House price hike’s on trend
Miriam Bell looks at how our skyrocketing house prices compare to past housing booms.
New Zealand’s rampant housing market has taken over from Covid19 and electioneering as the country’s latest political football. There’s no doubt prices are sky-rocketing, but just how steep are the increases being seen now, compared to the ones in past booms?
In the past week, more evidence of eye-watering price rises has been released. The November data from realestate. co.nz and CoreLogic revealed strong growth, nationally and in regional markets.
CoreLogic’s House Price Index had nationwide property value growth up by 2.1 per cent in November, which is the strongest monthly growth rate since October 2004. It also had national values up by 9.2 per cent year-on-year. This left November’s average national value at $769,013.
Looking at the main urban centres, Wellington and Dunedin each saw annual value growth of more than 13 per cent. Hamilton also turned in double-digit annual growth (10.5 per cent), while Auckland and Tauranga saw their values go up by 7.5 per cent and 7.9 per cent respectively.
Realestate.co.nz put the annual growth in the national average asking price (which is $797,156 in its data) at an even higher rate. It had it at a 17.1 per cent increase on November last year. The data also recorded strong, double-digit annual growth in asking prices in many regions, including a 12.5 per cent increase in Auckland.
That’s healthy growth indeed. And, coming as it does off the back of predictions of price crashes earlier this year, it seems even more startling.
But the New Zealand market has seen some spectacular price increases in past cycles, with the years 2003 to 2004 and 2013 to 2016 known for their rampant growth. So is current growth record-setting, or merely jawdropping?
NZ Institute of Economic Research principal economist Christina Leung said the latest instalment of the Real Estate Institute (REINZ) House Price Index puts nationwide annual house price growth at 13.5 per cent in the year to October.
That compares to the 16 per cent growth recorded around mid-2016 and the over 18 per cent growth reached in late 2015. Looking back further, the HPI had annual house price inflation coming in at around 12.8 per cent in mid-2007, she said. But the standout period was early 2004 when the HPI recorded growth of more than 24 per cent.
Those figures put current price increases in the extraordinary growth rankings.
REINZ chief executive Bindi Norwell provides further evidence of this from REINZ’s historical median price data, which goes back to 1993.
It shows that the annual uplift of 19.8 per cent in median house prices seen in October 2020 was the fourth highest on record, she said. ‘‘Only October 2003, November 2003 and March 2004 were higher at 20.7 per cent, 20.1 per cent and 20.0 per cent respectively.
‘‘Given that the current rises fall into the top five list, this shows the current strength in the market and is very different to what many people, economists and commentators were predicting may happen earlier this year.’’
Not only are the current price rises particularly strong, it looks unlikely they’ll slow down in the short to medium term, given the shortage of new listings and housing supply in many parts of the country, Norwell says.
While limited supply – along with migration-led population growth – has been a contributing factor in past booms, this time there’s an extremely low interest rate environment at play too. For Leung, it is this that is the key factor supporting demand.
‘‘Any moves by either the Government or the Reserve Bank to change this balance – for example, by reducing expectations of return on investment through tax, or by increasing the cost of borrowing – has the potential to take some heat out of the housing market. But it depends what, if anything, is done.’’
There may be no end in sight for the market’s trajectory, but many property market veterans don’t believe there is anything unusual in this latest upwards push.
Property investor David Whitburn said the market was undeniably hot and that, due to the widespread supply shortage along with record low interest rates, it would remain strong for the next few years.
‘‘But it’s not as hot as the 2003-2005 boom. That was a mega boom, marked by high buyer confidence and some huge price surges. It was a truly impressive market, with back-to-back settlements the rule of the day.’’
One reason was that postCovid, net migration had slowed considerably and was not as big a driver as in past cycles. Another was that supply chain initiatives were in the works, with new dwelling consents at levels unseen since the 1970s, and that would lead to more stock becoming available.
Additionally, Whitburn did not think the buyer depth was there to the extent it had been in the past, and that came down to affordability. ‘‘Owner-occupiers, including first-home buyers, make up the bulk of the market and it is harder for first-home buyers now.
‘‘When I bought my first house in Manurewa back in the early 2000s, I only needed $7500 for the deposit. You couldn’t do that now. The Government should look at raising the KiwiSaver Welcome Home caps. Because when teachers and nurses and the like can’t buy a house – that’s a problem.’’
The issue of affordability is a dominant one in the debate over escalating house prices. Long-time housing affordability campaigner Hugh Pavletich said affordability had got worse, thanks to the recent burst of inflation.
CoreLogic’s affordability metric puts the ratio of housing values compared to household income at 6.8 up from 6.2 a year ago, while Pavletich – who is responsible for the annual Demographia International Housing Affordability survey – has it at around 7.6.
It’s a serious problem because the ratio should be at 3.0, Pavletich said. ‘‘We have the worst affordability in the English-speaking world and the next survey will show a widening gap. But we also now have the highest consent rate in the English-speaking world.’’
That suggested the country was heading in the right direction in the building sense. ‘‘But we need to sort out the problems around land supply and infrastructure financing to keep that supply coming through and to address these price issues.’’
‘‘The current strength in the market . . . is very different to what many people, economists and commentators were predicting may happen earlier this year.’’ Bindi Norwell, inset