Where have real house prices risen and fallen?

The QV house prices indices for November for each of the territorial local authority areas were released last week.  Much of the headline coverage is around the fact that in the last year Auckland prices have barely changed, while those in places like Dunedin, Invercargill, Palmerston North and Whanganui have shown double-digit rates of increase.  Even Wellington prices rose 7.4 per cent –  something brought home to me when a house across our driveway went for $2 million recently (a very big house).

Cycles are often not in synch from place to place and I’ve sometimes found it an interesting reference point to look back and see how (real) house prices have changed since the peak of the previous surge upwards in house prices, in mid 2007.  That, of course, was just before the onset of the last recession in New Zealand.

Here is a chart showing (mostly) the cities

house prices 2018 1

Auckland is, of course, still far worse –  total real increases (as well as levels) –  than any of the other cities.  But I was interested in a couple of things.

First over the (little more than a) decade. the increase in real house prices in Dunedin is well above that in many urban areas, and about the same as the increase in Wellington prices.  In the absence of population pressures, that Dunedin increase took me a bit by surprise.

And second was Christchurch.  There was a big rise in Christchurch prices a few years ago –  housing was in genuinely short supply following the earthquakes –  but looking back to before the recession and earthquake, and forward to today, Christchurch house prices haven’t increased in real terms very much at all.   Christchurch city has had less population growth than, say, Auckland or Wellington, but is still estimated to have 6 per cent more people than it had in 2007.

Much of the population growth (about 75 per cent of it) in greater Christchurch since the earthquakes has been in the Selwyn, in particular, and Waimakariri districts.  People sometimes talk about how responsive the two councils’ policies have been in facilitating this growth.  There is clearly something to that, but it is worth noting that neither locality seems to offer anything like the sort of easy ability to build and develop land that we can observe in many fast-growing places in the United States.  Real house prices in Selwyn, for example, have risen by about 20 per cent in the last decade.  And there is are enormous amounts of flat land in Selwyn.

And my other chart is of the TLAs at the bottom of the scale –  the places where real house prices are still lower than they were at the peak of the boom in 2007.

house prices 2018 2

Not, it seems, because (say) land use laws were freed up and the cost of bringing new houses to market has fallen.  In some of these places, prices are probably now below replacement cost (at least on existing land use regulation).    Most, if not all, look like the sorts of places that would benefit from the sort of much lower real exchange rate that I remain convinced has to be a part of any successful economic adjustment in New Zealand –  not that either main party seems to have any interest in effecting such a transition.

It is a sad and shameful record for our politicians.  One neither hears them talking of a goal to get house prices back down again, nor sees them implementing or advocating policies that might make a credible long-run difference.  I guess it won’t greatly matter for the kids of people like the Prime Minister or the Leader of Opposition, but what about the kids of the rest of us? It saddens me to listen to my kids talking about how difficult they think it will be to ever afford a house (in places with decent jobs), but it angers me how (practically) indifferent our political leaders –  central and local – seem.

17 thoughts on “Where have real house prices risen and fallen?

  1. Our PM talks the language of socialism while she spends her time meeting bankers and businesspeople.

    If you follow what she does and not what she says, you can’t expect much from her.

    Liked by 2 people

  2. Urban containment policies in Auckland are 99% of the problem. The average Auckland section price of $540K is the only figure you need to know. The ripple effect from these misguided policies have poisoned the rest of the country – now we have a $1T price on a $500B asset. And all the misery that goes with that.

    But perhaps not that hard to fix – with MMP you need to appeal to 5% of voters that houses can be built anywhere – like we could for 100 of the last 150 years. The prices would halve and the current rich would be talking to their bankers.

    Like

    • Increasing density would be more efficient. Currently we have the worst of both worlds: urban containment and little incentive to build anything but large, low density houses.

      Like

    • It has more to do with the geography of Auckland where you have still 57 active and only dormant volcanos. Viewshafts under the Unitary Plan restrict heights and density in 40 million sqm of land in Auckland. The previous name for Viewshafts under the old district plans is the Volcanic Sensitive Cones zones which is a more appropriate name. You do not want billions of dollars of high rise in the path of a lava flow from Mt Eden, Mt Roskill, Mt Smart, One tree hill, 3 Kings etc.

      That is why you have high rise only around the Auckland harbour and then the closest Metropolitan City highrise is 40km away in Manukau City. New Lynn is the other highrise Metropolitan city, still around 25km away but surrounded by wetlands and streams. Rather expensive RMA process to put a highrise building especially with a 160 skm of National Parks closeby in the Waitakere Ranges and numerous bird and fish habitats in the various wetlands.

      Like

  3. Considering the multiple houses most of our parliamentarians own is it really any surprise. It is not often the turkey would vote for thanksgiving and unlikely our leaders would put the country over their own financial gain.

    Like

  4. Reading a recent article from Paul Volcker

    https://finance-commerce.com/2018/10/paul-volcker-whats-wrong-with-the-2-percent-inflation-target/

    I do wonder if NZ and RBNZ in particular could have done much better if we had run a much higher inflation target (at least 3.0 average or even 3.5). Would mortgage rates have stayed higher and so without the rampant property prices while helping to get the NZ$ down to the ultimate benefit of much higher productivity.

    Or is that all a pipe dream

    Like

    • Thanks. I wrote a bit about that Volcker piece here
      https://croakingcassandra.com/2018/10/29/three-central-bankers/

      Higher inflation and higher nominal int rates would have acted as a modest additional cash-flow constraints (higher upfront servicing costs), but if anything higher expected inflation would have increased the relative attraactiveness of real assets, and of the ability to deduct interest against other income when borrowing to purchase an investment property. The biggest issue remains land use restrictions.

      Like

  5. Re Christchurch, the Selwyn District is essentially part of the wider city. After the earthquake many subdivisions were opened up and house building ramped up. In the last five years with land available housing stock has been replaced. Indications are that virtually all demand has been meet and prices are stabilising and could now ease. Perhaps a land policy that Auckland could adopt.

    Like

  6. Surely a large part of the reason our leaders refuse to properly tackle house prices is because a large part of the population has ‘invested’ in the housing market and would loose if prices came down.

    Like

  7. The Leader of the Opposition was on with Leighton today and said he would lift the foreign buyers ban and would like to see another 100,000 people in Christchurch.

    Like

  8. “” the sorts of places that would benefit from the sort of much lower real exchange rate “” – why would they respond better than our growing cities?

    Is there any opportunity for our Regional Economic Development Minister to get these dying towns economically humming?

    Like

  9. The Waikato Times had a lead article today listing populations densities in our major urban areas. Given the vociferous comments levelled against the price gouging that apparently takes place in “land constrained centres” such as Auckland, I fully expected that Auckland would head the group and by a large margin from other centres. To my surprise the most densely populated urban centre was Hamilton City with nearly 1500 inhabitants per sq km leaving Auckland well in its wake, Given the house price differential between the two cities it surely brings into question the role that land pricing contributes. Possibly GGS has a valid point in that the constraints on building due to volcanic viewshafts are a more relevant consideration than simply land area.

    Like

    • I don’t know Hamilton that well but my impression has always been that it was lighter on big parks and reserves than auckland (the Domain, Cornwall Park, and all the volcanic cone reserves themselves)? Which is not to discount the viewshafts issue at all (Geoff Cooper has some empirical work on that issue).

      Like

  10. If you consider a city to be more or less a labour market then the Auckland problem is obvious… cities attract people because they are useful labour markets…

    Its all very well to carp on about higher densities, but the point is that the risk of building a multi-level apartment block is way, way higher than building single/double story dwellings… and these developments have to be funded… and banks are wary of high rise apartment developments… the two 50+ storey apartments blocks being built in Auckland are fully financed by Chinese backers – not funded locally at all… outside of that there is feck all incentive from a financing perspective to build up…

    The most you will get is 4 storey buildings because above 4 you need to install lifts, which are expensive and have high maintenance costs…

    There are loads of developers with nice plans to build all manner of multi-storey apartment blocks but funding and getting people to buy are the problems… maybe the market just doesn’t’/t want these dwellings?

    Like

Leave a Reply to getgreatstuff Cancel reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s