New Zealand house prices launch for the stars

ScreenHunter_06 May. 13 11.32

By Leith van Onselen

New Zealand house prices surged again in May, with the national stratified median price hitting a new record $415,325, led by New Zealand’s biggest city – Auckland – where prices rose to a record $607,600 (see next chart).

ScreenHunter_14 Jun. 12 11.19

Auckland’s impact on the recent house price boom is clearly evident by the next chart, which shows prices there easily eclipsing the national average. Prices in Christchurch – New Zealand’s second biggest city – have also risen at a faster than average pace, whereas Wellington – New Zealand’s capital and third biggest city – has lagged the national average (see next chart).

ScreenHunter_15 Jun. 12 11.21

House price growth remains strong (see next chart). Nationally, house prices rose by 8.7% in the year to May 2013 to be 9% above their November 2007 peak. Prices in New Zealand’s largest city, Auckland, surged by 14.8% in the year to May 2013 to be 19% above their July 2007 peak. This was followed by New Zealand’s second biggest city, Christchurch, where prices rose by 13.1% over the year to be 12.3% above peak. Finally, prices in the capital, Wellington, rose by 5.2% in the year to April but were 1.6% below their September 2007 peak.

ScreenHunter_16 Jun. 12 11.24

Clearly, New Zealand’s National Government needs to speed-up supply side reforms, particularly in Auckland and Christchurch, whereas the RBNZ needs to get cracking in implementing its macro-prudential restrictions on high loan-to-value mortgage lending.

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Unconventional Economist


  1. Is it just me or did you invent another way to spell New Zealand.

    We will pay for that insult at Bledisloe Cup time.

    Perhaps New Zea Lend would have been a neat play on words, if you have to get creative.

  2. New Zealanders are clearly on their way to become the richest nation on Earth (provided they can offload their properties to Chinese at some point in time).

  3. NZ$600k = A$500k

    so Auckland prices are about the same as Melbourne’s even though Melbourne has 3 times the population. That is crazy.

    • And don’t forget that NZ salaries are considerably lower than a kiwi could get in Melbourne doing the same job. That makes NZ$600k seem even more bubbley.

    • You’ve got it back to front buddy – that means that the Melbourne prices are too cheap. They need to be at least 3 times what they are today. Don’t you know they don’t make more land these days!

    • That’s the exact reason why the overseas money can push-up price so quickly. Ie the depth of the market is not enough to soak up the influx of hot money.

  4. A fantastic case study in how constrained supply and cash for residency can destroy the prospects of home ownership for a generation of people.

    • Yeah – but who cares about the people when the local council budget rakes in a truckload of money from the sales? Turkeys are there to be plucked, and plucked they are at every turn.

      Sorry – sudden attack of cynicism… (cough! cough! *splutter*)

  5. As the data clearly shows the majority of the national average increase is coming from Auckland and a lesser extent, Christchurch. House values where I live are barely above 2007 levels so I hope the RBNZ doesn’t get too short sighted and over react to skewed data.

  6. And the point of all this pain?

    A more compact city which allegedly is “more efficient”. Yeah, like the urban economies of Liverpool and Manchester and Newcastle.

    Oddly enough, the model represented by cities like Houston, Dallas, Austin, Atlanta, Charlotte, Indianapolis, Kansas City, Oklahoma City, Philadelphia, Raleigh, Des Moines, Omaha, Salt Lake City, Nashville etc, is one where houses of larger size and higher quality, on much larger lots, cost one third to one half the price. Renewal is far more rapid and average age of houses far lower. Congestion and average commute to work times are lower, not higher. Economic productivity is higher, not lower. The cost of infrastructure and the local tax burden of supporting it, is comparable – there is no correlation in data sets between this and density. Other factors make a lot more difference – particularly the efficiency of local government.

    We are already years overdue with tossing out the charlatans, ideologues and incompetents who are imposing endless pain and impoverishment for no useful gain.

    • Nice quote there PhilBest. I think I’ll post that in the comments section of articles in future.

    • rob barrattMEMBER

      I think the heart of the problem is the number of people who the legislation employs and the complexity thereof. I would guess that Australia has more laws per head of population than any other country on earth. Our vast all-embracing statutes are already labyrinthine in complexity, especially with regard to property where every state differs widely. We need armies of public servants & lawyers to navigate this federal, state & local council jungle, and we’ll need armies more to back us out of this mess. Don’t hold your breath.

    • Increasing supply is a GIANT step forward. However it must be noted that supply of extra dwellings must outstrip the demand for extra dwellings from
      1) new immigrants
      2) young local first home buyers
      3) old locals wanting more (divorce,holiday homes)
      (with some supply coming from dead locals)
      So increasing supply by itself is not enough. Immigrants might still swamp the increased supply.

  7. harmindersingh

    On the face of it, increasing supply seems like a logical, obvious way to reduce NZ home prices. However, that may be because of the analysis being too simplistic. These 2 posts provide more details of the various solutions and conclude that increasing supply will do very little to lower prices:

    A key counter-factual to the assumption that increasing supply will reduce house prices is that “only a small proportion of land which is zoned for development and served with infrastructure has actually taken the next step to being developed.” (From the 1st link above)

    The authors argue that these issues also need to be addressed: land cost, construction and compliance costs, locational costs, and financial barriers, where locational costs refer to the transport costs incurred by deciding to live in a particular area.

    The frequent use of Houston as an example is quite misguided because Houston’s growth/sprawl is predicated on the use of cars and highways. This makes sense in Houston because it is on a flat plain and receives the highest federal govt subsidies for building highways. Auckland (and many other NZ cities) do not share these features.

    It is important to remember that the way cities grow (and the amount of housing built) is rarely the outcome of a single factor. Finally, the availability of high-quality transport links is a key determinant as to whether cities should intensify or sprawl, and transport systems are path-dependent outcomes of past historical decisions, geographic constraints, and ideologies.

    • The frequent use of Houston as an example is quite misguided because Houston’s growth/sprawl is predicated on the use of cars and highways. This makes sense in Houston because it is on a flat plain and receives the highest federal govt subsidies for building highways. Auckland (and many other NZ cities) do not share these features.

      You might be correct there. Perhaps New Zealanders are too stupid to use cars and roads correctly.
      Perhaps the advancements being made to electric cars will suddenly stop and then the oil will run out. Houston would then “have a problem”. Perhaps choking the land supply in New Zealand is an excellent response to this gloom and doom scenario.

      • harmindersingh

        Not sure why you’re talking about oil here and stupidity- I mentioned sprawl was a consequence of federal highway subsidies and Houston’s geography. And again I’m not sure where you detected the gloom/doom- maybe something in your subconscious? Intensification and arresting land banking are viable and responsible solutions to NZ’s land crisis. I’d encourage you to read the articles, Mr Claw, before making assumptions about the arguments. The govt just announced it’s looking at resolving the land banking issue:

      • The govt just announced it’s looking at resolving the land banking issue:

        That is excellent news. They are finally on the right track.
        Houston resolved the land banking issue many years ago. They run permissive development and make excellent use of cars, roads and oil.

        If you are scared that oil or asphalt will run-out then I can come up with some more complex solutions for you. However as things stand, the Houston model is an excellent one for New Zealand to copy.

    • Harmindersingh,

      I agree that “releasing more land” will not solve the affordability problem.

      Dale Smith is correct with his comment further down this thread. What keeps it affordable in dozens of cities in the USA (not just Houston) is the ability of developers to buy pretty much any land anywhere, raise funds and install infrastructure themselves without regard to a central plan; and compete with each other in doing so. This ensures profits are modest and honest, and also ensures that no land owner holds out for “planning gain”.

      The gains that a land owner can hold out for as a city grows around and beyond their land holdings, is another matter altogether – again, these gains are modest and honest, being much smaller than the gains created overnight for all land owners within a new UGB.

      “Splatter” development with later infill is more efficient than mandatory contiguous carpet development to suit the whims of central infrastructure planners. There is actually a lot more to an urban economy than the convenience of infrastructure. Economic land rent can either be the single biggest cost and distortion in the local economy, or it can be nearly eliminated altogether. Cities with the latter advantage “own” the future of western civ.

      Jobs-housing balance has kept average commuting times LOWER in the “free to sprawl” US cities. See my comment above. There is NO POINT in making cities “more compact” on the allegation that it makes trip time more efficient. It does not. Appendix “Table 8” beginning on page 36 of this paper is quite comprehensive and enlightening:

      Free market jobs-housing balance occurs very efficiently as the city “splatters”, because employment follows workforces, and commercial developers see opportunities in the spare land left in between the splatter developments. This efficiency is lost under strict incremental growth planning.

      And surely no real expert has missed Peter Gordon and colleagues work for all these decades, on “Decentralisation and the Stability of Travel Time”? Alex Anas and colleagues have been adding some very useful theoretical work to this too since around 2004.

      William Wheaton, “Mr Original Monocentric Model” himself, not to be out-done, published “Commuting, Ricardian Rent, and Housing Price Appreciation in Cities with Dispersed Employment and Mixed Land Use” in 2004.

      Here is an essay on the actual dispersion in employment that has occurred in US cities 1960-2010:

      Something else that is lost: it has been noted by several researchers that spontaneous clusters like Silicon Valley are PREVENTED from evolving, by planning that insists on creeping, rationed contiguous new development and massive levels of “planning gain”. The McKinsey Institute’s 1998 Report, “Driving Productivity and Growth in the UK Economy”, suggests several reasons that the UK’s tight urban planning system is mostly responsible for the UK’s lagging economic productivity.

  8. All this talk of price rises retrospectively is not going to make any of us richer. The astute investor needs to seek out the demand signals in order to front-run and profit when it triggers. Here’s a site that will provide this leading indicator in the case of Auckland:

  9. The NZ govt’s reposnse to this issue has been pathetic. It has only really been in the last 6-12 months that the Key government has shown the urgency required,they should have been addressing this issue in the first 1-2 years of their first term.
    NZ will pay dearly

    • And of course their ‘goal’ will simply be to stop it rising, but never to undo the ridiculous rises that happened before they started to act.

  10. Dale SmithMEMBER

    One of the main problems when trying to discuss different options is that we have different definitions for key words, so while the words are the same, the meaning is not and hence we cannot seem to reach a consensus, and therefore a mutually agreeable solution. Two prime examples are 1) the words ‘more affordable’, which to some mean to cost less irrespective of value supplied eg make houses smaller and they are now ‘more affordable’, or reduce the price of a house by subsidising it and it is now ‘more affordable.’ Whereas my definition of ‘more affordable’ is for a house to cost less without reducing the value supplied or reducing price by subsidy.
    2) Another example is what ‘increase the supply of land’ means. To most councils this means identifying which land they are going to re zone (thereby enabling speculators to land bank) and re zoning land that the present owners have no intent in the short to medium term to change its present use (therefore the land is not available for development). In short, land prices increase due to speculation and demand still being greater than supply. PhilBest has a great explanation of this, maybe he will repost it. But this is why groups like Transport blog and others think releasing land does not help; I think they are using the wrong definition. My definition of ‘increase the supply of land’ is that all land is available for development unless otherwise legislated against, for environmental reasons for example. This may sound like what councils are already doing, but counter intuitively, it is the opposite. This definition starts off with the assumption that there is an oversupply and works back from there. This is how the Texas supply of land works. What this means in reality is that developers do not rush out and over supply the market as they are very weary of flooding the market. But what is does mean is that there is no impediment to building at the rate of demand and therefore a short of supply does not happen. That is why, even with huge population growth in Texas, and a booming house building industry, prices do not increase as they would where land supply is restricted (but according to council et al is in plentiful supply).

  11. Here’s my latest thesis on the point Dale refers to above.

    “Supply” can be abundant but quota’d, leading to bidding wars for it. Urban planners “releasing 10 years supply of land”” is just throwing fuel on a fire. The only way to put the fire out completely is to abolish the barriers to conversion of rural land to urban anywhere.

    When Portland established its “20 year UGB”, the price of land began to inflate just 4 years later. Here is the basic flaw with the idea that “X years supply of land has been zoned” on greenfields beyond the existing urban fringe.

    The zoned amount is NOT the amount that NORMALLY WOULD COME TO MARKET ANYWAY on the normal rural land market, within that zone, IN THE NEXT “X” YEARS. It is the TOTAL quantity of land within the zone. To REALLY have “X years of supply”, it would be necessary to include in the zone, enough land that the quantity that IS “X years supply” WOULD come up for sale anyway in a normal rural market, at normal rural prices. This would mean a zone with about ten to twenty times as much land as “X years supply for urban growth”.

    The land comprising “X years supply” by the planners standards, is being used for something already and no owner of it has any inducement to sell it at the value that it is worth IN ITS PRESENT USE. But having become aware that they are part of a newly created oligopoly holding of the next “X years supply of land for urban growth”, they cease to think in terms of rural land values at all, and start thinking like investors/speculators in bullion. None of them will be satisfied with a 10% capital gain, or even 20%.

    Expectations of gains become a reason to HOLD land and NOT sell it. So the planners “X years supply” becomes a LOT LESS than “X years supply” purely because of typical investor psychology. The planners have REDUCED the likelihood that any one land owner within the zone will in fact sell the land within the “X” years at all. Then developers not only have to door-knock and persuade “attached” owners of land to part with it, they need to offer greater than the present value of what the owner thinks the price of the land MIGHT yet inflate to……!

    This is why there is no middle ground, “moderately unaffordable housing” cities. Containing urban growth and rationing the land supply is not like a “flow control valve” over house prices as planners like to think it is, it is like an “on” switch for a nuclear chain reaction.

    There is a noticeable difference in the “housing affordability” data from Demographia and others – cities with median multiples of “3″ tend to actually have much larger, newer houses and much more land per household. In contrast, the cities with median multiples of “6″ and over tend to have much smaller houses and even smaller amounts of land per household, and housing tends to be much older.

    The difference is this.

    A median multiple of around “3″ represents an amount of expenditure that households are comfortable with, so that as incomes rise relative to the cost of raw land, and relative to the cost of construction, and technology improves, households tend to consume more land and attributes of housing. The value of the land tends to be about 30% of the value of the “housing”, even as the size of the lot grows, typically as large as 1/2 acre on average now. But the median multiple of “6″ represents “the most people can stretch to paying”. It will be found that economic land rent is rising and households are paying more and more for a square foot of land; and households are sacrificing not just land consumption but other attributes of housing, so as to house themselves at all within “what they can afford”.

    Typically the value of the land represents 70% of the value of the “housing”, even as the section sizes shrink, typically to 1/16 of an acre on average in the UK now. Of course the increase in economic LAND rent is exponential, when you “net” this out. The difference is always due to regulatory distortions (there might be an island nation-state that has literally run out of land, but this is certainly not the explanation in the UK let alone Australia).

    Developers in these “planned” growth-constrained markets are the meat in the sandwich – it is not them who are the beneficiaries of the quota system in urban land; it is the original vendors of the land.

    The developers are placed in a very high risk situation. They have to out-bid each other for the quota’d quantities of land, and still sell finished housing at a price the market can stand.

    Developers working under these conditions do work backwards from “what they think they can get for the finished product”, and this is reflected in “what they are prepared to bid for the quota’d land supply”. However, we would not regard it as acceptable for bread or milk, to run a quota scheme that allows the prices to settle at “what people can pay” rather than “what suppliers freely in competition with each other can bring the product to market at”. What keeps the price of bread and milk and everything else, being set not by “what people are prepared to pay”, but by “what suppliers freely in competition with each other can bring the product to market at”, is the lack of anti-competitive barriers to anyone converting land from other uses, to dairy farming or wheat growing; and to supplying raw product to supply chain intermediaries; and to processing and producing finished product.

    This market freedom does NOT result in a massive “oversupply” of bread or milk or cars or TV’s; nor does “freedom to convert land from other uses to urban uses” (just as easily as converting it from growing one crop to another) result in massive over-supply of new houses.

    In the unusual cases of housing bubbles that involve both price inflation and overbuilding, the mechanism always involves the active participation of government chasing “planning gain” or similar.

  12. This guy “Property Parrot” who gets guest postings on “WhaleOil” blog, is simply one of the best analysts anywhere on development and planning issues. I am making a point of watching out for his posts.

    Auckland Council’s culture of hate for developers is ruining Auckland

    June 11, 2013

    Property Parrot says:

    Why does Auckland Council hate Property Developers? Surely that’s bad for business?

    Have you ever wondered why Council simply cannot get along with developers – despite the obvious – that they should work together? One planning, the other delivering.

    The answer is simple – Auckland Council has bred a culture of hate towards property developers. Those cardigan wearing bohemians at Council love to hate developers. Everyone knows it and if one didn’t believe that then this Parrot advises them to apply for a Resource Consent and see what dreaded deathly hallow ensues.

    Property Development is very difficult. For most property developers life is a hard slog where projects take long periods of time and income arrives sporadically in lumps. Financing projects is hairy and onerous. Risks are higher than Everest. Margins are low. Turnover even lower.

    There is an urban myth about property developer margins which needs dispelling (and before readers say ‘cry me a river’). Mostly development margins sit between 12-25% on paper and typically half that by project completion.

    A large project of $20m value might forecast a margin of 20% ($5m) but over 4 years that is a 5% return per annum ($1m per annum less tax and overheads to be $500k per annum). If the margin achieved is less the corresponding return is lower. And that return has to fund the future including living costs, business costs, staff and wages. What a developer takes home is a nice car on tick. That’s about it.

    Let’s make it clear – there are plenty of businesses in NZ of different ilk that produce more substantial margins and returns on capital or turnover than property development. Some of our listed companies run double digit margins every year. So development is not a golden sunrise.

    Property development has no cash flow despite money flowing out for years and accruing interest cost. Property development requires financial discipline and rock steady determination to make it through to the end of a project with one’s shirt still on. Generally there is more money to be made in trading property that developing it.
    A property developers’ biggest enemy is time (interest) followed by interference by Councils.

    Auckland Council generally makes life difficult for developers, particularly where planning officers have a say in the design and outcomes of a development. Council does this fiddling though onerous planning rules that give rise to forensic analysis of consents, impose notification and community revolt (let’s not forget they hate developers too), forced changes to projects and forcing costs onto developers in return for consent approvals. This process hurts development substantially. The process can take a very long time and the consultancy costs sky rocket along with interest payments.

    Council is writing a Unitary Plan and has prepared a document that is even more difficult for property development. Rather than entice development the plan prefers to introduce more onerous consenting processes and a heavy discretion over design. For what reason? Isn’t design subjective? Who is the arbiter of design – a planner in sandals?

    Add to that the general dislike of property developers and a boiling cauldron of disunity is created. The tensions between the two groups are always high and Council is always screwing opportunity for developers. And so developers hate Council in return for the immense difficultly created. Ask a developer if they ever had a good experience with a consent process?

    Council interference costs time and changes to projects reduce the viability of them.

    When was the last time a Government department stepped in to fiddle with the operation and running of a NZX listed company? They don’t and that is the point.

    There is no other industry in NZ subject to such detailed interference. Imagine a Governmental agency with discretion and a seat around the table deciding outcomes for Nike running shoes, Apple iPhones or Fonterra Milk products. It would be a scandalous proposition. Yet Auckland city pokes it’s fingers into development when it should be embracing, helping and encouraging developers with a hand up not a punch in the face.

    Not that this Parrot has a particular affinity for property developers and nor is this Parrot suggesting Polly Developer should be fed a nice easy cracker.

    This Parrot is saying that Auckland Council are stupid. They cannot see that the Auckland Plan and the Unitary Plan are meaningless visions without property developers. Len and his band of merry men shit all over the property development industry and yet they are utterly dependent upon them to deliver the goods. They meddle with the business of other people and whinge about what those people produce whilst ignoring other less scrupulous business types and turning a blind eye to more pressing issues.

    Ironically the market has a different affinity to property developers. They like what the developers produce and they prove it by buying their wares (dwellings).

    The relationship between developers and Auckland Council is shockingly poor. And it has been created by a Council bred internal culture based on prejudice, uninformed assumptions and a loathing hate of what developers do. And that conflict created by Auckland Council is ruinous to Auckland. What are the costs?

    This Parrot says an attitudinal shift needs to occur from within Auckland Council. A good leader would see that and remedy it to protect their vision. Restoring relationships and righting wrongs with the property industry is long overdue. It is Len’s duty to crack the whip and change the culture.

    But the chances are low because Len isn’t likely to cosy up to property developers for fear of backlash from voters. Mind you, he does have no less than six spin doctors to write speeches and prepare catch phrases for him. Surely they could resolve to help Len overcome the objections if they are any good at what they do?

    Auckland is perilously balanced in the hands of an organisation that is determined to press on with its own plans. But before its plan can be realised a massive shift in attitude is required.

    Read the comments too…….