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Alistair Helm looks for a way to better assess the state of the NZ property market and finds it has turned

Alistair Helm looks for a way to better assess the state of the NZ property market and finds it has turned

By Alistair Helm*

We have been seeing statements in the media for years now, stating how we have a shortage of properties for sale - ever since the property crash in 2008 in fact.

However the question I constantly ask (myself as much as anyone) is, if this were a real issue then how come it could continue to be a real issue 6 years later?

I wonder if this issue is as much a function of available data as an intrinsic problem.

Prior to 2008 there was no available data on inventory or new listings - the supply side data of the property market. Up until that time the only available data on the property market was transaction data on sales volumes and prices.

Then in April 2009 published the first NZ Property Report covering the market in March 2009 looking back 15 months to January 2007. This report provided a whole new set of data particularly centred around new listings and inventory as well as asking price.

The data set of the NZ Property Report covered the period from January 2007 as this was judged the most accurate starting point, due to the fact that the database for the website was truly reflective of the whole market from late 2006 - the inaugural year of the website.

The problem is that without data from say the nineties and early years of this century we have difficulty in accessing what a normal market was, as 2007 was the last of the froth of the property market before the crash and subsequently the market has moved into very different modes over the past 6 years.

I thought I would look at the core data and see what components are valid and what we may be able to shine a light on to see a clear picture of the market to be a true indicator of trends and to answer the question as to whether there is a shortage of property for sale.

1. Inventory data

The actual level of available property for sale on the market over the past 6 years has not changed that much.


It has been as high as 53,000 properties and as low as it is today at 39,000 properties - but then at 39,000 properties that is nearly half of the total current annual sales.

Certainly buyer and real estate agents would love to see more properties on the market, but 6 months stock is a pretty good level and in relative terms the availability is pretty consistent.

Inventory on its own does not really help us understand the trends in the market

2. Sales and New Listings data

The supply side data of inventory and new listings, takes on a greater relevance when assessed against the rate of sales through the addition of the monthly sales data which provides a greater contextual insight.

This chart while a little confusing with dual axis tries to capture the key data sets and align them to provide insight.

Inventory as per the previous chart is measured in actual monthly levels in the grey area at the base of the chart. The red and blue lines measure listings and sales respectively - both are reported on a moving annual total basis.

This method of reporting removes the seasonality, so much a component of property data.

The take out from this chart is the almost flat level of new listings coming onto the market over the past 2 years - steady at around 130,000 per annum - while at the same time sales have risen over the same period from an annualised total of 55,000 to 80,000.

This shows clearly the component of demand in the market.

That demand has not driven more listings to come onto the market despite all the communications from within the real estate industry and yet despite this, inventory has not actually fallen that drastically. This indicates more of a 'liquid market' where sales occur more quickly.

These charts which to me provide insight I know are to many confusing and I have been looking for ages for a simpler indicator of the overall sentiment of the market in regard to supply and demand - something that better answers the question as to the pace of the market and whether there is a shortage of supply.

I will note here that I hold the view that price is a lagging indicator and as such tracking the market sentiment of supply and demand will provide the key to future trends in price.

I recently saw this chart from the UK property market showing actual inventory (green bars) matched to monthly sales (blue line).

It got me thinking that this measure had relevance tracking the effective rate of sales each month as a proportion of the available stock.

Producing this chart for the NZ market shows somewhat of a different chart. The seasonality of home sales in NZ seems far more pronounced than in the UK and therefore it is harder to determine easily a trend, whereas I would judge that there are key trends easily determined in the UK data - significant rising sales in the past months matched to falling inventory.

So how to present this data in a meaningful and simple way was the challenge, as I sensed the data contains the core insight needed. Especially at this time where I see the property market slowing and a lack of inventory is not the real issue or the driving factor. 

It came to me! - inventory and monthly sales - what we are really looking at is "Property Clearance Rate" - what percentage of the available stock of properties on the market in a month are sold in that month. A quick analysis produced this chart which shows the ratio of sales to inventory.

Again the seasonal volatility makes it hard to see a trend - the dotted line is a trend line overlaid, but as we all know applying a different fundamental equation to the trend line could produce a different picture! 

Then it came to me - take the 12 month moving average monthly sales and apply it as a percentage to the available inventory and I think we have what to me is a very relevant picture of the NZ Property Market.

Now I could be guilty of endlessly seeking data to fit a story, but in my mind this is a visual of the property market that to me makes sense.

It uses the current rate of sale (adjusted to remove the seasonal fluctuations and short term movements), combined with the available stock which is itself the function of existing unsold inventory, new listings and sales.

The telling image from this chart is the sharp rise in the clearance rate once the property market got into gear around 2011 - that rise, from 9% to 19% speaks to the dynamic market we have seen over this past two and a half years.

However what this chart graphically shows which I have sensed is that the market has turned.

It turned even before we saw the LVR restriction introduced in October as this chart shows the turning point in August / September of last year and the latest data from REINZ on sales in March only reinforces this fact. 

So in my opinion given this declining clearance rate is the key trend and talk of a shortage of properties for sale is nothing but a red herring!


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

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For dual axis graphs, you can make them a lot clearer to people not used to them by coloring the text or numbers in the axis to match the colour of the line using that axis.


Asssessing a shortage or not in the housing market is a mugs game.


Did NZ have a shortage of cars when cars had to be assembled in NZ? Or did we have a lack of competition and barriers to entry? Was the evidence of the problem found in the quantity supplied or the price paid?


Why does nobody talk about inelastic supply?


Here is a politician in Australia -Bob Day who clearly understands the problem.

Damn the website will not copy and paste, had to write it in by hand.






The comment was the market was liquid therefore inelastic supply doesnt matter or is accounted for take your pick.  On top of that this last graph points to a turned market, if there is a downturn then just where has the demand gone? If the demand has/is evapourating then who cares if there is no more supply, no one wants it anyway.

On top of that the rents are flat for everywhere but chch. If there was true demand for homes instead of speculation renst would also be going up IMHO, its not.

That downturn is also quite sharp, suggesting the LVR was over-done, which Steve Keen's writings indicates was expected.




Rents can't go up like prices, because the people paying rents need to find the money right now to pay this week's or month's rent; and if they don't have the money, they don't have it.

Prices inflating while rents stay static is classic evidence of a bubble with inelastic supply, not evidence to the contrary. The established literature is clear about this. Rents and house prices are a similar metric to price/earnings ratios in shares. P/E ratio out of whack is a bubble evidence. Same with housing. 


Developers don't build cheap houses because the margin isn't there.

They have to buy a subscription of land.  Land is limited, so the resulting product has to draw a high margin to make up for the corresponding lack of trade volume.

Improving travel would help, but it has to be done cheaply and environmentally (and fast) as you say.  Successive NZ governments kick that can wayyyy down the road.


Why have a UGB at all, then, if "no-one wants to live out there"?

Actually there are a surprisingly high number of people living out there on the 10 acre and 20 acre minimum lifestyle blocks and commuting dozens of k's into town - in every major city in NZ. A lot of them would be quite happy with something somewhere between the $250,000 section of 1/10 of an acre just inside the UGB, and the 10-20 acres outside it for only about twice the price. 

Like I said in another comment, the price elasticity of demand for land is a funny thing. 

It is also worth noting that there is no correlation between sprawl and average trip to work times. If you think there is, you try to find some data that shows it, and get back to me. 

The average trip to work time is roughly the same in US and UK cities of comparable population levels, with the US cities being around 1/5 the density of the UK ones. 

There are two reasons for this. Congestion delays are far higher in higher density. And systemically unaffordable-housing cities "price out" people from a LOT MORE choices of location near to any one job they might get. Population density distribution tends to be a lot more "squeezed out to the (planned) edges" rather than a graphed distibution being shaped like Mt Egmont, which is the case in the less-planned US cities. 


Can't help but think that the whole housing debate looks and sounds like climate change. What matters is what people want to hear and what the media want to tell them.

Telling for me is the rental prices stats. They continue to move at way less than house prices and have done for a while. 


Except in Christchurch where rents have increased significantly. I have a friend who rents a 3 bed family house in Halswell (urban fringe Christchurch) -in 2010 it was $260 a week, it is now $450. If there is one place in NZ where there is an actual housing shortage rather than just lack of competition it is Christchurch. What has the government done -Housing accord -188 new homes.


Where is the media coverage? Instead we get articles like this that just confuse and muddy the water.


No they dont confuse and muddy, except they shoot the "we need more housing" "and "free up land" brigades in the foot.

Chch is different to Auckland and the rest of NZ, you dont set policy natioanlly based on one city.



I like the analysis and it passes the 'does this feel right' test. Good work, let me know when it bottoms out and starts turning up again and I will get the cheque book out! 


Sorry Alistair, but this analysis is irrelevant.


The inventory of homes for sale in Te Anau, or Taupo, Whitianga or Wakatipu are completely irrelevant to the number of sales in Remuera or Riccarton.


Even the inventory within a suburb does not necessary bear a relationship, for example in Central Auckland suburbs the market for apartments and units is almost completely separate from that for standalone houses.


By the way, of six ChCh auctions I attended this week, 1 sold to a Chinese bidder, two more sold to phone bidders who were represented by Chinese real estate agents (not the listing agent).


This could be applied on a suburb or town basis.

Overall auckland has more listings per capita than a few place eg Palmerston north, napier, new plymouth.

I suspect desirable suburbs in auckland would have very low number of listings per capita, and would have demand from outside the suburb too (actually mostly outside the suburb) so hard to know the size of the group of potential buyers.

Getting an objective measure of demand is the real hard part, I've looked at population as a rough guide to 'potential demand' if we assume all populations would have a similar % of ppl looking to buy a property.

The real spanner in the works is how sentiment effects demand; so in auck maybe 1 in 10 ppl are looking at buying, so with 130 ppl per listing gives 13 ppl competing per listing.

P.n has even less listings per capita at around 240 ppl per listing. This gives an idea of potential demand. But if only 1 in 50 ppl are looking at buying then only 4 compete for each listing and less price pressure cf with auck.

Sentiment is the 'x factor' that converts potential demand (measured in population per listing) into real demand and can change pretty quickly (a lot quicker than actual changes in the number of listings or population). But how do we measure sentiment?


But developers in virtually every town in NZ will tell you that the local Council planners became unco-operative, obstructive, and gouging from about the mid 1990's onwards. This has led to urban land price inflation in virtually every town and city. Many of the "rural ambience" towns are just as fiercely anti-growth as Aucklander NIMBYs.