Are we really facing a “serious shortage of properties for keen buyers”?

by Alistair Helm in


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It's funny sometimes when you look at a piece of research which on the face of it looks to be enlightening, providing as it does new facts and insight; but when dig a little deeper you discover that it merely reinforces known facts.

Such was the situation this week when Realestate.co.nz published a research study by Horizon Research of consumer expectations of buying and selling in the coming year. I was at first somewhat confused, as the report was completely buried in the monthly NZ Property Report. I was not sure that they had clearly thought through how they were presenting the data, however by tuning out the monthly stat charts the research data findings seem at first eye-opening.

The research results show that 6.4% of the adults 18 years or over surveyed are definitely looking to buy in the next 12 months, but only 2.8% of people stated they are definitely looking to sell in that same period, says realestate.co.nz spokesperson Vanessa Taylor.  

This equates to a shortage of around 3.6% of homes across the New Zealand marketplace, representing a significant number of properties currently not on the market, she says.

Even taking into account new builds which are underway and not included in these numbers, there will be an increasingly serious shortage of properties for keen buyers.
— Vanessa Taylor - Realestate.co.nz

Wow – 6.4% of adults definitely going to buy; but only 2.8% going to sell! As stated that would seem to be a “serious shortage of properties for keen buyers”

The danger as ever with statistics is that seeing one set of data in isolation can lead to misinterpretation. Sure, in this survey 6.4% of adults are going to buy vs 2.8% are going to sell. On the face of it, it certainly seems serious and due cause for alarm, especially when we are constantly being told in the media (and by politicians) that we need to build more houses to solve a housing crisis. But hold on a moment. Step back and ask what is the context of this research data. We need to ask how have results changed over the past year or the past 5 years? Are we seeing a growing trend or a declining trend? After all one data point does not tell us everything.

The beauty of the internet is that you don’t have to hound people to get them to provide the data, the data is accessible. Horizon Research has been undertaking a Housing Supply and Demand Survey since 2010 on a fairly frequent basis and here are the results.

So it would appear that the data for May whilst perceived to be high was actually down on the previous report from October last year, when the level of definite buyer activity was 9.8% and seller intention was just 2.5%. That’s 1 in 10 adults saying that they were going to definitely buy. At the same time just 1 in 40 adults said they were going to definitely sell!

How did I possibly miss that piece of news?

There is no denying that the chart very clearly shows an ever growing divergence between buyer intent and seller intent, however the question has to be asked. If as the media release this week states … will there bean “increasingly serious shortage of properties for keen buyers”?

How could this be true? Especially if we have witnessed this divergence for the past couple of years. If it were as true as the statement leads us to believe, then surely we would be seeing rampant price inflation as this pressure on supply would seem to portend?

To answer this key question we need to separate the buyer and seller data in the research.

The Buyers

First let’s deal with the data of buyer intent. The latest May research states that 6.4% of adults definitely intend to buy in the next 12 months. Let's work through the numbers. In NZ there are 2.7 million adults; being 60% of the population by age between 18 and 65.

The research states that the findings based on a sample size of 1,345 adults from a nationally representative panel show that 6.4% state that they are definitely going to buy a property in the next 12 months. The average household composition of adults in NZ is 2.02 adults per household which equates to 1.34 million properties. This reflects the 85% of private property occupied by adults under 65 years. If you apply the 6.4% proportion from the May research to this total of 1.34 million properties you arrive at the figure of 85,700 properties definitely going to be bought in the next 12 months.

A total of 85,700 properties being bought in the coming year is in fact a perfect estimate of the market. In the past 12 months volume sales as reported by the Real Estate Institute were 74,600. Sales volumes have begun rising from a low of 73,500 in the 12 months to December last year. So I would say that the research is bang on as an estimator of market demand, providing an accurate guide as to the likely pick up in sales volumes for total 2018/19.

What is also interesting in extending this calculation; is that the historical research carried out by Horizon Research shows that the past 8 years data correlates quite closely (with just a few outliers) with the market trend of moving annual total sales as highlighted in the chart below:

The Sellers

So how can the divergence of buying intention from selling intention be explained? How can it be that what we can validate that 6.4% of adults definitely intent to buy, but clearly far more than 2.8% definitely intend to sell? In fact we can I judge with confidence say that 6.4% of adults will sell in the next 12 months.

Herein lies the answer, in my opinion.

Existing homeowners go through a process. A process that ends up with the purchase of one house and the sale of another, however this process from a psychological perspective does not begin with a rational intent to sell. It starts with an intention to buy.

Selling a property is a means to an end; the end being the next home. It is a functional process, not an emotional decision process – the emotions lie in the expectation around the next home. So when asked in a survey the intention to sell, the typical adult probably under-reports, largely due to the anxiety and expectation surrounding the process of selling. That is my opinion.

So I don’t support the view that we are really facing a “serious shortage of properties for keen buyers”, we are simply seeing the normal property market at work.

This thinking is very enlightening to the processes of real estate industry in general and particularly to the marketing strategies adopted by players within the industry. I highlighted recently in my article about the likely launch of Better Homes and Gardens Real Estate how their brand positioning would not play out so well in NZ as the market here is a vendor (sellers’) market and their brand is all about emotional inspiration and lifestyle.

The fact is NZ real estate companies largely focus on the processes of selling and buying linking the brand to the "For Sale" event, but I have not seen many (if any) real estate companies, nor for that matter any real estate websites position their brand around the emotionally engaging process of discovery, in the process of finding your next home.