sign uplog in
Want to go ad-free? Find out how, here.

Motu researchers find that temporary financial or population shocks have an influence on housing markets that far outlast the crisis itself

Motu researchers find that temporary financial or population shocks have an influence on housing markets that far outlast the crisis itself

A media release from Motu*

The global financial crisis is still having an impact on New Zealand eight years later.

Researchers at Motu Economic and Public Policy Research have just published an article in an international economics policy journal that looks at what happened to New Zealand’s regional housing markets after the global financial crisis hit.

The research by Arthur Grimes and Sean Hyland, shows that even temporary financial or population shocks have an influence on the housing market that far outlast the crisis itself.

They also found that the speed with which new houses are built to meet demand following an economic shock is a critical factor that affects how long fluctuations in the housing market will last.

Between April 2007 and April 2011 the real house price (the amount paid for a house adjusted for inflation) in New Zealand fell by 15.3%.

At the same time new housing construction plummeted, with residential housing consents falling by 56%.

Grimes and Hyland looked at what effects two types of economic ‘shock’ have on house prices. First they looked at population shocks, like that which occurred in Manukau City between 2001 and 2006 when the city’s population increased by 16%, causing a surge in house prices.

A shock such as this can cause house prices to remain elevated for at least nine years until supply can catch up with the increased demand for housing.

They then compared this to the global financial crisis, which caused a prolonged increase in credit restrictions by banks.

This meant developers found it more difficult to fund new housing and prospective purchasers had their purchasing power curtailed due to restrictions on credit.

The reduction in house prices caused a further decrease in new housing investment.

The pendulum then swung the other way so house prices rose due to scarcity of supply.

This cycle is still continuing today, though it is not as marked as it was during the global financial crisis.

So, both population and credit shocks cause long-term oscillations within the housing market.

The key reason for this is the length of time it takes to build enough new houses to cope with the changes.

You can read the article Housing markets and the global financial crisis: The complex dynamics of a credit shock by Arthur Grimes and Sean Hyland in Contemporary Economic Policy Vol. 33, No. 2, April 2015 pp 315-333 or you can check out an earlier version here


Motu Economic and Public Policy Research is an independent research institute operating as a charitable trust.

It is the top-ranked economics organisation in New Zealand, according to the Research Papers in Economics (RePEc) website, which ranks all economists and economic research organisations in the world based on the quantity and quality of their research publications.  According to RePEc, Motu has five of the top 25 individual researchers in New Zealand.

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.


The GFC halted house price growth in many regional areas in NZ. Regions participated in high price growth 2001 to 2007 along with Auckland. Since 2008 there are 2 markets in NZ - Auckland and the Rest, with perhaps Chch as a third mixture.  
If a family had bought in Palmerston N, Gisborne, Hastings etc in 2007 at the regional peak then they have been treading water with little increase in equity other than principal repayments.  This is still affecting the economic dynamics of regional centres.  

Canterbury is definitely a third market. Since July 2013 Canterbury has consistently issued 500+ building consents a month. This is about par with Auckland. So in NZ about on third of houses are being built in Auckland, another third in Canterbury and the remainder in the regions. 
Given house prices are stabalising in Canterbury with a median price of $400,000 versus rising prices in Auckland at a current median of $675,000 then this trend may continue for quite some time.
P.S in overseas markets like Germany and Southern, Mid cities in the US there is no expectation for capital gains in real estate. 'Treading water' is considered normal and healthy for their economy and society. 

The other memory from the GFC still affecting borrowers is the very high break fees paid to exit fixed rate mortgages of 8 or 9% to rapidly dropping floating and short term fixes.  Borrowers who paid 10k or so break fees (so called) are still very wary of 3 - 5 year fixed terms.  Other countries e.g. USA do not pay these artificial break fees even if exiting 25 year Fixed terms.  

however they did enter into a contract freely. 

"Artifical" ?

theres a bit of a diff fixing for 5 years at 9% and seeing rates drop to 6%, than fixing for 5 years at 5.75%.
You really think there is even a remote possibility rate would drop 3% to 2.75% to make the same differential as back in 2008-2009?? No chance bud.  Fix long, buy positively geared secondary cities that are healthy and fairly valued after a solid 7-8 years of price cosolidation and steer well clear of the overvalued auckland market

Ah another flat earther, grow for ever on a finite planet believer.
bound to end well.

When GFC II hits then at least NZ still has plenty of room to drop interest rates and can start creating credit for large governmental infrastructure projects, since we have not sensed the need for economic  stimulus yet. 

However our bonds / funding for Govn projects is while cheap right now and available today is likely to dry up during GFC2.
On top of that, wtf are we actually going to build?
I can think of a few essential projects like electrifying the main rail lines but otherwise.  trust a Govn to waste it if we were to.

Ah progress!...this is what we should aim for, import till it hurts.
Follow the Worlds lead. Follow 'My Leader"...Follow where others have ruined the system, with impunity.
Is this what we really want?

Cheer up mate - look at the big picture rather than the myopic Guardian...
"Plants are growing more quickly than people can cut them down, with fields and forests on the ­advance across the planet."

LOL, look at the big picture, but you do not.  In fact you go out of your way to find weak. biased or downright fixed articles to support your point of view.  Such new growth btw usually lacks the bio-diversity of un-touched forests, its simply scrub, nothing more.

"The upsurge, reported this morning in the journal Nature Climate Change, was driven by higher rainfall in dry savanna areas.
Tree planting in China and natural reforestation of abandoned Soviet farmland had also contributed."
Yes those weak biased 10 year global studies (is there a bigger picture available?) published in that fixed journal Nature Climate Change.
Thanks for the lecture.

Useful research if only one quarter of what is needed.
The CPI-adjusted prices of Auckland houses really took off  in 2011 (ie the end of the GFC) and this kind of research does not tell us why.
Key to undestanding what is going on is the relationship between macro- and micro-economics. For all the broad brush analyses of interest rates and consenting rates there are individual developers, builders and home buyers that make their own decisions in the context of all that is happening around them.
We need to understand the big picture not just all these vignettes.