We are all too accustomed to articles stating that NZ house prices are “amongst the highest in the world” / “over-valued as compared to rents” / “driven up by tax advantages” / “being inflated by overseas buyers”
I read these articles and accept the often highly respected authors for their bullet-proof assertions. Clearly we must be unique in the world and standing by as we witness house prices spiral out of control as according to a recent Gareth Morgan article in the NZ Herald “New Zealand is unusual in the world in that it pretends housing isn't an asset like bank deposits or company shares”. Again I respect Gareth Morgan as a credible economist and a broad thinker, I may not always agree but I do respect his views.
So set against this backdrop of opinions and analysis I decided to seek out some data to compare NZ with other countries. The natural partner for comparison are the markets of Australia and the UK. I am grateful to the assistance of an excellent UK property commentator who helpfully pointed me in the right direction for UK data, thanks Henry Pryor.
The UK data provides a mix adjusted house price index which mirrors the REINZ Stratified House Price Index and fortunately the data extends back into the 1970’s whilst REINZ data goes back to 1992. Using the index of the 1st quarter of 1992 as the base the two markets track through the next 22 years in what is a surprisingly aligned growth path matching each other for the 22 year rise of 280% to both reach the index level of 383 in the 1st quarter of 2014.
It is worth remembering that the UK has capital gains tax, inheritance tax as well as stamp duty - none of which seem to have either depressed that market nor preferenced the NZ market by comparison.
If we add in Australian data which provides a valuable benchmark of a similar country albeit of greater scale closer to our trading partners of Asia and the US. Australian data is not accessible back 20 years but a comparable Property Price Index is available from 2002. Given the property bubble that all markets experienced in the mid 2000’s I decided to approach a comparable index for the three countries not on an aligned time period but rather indexed on the starting point being the peak of their respective property price index before the property crash caused by the GFC in 2008/9. For NZ property prices peaked in the 3rd quarter of 2007, the UK peaked in the final quarter of 2007 with Australia in the 1st quarter of 2008.
What transpired next is ably demonstrated in the chart below which shows the shallow fall experienced in Australia before a very strong recovery at a time when the UK and NZ markets continued to weaken. The UK market suffered the worst seeing the index fall 18% before rising whilst NZ fell 10%.
It took Australia just 5 quarters for prices to recover from the peak of the pre-GFC collapse compared to 4 years for the UK and close to 5 years for NZ. Subsequently all 3 markets have experienced resurgent price inflation that now sees the Australian market 26% up on the prior peak of 2008 as compared to 16% and 18% rises for the UK and NZ respectively.
Such clear alignment of pricing trends despite the very different tax policies designed to milk the property market or stimulate the property market would seem to point to the view from the analysis that the NZ property market is not that unique, if anything it is incredibly similar to these other markets and despite the best intentions of politicians the market would seem to move aligned to factors well outside of such policies.