBH I maintain Chinese investors in N.Z. whether immigrant or offshore are not equal opportunity employers( race) , any that are are in a tiny minority.

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Crikey Dick & Jane : Even my old mucker the Count is beating up on the poor Gummster !
 
... it's a sad day when you have to apologise for being pro-business and prosperity , and in favour of allowing suitably qualified immigrants in to share our lifestyle and to enrich our culture ....
 
I shall depart to have a little sulk ! .... but fear not , I'll leave you with something always to remind you of moi .... http://youtube.com/watch?v=xjdBCeUdAmI

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Im for pro-business, NZ business not offshore corporate monopolistic, gouging, parasitic a-holes.
eg we have great companies, just they are at at best evenly matched against offshore....time to fix that.
regards

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Cheers Mon Ami ....enjoyed it.....   that bloody orange is annoying, no doubt his turn will arrive at breakfast. 

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.. and for those scarfiosceptics who accuse me of not being a " Rational thinker " ... here I am at the 2013 Frontiers of Quantum & Mesoscopic Thermodynamics symposium in Prague , delivering the key-note speech on New Zealand scientific progress and proximity to solving the problem of cold fusion since Lord Ernerst Rutherford split the atom in 1917 ...
 
     www.youtube.com/watch?v=Vju2pyqXBLg

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There you go vested interest hat on again....Im looking forward to you being taxed 15%+ when Labour gets in.
regards

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... at this time of year ? .... you jest !
 
   www.hadstockfarm.co.nz

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with a curve that looks expotential?
Its going to pop, the only Q is, when.
 
regards

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That curve looks a classic expotential, signals a huge gain....and a big drop.
Musical chairs anyone?
regards
 
 
 

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and if (when)  it does how do you think the NZ economy will weather that?
regards

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LOL, wow...
US economy looks pretty weak to me, however money will run to it so it will get "stronger", sure.
Chinese economy looks a mess underneath...its a forgery.
EU is one of the biggest economic blocks, some bank runs there will get your attention.
regards
 
 

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Nah nah Stevo, The U.S has been fudging / stalling the figures to reassure the Bondholders, but as the figures go into upswing they can't hide the facts ,and that will only be bad nes for massive Bondholders like China if the FED are forced to move on interest or risk a defltionary move.    God Forbid this was the exit strategy ...? to pants the Bondholders after pantsing the savers.
 No wonder Bernanke walked......um ,he'd still have to go Amazon deep.

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Why a large drop in the euro

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Looks like a recession there....and not a small one.
regards

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That's not breaking news though is it.

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Looking at the third graph from top - if the current boom tracks the previous one then we are not quite half way through the boom so Auckland house prices have a long way to increase yet.

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Would love to see this item & the visuals updated now that another year has gone by. Steven thought the bubble would pop and Labour/Greens might win the election but the CGT proposal decimated them.