Mad NZ property price boom

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By Leith van Onselen

It’s a sad day for younger non-home owning New Zealanders, with stratified median house prices hitting in excess of $400,000 nationally and $600,000 in Auckland for the first ever time in March, according to data released today by the Real Estate Institute of New Zealand (REINZ).

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Nationally, New Zealand house prices rose by nearly 9% in the year to March 2013 to be 7% above their November 2007 peak. Prices in New Zealand’s largest city, Auckland, surged by 16% in the year to March 2013 to be 18% above their July 2007 peak. This was followed by New Zealand’s second biggest city, Christchurch, where prices rose by 7% over the year to be 8% above peak. By contrast, prices in the capital, Wellington, rose by only 3% in the year to March, but remained -1% below their September 2007 peak.

According to Interest.co.nz:

The Real Estate Institute said the number of houses sold, 8128, was the highest level for a month since May 2007, with the number of sales up 23% on February 2013…

REINZ chief executive Helen O’Sullivan, says price levels in Auckland and Canterbury are having a disproportionate impact on the national picture and potentially skewing perceptions of the overall market.

“Analysis by REINZ shows that 90% of the increase in the median price between March 2012 and March 2013 of $30,000 came from just two regions, Auckland and Canterbury/Westland. Together these two regions represent 52% of national house sales, indicating that the remaining 10% of the increase came from the remaining 10 regions which cover 84% of New Zealand geographically.

“There’s a real danger that the Auckland housing market is mistaken for the New Zealand housing market, and that regulatory decisions will be made on the assumption that conditions in Auckland and Canterbury are replicated across the rest of the country”…

“Supply shortages in Auckland and Christchurch continue to be the main factor in those two markets, resulting in double digit price increases and new record prices, while the number of days to sell reaches near record lows. Across the rest of the country while activity is picking up, price gains are far more modest. To illustrate this, five regions, representing 24% of sales in March recorded annual price increases of less than 1.0%.”

The surging housing market, particularly in Auckland and Christchurch, highlights the need for the Government to redouble efforts to free-up land supply and planning constraints, as well as for the RBNZ to implement macroprudential controls on mortgage lending.

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Comments

  1. “..highlights the need for the Government to redouble efforts to free-up land supply and planning constraints, as well as for the RBNZ to implement macroprudential controls on mortgage lending..” It’s not going to happen; neither of them. There is nothing left to support the shrivelled husk that used to call itself the New Zealand economy. It won’t happen, because that would be a template for…YOU, in Aussie. Do you really think your banks will allow their subsidiaries to be pout to the test with a rational property market? Of course not! Because that means it’s possible in Melbourne or Sydney…and that must be avoided at all costs.

    • I guess booms can happen it the wup wups too,
      auckland has a land release problem
      together with a logistics problem that wont be fixed for a while,

      hence the bcd suburbs boom the most

      I say get out town
      check this little town out bang for ya buck clean air , just need a fire place … cosy
      http://www.ruatapu.com

  2. I ma betting this madness is slowly coming to Australia.I went to an auction Tuesday, 7 bidders !! ( and last sunday i went to one with 5 very active bidders). I did not even have a chance to place a bid.Last year I bough two of my properties at auction with respectively 2 and 3 bidders.Quite a change.

      • Keep playing with your mining bots and astro-turfers then.

        Time for MB to man up and grow some ZeroHedge.

        Over and out (ban away)

        • C’mon Bobby! He didn’t even get a chance to make a bid!
          Won’t somebody please think of the Bidders!

          • Who’s upset! I just find it amusing that at an auction, you did not have time to raise your hand. Surely there was a pause before the Gavel made contact with timber and you could have purchased yourself another property.

          • I only bid when the property is on the market no point bidding before.Tuesday it was obvious that bids would pass my limit ( the auctioneer was still going with 20k bid) again no point bidding.

  3. For all my ‘concern’, I’m actually not doubtful of the ultimate outcome at all! For me, the more this lunacy continues, the worse and harder the pain will be when it comes. And come it will. Maybe Australia can hang out a bit longer. Who knows, but a country with a population the size of just one of you major cities, trying to survive on asset speculation and a bit of milk powder? Nope. New Zealand is going to be the Pacific’s example of one of the many European countries that trod the same path before us. Ireland is my pick, but maybe Greece…it will be fascinating to see which one!

    • Oh and Janet? Have you been to Auckland lately?

      I was there about three weeks ago and there seemed to be a lot of For Sale signs around. Is there a lot of property on the market or was that just me?

    • NZ’s ability to sustain these house prices while running ~7% unemp and a relatively strong NZD is truly remarkable.

      My pick is more Ireland than Greece.

      • Great comments from Janet and the rest of you.

        “….NZ’s ability to sustain these house prices while running ~7% unemp and a relatively strong NZD is truly remarkable…..”

        A house price bubble is exactly like a cancer. The growth of the cancer is unrelated to the health of the victim, and the health of the victim is endogenously related to the growth of the cancer. The only difference that occurs in the rate of the growth of the cancer, is when doses of chemotherapy are applied (higher interest rates) that actually kill the victim faster than the cancer is killed anyway. That is, the economy’s “tradables sector” is really the vital organs of the victim, and every burst of higher-interest chemo targeted at the cancer kills these vital organs as well.

        Urban growth containment policies might as well have been devised by an agent of an enemy power as a deliberate economic WMD.

    • More Ireland but remember you do have a floating currency, so maybe more like Michigan or Ohio given that your banks are Aussie banks

      • A massive bailout of NZ in the form of a bailout of the NZ off shoots of Megabank?

        Do I hear wedding bells between A and NZ.

        Foreclosure is kinda like marriage.

  4. You have to ask: Who are the idiots paying these inflated prices? Is it just a hand full of properties affecting the median?

    • There, apparantly, are ramping rings at work, especially in Auckland. A Group of owners each puts their properties up for auction, and another group member ‘buys’ it. (Money in, same money out) All values are inflated and the bank lends more, based on the ‘actual sale price’, so the the Group can then buy more property (leveraged off the inflated price of the existing holdings). That’s what happens when there’s no transaction costs to speak of, and accommodative interest rate policy.

  5. reusachtigeMEMBER

    See, it’s news like this that makes me the very proud crashnik that I am! Bring it on, hard and devastating!!

  6. Giordano Bruno

    This wont ever crash – if the Chinese are buying up housing in New Zealand like Australia then why would it ever crash ?

    It just means New Zealanders will never be able to buy their own homes.

    Seems fair.

  7. Arthur Schopenhauer

    Many Australians reading MB may think these prices are high, but generally in line with house prices in Australian capital cities. What those of us on the Big Island often overlook is how much poorer NZ is.

    The 2011 IMF 2010-11 table of GDP per person:

    1. Qatar $98,948 per person

    6. USA $48,328 per person

    13. Australia $40,847 per person

    28. New Zealand $28,012 per person

    So according to the IMF, each Australian resident earns 145% more than a Kiwi. (Yeah, I know that’s a terribly crude generalisation!)

    If we used the Penn World Table of GDP/person 2010, which arguably uses a broader methodology by accounting for relative price levels across countries:

    1. Qatar $142,848

    6. Australia $49,460

    7. USA $46,569

    26. New Zealand $32,220

    Thats a 153% difference!

    Using a very, very broad brushstroke, the NZ government has 30~35% less income per resident for the provision of services. (Think of all levels of government in Australia cutting their budgets by 30%).

    Taking that onboard, the house price inflation is both extraordinary, unsustainable and desperate.

    In 1972 New Zealand was close to the top of the GDP/person table, thanks to its special relationship with Great Britain. When Britain joined the EU and door was slammed shut for NZ produce. NZ has been falling on the GDP/person rankings ever since. (Even Slovakia and the Bahamas are higher!)

    The pump priming of the NZ credit market by the former London Merchant Banker and NZ Prime Minister John Key is short term-ism at its best. This is yet another bad policy, in 30 years of monetarist policy that has left the husk of an economy.

    • Actual case in point. Person in their mid 50’s, two tertiary qualifications and a full time job here in The Regions. Salary? $41,600 p.a.. Now after all costs tax, Kiwisaver, Student Loan etc…take home amount is $548 per week. That fits in with your 28th Ranking IMF. How are they supposed to lash out +$400k on a home? Even at 80% LVR that would take away $370 p.w. in interest-only costs, leaving them with a princely $178 per week to go wild on – not to mention eat!

      • Arthur Schopenhauer

        Yep. You cross the ditch (the Tasman) and you automatically get a 50% pay rise. If you have a higher degree, even more.

        • Even unskilled people have a lot to gain, because besides pay being higher for labourers or whatever, tax rates on the lower income levels are fairer in Aussie.

  8. It is true that prices are “mad” on a relative basis-but the market is the market and it is mad for some good reasons.These include, lack of investment in transport infrastructure in Auckland over 30 years , plus a narrow land corridor, plus tight land use controls, plus control of bulk residential land by a handful of big players, plus high levels of immigration, plus very willing bank lenders at high LVRs. These and some other factors have all lead to this outcome.The question is what would trigger a quick reversal and I just don’t see a trigger.If anything the mad North Koreans may boost safe haven demand,
    Those waiting for Armageddon may get quite sore bums.

    • Arthur Schopenhauer

      Here is your armageddon:

      Australian Department of Immigration
      “In the 2011–12 financial year 60 293 New Zealand citizens came to Australia as permanent and long-term arrivals. This represented an increase of 22.5 per cent on the previous year. Of these 44 304 arrived as permanent settlers and 15 989 were long-term arrivals. This represented a 28.2 per cent increase on the previous year for permanent arrivals and a 9.2 per cent increase on the previous year for long-term arrivals.”

      A small but significant proportion of that 44,000 is a lot of young talent, energy and ambition that wont be building new enterprises in NZ.

      The asset inflation is great for asset holders in the short term, but who is going to build the businesses to pay the taxes to pay for the “lack of investment in transport infrastructure” in the long term?

      • The ramping rings Janet has mentioned above – that’s who! Olympic Rings economy!

        Sorry… I still can’t believe that!

    • Allowing new developments to proceed along the lines of the Municipal Utility District (MUD) system, plus a stiff land tax, would definitely change everything.

      There are other ways of “containing urban sprawl” that do not do the harm and suit the vested interests like blunt-instrument boundaries do.

      Government desperately needs to define the issues properly and get reform done. Kiwis have a strong sense of “the fair go”, and the status quo most definitely is not “a fair go”. Transfers of wealth to “big property” and the finance/banking sector at the expense of the young and renters? “Fair go”?

      It is sickening that so many people are suckers for lefty and greenie rhetoric about employers and resource extractors and housing developers; yet they can’t get their moral bearings straight enough to demand the government do something about the biggest exploitive racket of all.

      • “It is sickening that so many people are suckers for lefty and greenie rhetoric about employers and resource extractors and housing developers; yet they can’t get their moral bearings straight enough to demand the government do something about the biggest exploitive racket of all.”

        Yes, it very frustrating.

        The cost of those policies are felt hardest not by the average reader of this blog but by the low income earners who find themselves living on the outskirts and paying through the nose for the privilege.

        But what does the suffering a ‘bogan’ matter when it comes to philosophical preferences and ideological conceits of the upper middle classes.

      • yes – there is a real “baptist/bootlegger” alliance going on between the Greens and banker/property industry. Both favour restrictive policies but for different reasons (mind you, so many greenies are chardonnay socialsists many probably are happy to see massive price appreciation in their “bohemian” homes in Ponsonby).

  9. Arthur Schopenhauer-all that is terrible in the long term, but it doesn’t have much effect in the short term, esp. when immigration is running hot.Is the immigrant flow/emigrant outflow like for like? no way-but it will keep prices elevated unless there is shock to the system.Tell me what the shock might be when soft commodities look so strong. China crash-yes for sure that would do it.

    • Arthur Schopenhauer

      Terry, I don’t know if there needs to be a direct external shock.

      Like it or not, the world is shifting to coal based energy. What Russia is to oil, Australia is to coal. China’s coal consumption is levelling off, while India is just starting to ramp up. This will underpin the AU economy for the foreseeable future. (Barring, of course, the invention of “cheap” Thorium reactors and Fusion power – lol!)

      Crashes tend to start at the periphery. Ireland, Greece, Latvia, Estonia, Lithuania and Hungary all went into depression before Spain. The central and more powerful EU countries are some how muddling through. In all of those periphery countries, excessive debt, the privatisation of state assets at bargain prices and weak government oversight *preceded* 20% + unemployment. The unemployment marginally preceded the debt defaults. The debt accumulated over at least ten years, but unwound quickly (12 month-ish).

      In Oceania, I would be looking to issues in the Pacific Islands first (Tax havens, “offshore” banking scandals etc). NZ next.

      As much as it irritates Kiwis, Aussie corporations and to a large extent, governments, see NZ as much further away than Indonesia, China, Japan and Singapore. It exists on the periphery of their attention. For many NZ = Queenstown. When they do think of it, many see NZ as equivalent to a state of Australia in governance with a roughly equivalent economy. (A mis-understanding on both counts.)

      I see parallels in this to the German attitude to Greece. Greece = beaches. When the German banks flooded Greece with money, they didn’t take into account a culture that had never had access to credit for anything other than very small house loans. And even they were difficult to get. Personal loans were almost unheard of. When Greece joined the EU, the German banks recalculated the risk of lending to Greece as being the equivalent of the the rest of the EU. ie much, much lower. We know what happened next.

      Now NZ isn’t Greece, but Australia pays about as much attention to the realities of the NZ economy as Germany paid to the Greek economy.

      As for immigrants, Ireland had huge immigration from Eastern Europe, California had it from Mexico and Florida had Latin and Central America immigrants. Spain had a huge off-shore investment in property from the Netherlands and Great Britain. Neither of this saved them. Now the Netherlands is crashing and it’s wealth is underpinned by North Sea Oil.

      In the end, it always comes back to excessive debt. Like a Boa Constrictor, excessive debt slowly crushes the life out of an economy by diverting productive resources to unproductive ones.* John Key is wriggling in debt’s grasp.

      * For example, starting a business making NZ Merino knits is expensive. Made more expensive if you have to pay a huge mortgage.

      • NZ Merino knits?…who’d be mad enough to try a start-up there! It’s cheaper to buy finished merino material from China made from NZ wool than try to manufacture it here! Take Alliance Textile in Timaru. Around for decades (Swanndri etc) and it finally bit the dust a few years back after Karen Walker tried to run a Merino line with them. Speaking from experience I can tell you, I can’t even buy the fabric for local NZ production at a lower price than finished goods, in the same material, from China.

        • Arthur Schopenhauer

          Yeah, that was a terrible example! What I meant to say was spending large amounts of money on housing is a large disincentive to taking the risks needed to start an industry that can export stuff. Like these guys in CHC:

          http://www.groundeffect.com.au

        • (PS: And of course there is our beloved leaders first real employer Lane Walker Rudkin, clothing manufacturers of Christchurch, that went broke after a century in the business. You’d think John Key might renumber them as a practical example of where our economy is; or more precisely, isn’t….)

      • Giordano Bruno

        “Like it or not, the world is shifting to coal based energy.”

        From what ? Peat ? Wood ?

        Your whole post was lost on me really, however I would like to point out that China is heading away from coal as fast as it can – and yes, China is building Thorium reactors. China leads the world in Green energy production – and recent events are set to massively turn the tide AGAINST coal.

        The whole “China will build a coal fired power plant every week for the next ten years” – is hype….right now they are drowning in pollution and are fighting it every way they can.

        Put on top of of this the carbon trading schemes coming online over the next few years means anyone producing off coal is going to get financially SLAMMED within ten years – won’t even be viable.

        Ontario went COAL FREE this week.

        But, if you’re right, civilisation will collapse within 50 years with business as usual coal consumption, so it wont really matter.

        • Technology experts like Jesse Ausubel of the Rockefeller Institute have been pointing out for years that humanity’s energy systems have been “decarbonising” all along, and on continued natural free market trajectories, carbon will all but disappear from them within a century or so. This is because humanity has tended to both urbanise and become more mobile; hence energy requirements favour sources that are less bulky and easily transported. These sources just happen to involve less carbon; carbon represents most of the “mass” in energy sources. We do not heat high density multistorey urban dwellings with log fires any more (the famous London smogs used to kill thousands of people every winter), or run trains by shovelling bulky coal into their boilers while on the move.

          Current energy systems vie with each other based on their own economic advantages and disadvantages. Electricity runs down wires; the ultimate in unobtrusive energy supply to multitudes of fixed locations thus far. A tank of petrol or diesel is sufficient for a vehicle to drive hundreds of kilometres. But batteries are not yet as efficient as tanks of liquid fuel. Liquid fuels are not suited to delivery to end users by pipe, but gas fuels are.

          Natural gas is a lower-carbon source of energy than petrol by a factor of about 25%, and coal by a factor of about 50%. We have reached a kind of economic tipping point with its use, where better methods have been devised to extract it, and investment in extraction and distribution are proving highly profitable. Hardly a week goes by without the announcement of the discovery or the commercialisation of yet another significant natural gas “field”. In fact, the international “Oil and Gas Journal” often contains several such discoveries in each of its weekly issues.

          New discoveries of oil fields and new methods regarding the extraction of it from known locations, keep delaying “peak oil”, apart from the “gas revolution”. But Ausubel predicts that oil will be supplanted as an energy source before humanity runs out of it, and coal is already in the process of being supplanted. The best opportunity for “de-carbonisation” of the energy system, is offered by hydrogen fuel, which releases no carbon at all on combustion, just water vapour. Ausubel suggests that eventually, methane will be economically extracted from coal beds, leaving the coal behind; and hydrogen extracted from the methane. He suggests that energy companies know what they are doing, to a greater extent than most people are giving them credit for.

          http://phe.rockefeller.edu/PDF_FILES/oakridge.pdf

        • Arthur Schopenhauer

          I’m not saying it’s a good thing. It certainly isn’t. Just looking at the numbers.

          Coal is the cheapest BTU and choice of the industrialising developing world.

          OECD World Coal Consumption in Million Tonnes of Oil Equivalent
          2001: 2381.1 Mtoe
          2011: 3724.3 Mtoe

          Thats a global coal consumption increase of 56% in 10 years. 3724.3 Mtoe is an enormous amount of energy to substitute with solar, geothermal and wind.

          China Coal Consumption in Million Tonnes of Oil Equivalent
          2002: 794.9 Mtoe
          2009: 1713.5 Mtoe

          Whoa! And India and Vietnam have only begun there upward stretch, while Japan is swapping Coal and Oil in for Nuclear.

          Global Oil production is flat and getting more expensive. Coal has stepped in to fill the gap.

          Some say Natural Gas will save us. The US is replacing Oil and some Coal with Gas. As a consequence, they are dramatically increasing their exports of Coal to the developing world.

          As for Thorium, there is only *one* significant research project investigating a single research reactor (unbuilt). It’s in China. Even with the prodigious industry of the Chinese, it is still at least 10 years off having a working research reactor. It would then be a further 10 or so years to build a number of copies and get them operational.

          Ontario can do what it likes, there are 3 billion people in Asia who want a Western style life That takes a lot of energy. And right now, Coal is the cheapest way from A to B.

          There are plenty of numbers on all this in the BP Statistical Review of World Energy 2012:
          http://www.bp.com/sectionbodycopy.do?categoryId=7500&contentId=7068481

          It’s a depressing environmental predicament, but I think Coal will underpin Australia’s economy well into the future.

          • Convincing and well-informed argument, Arthur. I guess my position is “optimistic”. The other position that we encounter these days, is the “shut the economy down” one. Not coal, not gas, not hydro, not nuclear….

    • How about an external interest rate shock, keeping in mind how much money the NZ banks raise in offshore markets. Whatever causes the interest rates shock will probably cause the NZD to tank like it did during the GFC.

      Inflation skyrockets. Unemployment over 10%. Throw in a drought or Australian recession the same year for additional effect.

      I couldn’t agree more with Janet’s comments about nothing being done by the RBNZ or there being any material change in land supply.

      As a Aucklander who has moved to Brisbane I can say that many Auckland purchases I’ve seen are not speculation driven (or not highly geared), there is genuine lack of supply, lots of Chinese buyers, cheap/easy credit and favourable tax laws.

  10. “The surging housing market, particularly in Auckland and Christchurch, highlights the need for the Government to redouble efforts to free-up land supply and planning constraints, as well as for the RBNZ to implement macroprudential controls on mortgage lending”
    thats exactly why the govt WONT free up land and introduce tools, they LIKE high prices.

  11. The only reason there is a supply issue in Christchurch is due to the earthquake wiping out a significant percentage of core housing stock. You can’t really group Auckland and Christchurch together as they are fundamentally different from each other. Christchurch’s remedy will be far easier to implement than Auckland’s.

  12. kiwikarynMEMBER

    I’m not sure what the big deal is – with the exception of Auckland, house prices are exactly the same (or less) than they were 5 years ago. That’s right – zero growth for 5 years! Show me one city in Australia where house prices have gone nowhere for the last 5 years. So how exactly is the NZ market “mad”?

    As you can see from the graph,
    Auckland house prices have a distinct cycle – they rise quickly then stagnate for a long period. So they are at the beginning of another run up, which would only be “mad” if it didnt eventually come to a grinding halt in a few years.

    People receive far higher incomes in Auckland than they do in the rest of the country, that’s why everyone ends up moving there. A AU$150k job in Australia would be about a NZ$120k in Auckland. The cost of living in NZ is far lower than Australia, which is now one of the most expensive countries in the world.

    There are also no stamp duty or capital gains taxes to pay in NZ, so people don’t have to raise money to pay taxes, it all goes into the price of the house.

    As for Christchurch, when you demolish over 5,000 homes people have to move somewhere. With insurance payouts based on 2007 values, obviously they can now afford to pay 2007 prices (or more, considering the amount of equity in the old home which would have built up over the last 5 years).