Will these three factors affect house prices post Covid-19?
Arecent Australian article highlighted the risks to the property market there in the wake of Covid-19. It suggested the likelihood of a collapse (or otherwise) depends on three things — employment, population growth and consumer confidence — then went on to outline some compelling reasons why each of these will determine whether the market goes up or down.
Over the past few weeks we’ve seen similar articles here.
However, by telling you what would cause a collapse, then outlining how we’re performing relative to that measure, we divert attention away from the measure itself and onto the commentary around how it is tracking.
This approach presupposes that the measures being put forward are correct and is built
”If you’re looking for a common set of factors underlying each boom you won’t find them in the data we traditionally measure.”
on the premise that a set of circumstances influence market behaviour in a predictable way. It’s then just a small step to suggest that changes in those pillars of the market will cause prices to go up or down.
Over the past 15 years we’ve developed this form of measurement to a fine art; quoting employment, population growth and confidence as unquestionable pillars of the market, but also adding other “causes” such as foreign buyers to the list of reasons why the market does what it does.
So, how much impact does employment and population growth really have on the market? Let’s have a look.
Property market figures since the 1970s show we’ve had four boom cycles since the 1980s in which median house prices across the country broadly doubled every 10-12 years.
The first of these peaked around 1986, capping off a decade of volatile change which was mostly dominated by the Muldoon economic reforms but finished with the Rogernomics economic reforms of the fourth Labour government.
By the mid 1980s unemployment was running at around 4.2 per cent, inflation was at around
18 per cent, mortgage interest rates were up over 20 per cent and net immigration showed a negative outflow of around
17,000 people.
By 1996 houses prices had broadly doubled again — but for completely different reasons. The National government had largely continued the previous government's reforms but had also reformed state housing.
During that decade unemployment climbed to 11.4 per cent (1992), inflation had plummeted to 4 per cent and floating mortgage interest rates had almost halved to around 12 per cent. Migration was still negative with a net 10,000 people leaving the country.
By 2006 housing policy had changed again. The Clark Labour government had reversed the housing reforms. and it also presided over unemployment of just 3.9 per cent, inflation of around 4 per cent and floating mortgage interest rates of around 10 per cent. Net migration for 2006 was now running at a gain of over 10,000 additional people. House prices doubled again.
By 2016 — you guessed it — house prices had broadly doubled again. Under the Key National government unemployment was at 5.1 per cent, floating mortgage interest rates were down to around 5 per cent, inflation was down to
1.6 per cent, migration was running at a net gain of over
70,000, and the debate had moved to the cost of housing and a shortage of homes purported to be over 100,000.
My point? If you’re looking for a common set of factors underlying each boom you won’t find them in the data we traditionally measure. The economic environments which prevailed during the peak of each of the past four cycles couldn’t be more different — and the only thing which unites them is the cycle itself, and a doubling of house prices roughly every decade.
- Ashley Church is a property commentator for OneRoof.co.nz. Email him at ashley@nzemail.com