Auckland housing’s wild divergence

By Leith van Onselen

The Reserve Bank of New Zealand (RBNZ) has published its latest Bulletin, which takes a detailed look at the New Zealand housing market, and notes the wild divergence between Auckland’s housing values and the rest of the country:

Over the past three years, house prices have increased 52 percent in Auckland, but only 11 percent in the rest of New Zealand. Regional variation in house price inflation is not unusual, but the extent of the current divergence between house prices in Auckland and the rest of the country is unprecedented…

The ratio of Auckland house prices to those elsewhere in New Zealand has trended up over time, but the extent of the increase in this ratio since 2009 is unprecedented (figure 2)… In previous periods when Auckland house prices have deviated significantly from those in the rest of the country, this divergence has subsequently reversed to some degree…

In real terms (i.e. adjusting for consumer price inflation), house prices [across NZ] have increased at a more modest pace, growing 3 percent per annum on average since 1965. Real house prices are now more than three times what they were in 1965, but there have been several instances where real house prices have fallen (figure 4)…

There was a large, statistically significant upward shift in real house prices in 1994. Between 1965 and 1994, real house prices grew 1 percent per annum, but after this they grew 4 percent per annum on average (figure 5)…

After both the early-1970s and mid-2000s upswings – the two largest upswings – real house prices fell (figure 7). Between 1975 and 1980, all of the previous increase in real house prices was completely unwound. Following the cycle of the 2000s, real house prices fell 15 percent by mid-2011. However, this unwound only a third of its previous increase. Consequently, the most recent housing market upswing started from a high level of real house prices relative to history…

Since 1981, house prices in Auckland have increased more than in other areas of New Zealand. Real house prices in Auckland have risen 4.5 percent per year on average. By comparison, regions outside Auckland have seen annual real house price inflation of 2.5 percent per annum on average…

Auckland house prices have experienced different upswings to those in the rest of New Zealand, but house price movements in these regions are linked (figure 10). First, they are reasonably well correlated. House prices in Auckland are strongly correlated with those in other urban centres and moderately correlated with nearby regions and other provincial areas…

Second, house price increases in Auckland tend to lead increases in other regions at times, over and above any contemporaneous relationship.

…house prices outside Auckland have increased at a much slower pace than those in Auckland, and have fallen more frequently – particularly in provincial areas.

House prices in urban centres outside Auckland have experienced weaker house price inflation than in Auckland, but stronger house price inflation than in provincial regions…

Full report here.