Just how different is the Auckland property market to other major cities?

by Alistair Helm in

Auckland .jpg

The past week, the news wires have been a buzz over the Bloomberg assessment that New Zealand was identified along with Canada as among “most vulnerable economies to a correction in house prices” based on measures of house prices to rents, income, real house prices and household debt. The unanimous view of the NZ journalists have been that this pronouncement is nothing new (we have heard it before) and it is not likely to happen.

Such articles always seem to pique my interest to wonder as to how unique our property market really is? and how much we are out of step with other countries. This thought was precipitated when I saw this chart on Twitter tracking London house prices.

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It got me thinking how very different are the circumstances effecting the London property market as compared to the Auckland property market. For one thing the UK is seriously mired in the Brexit malaise, with all the uncertainty and economic dampening that has caused. Add to that London’s top end property market over the past decade has been fuelled by a significant number of overseas buyers squirrelling away millions if not tens of millions of pounds in properties that they then don’t live in; prompting calls for a vacant property tax.

How different then, the Auckland market where immigration has been the major driver as well as ever present investor activity added to which has been the continuing shortage of new properties under construction to support a city growing by around 120 new residents every day.

This is not to say that there aren’t commonalities between these two major cities, both of which are the epicentre of the respective countries and thereby tend to attract talent and drive demand. Both economies over the past decade have enjoyed low mortgage interest rates - the UK sub 2% for 2 to 5 year fixed; New Zealand more like 4% to 5%.

So set against this background the question I was intrigued to investigate was, how similar would these two markets, separated by 18,000kms be in terms of trends in property prices.

The data source

The above chart of London prices is sourced from the House Price Index from the UK Office of National Statistics - this data is provided in an excellent open data format and used the stratified methodology of property price reporting which best manages the issues inherent in property sales stats borne of compositional volatility over time. For NZ we are fortunate to have mirrored data provided by the Real Estate Institute in the House Price Index which was developed with the Reserve Bank and is the best data source for true price movement analysis. One advantage we enjoy in NZ is the timeliness of data a full month ahead of the UK data.

The analysis

The mapping of these two comparable data sets representing the house price index for both Auckland and London covering the period from January 2005 to date produces this revealing chart when tracked on a split axis.

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The clear conclusion I draw from this chart is that whilst these two markets may be so very different in so many ways, the hard truth is that the trend in property prices in these two markets over the past 15 years are clearly aligned. The Auckland market has appreciated at a faster rate than London (a 15 year rise of 134% as against 98% for London), but the tracking of the key events of the period are very clearly aligned.

Looking in more depth at some of the key periods of the past 15 years; the following 3 charts help to reinforce this alignment.

Global Financial Crisis

The impact of the GFC was clearly felt in both major cities with London property prices falling 17% through the 18 months surrounding the crisis before prices stabilised. Auckland faired slightly better only falling 11% over the period.

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Post GFC recovery

As the two major cities began to recover after the GFC so began a period of property prices that over the course of the ensuing 7 years saw a trough-to-peak of 86% in London property prices, with Auckland more than doubling over the same period to show a 121% rise.

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The most recent 3 years

The two markets both slowed in mid 2016 and since then have seen stagnant property prices, London slipping by 2% based on the latest data for May 2019 whilst Auckland is showing a 1% fall.

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Tauranga - a property hotspot

by Alistair Helm in


This week saw a media article highlighting the un-affordability of Tauranga property. It also stated that the city was now the 12th most expensive city in the world.

I am really not sure where this data point comes from and sadly the publication - The NZ Herald, failed to substantiate the claim. Seems odd to me where a city of 125,000 people can be the 12th most unaffordable in the world, when there are over 1,000 cities nowadays with a population of more than 500,000 people with many in economically strong stable western economies. Anyway, I was drawn by the article to undertake some analysis to compare the property prices in Tauranga with Auckland just to see how different they are currently and historically.

Back when accurate reporting began of property prices in 1992 the typical property in Tauranga sold for $113,000. At that time the median property in Auckland sold for $135,000. Tauranga properties back in 1992 were 16% cheaper than Auckland properties. Fast forward 26 years and today Tauranga median sale price last month was $635,000 whereas the median sale price in Auckland was $835,000. Tauranga properties today are 24% cheaper. However whilst the relative gap has moved in favour of Tauranga as a cheaper place to buy there is no denying the underlying fact that Tauranga prices have seen more than a 4 fold increase in the past 26 years and Auckland a more than 5 fold increase. Again these factors of price growth are not unique to NZ as I recently outlined in the article "Do house prices quadruple every 20 years?".

To see just how this price inflation has played out over the past 26 years I have constructed this chart which tracks the percentage growth by month of the REINZ House Price Index using January 1992 as the base month which each month indexed as a percentage against it.

The property price inflation seen in this chart reflects the well documented property cycles experienced in NZ over the past 26 years. However there is a period within the Tauranga data that is very unusual and frankly pretty staggering.

During the period of just 20 months beginning in December 2014 and ending in August 2016 the House price index in Tauranga rose 50%. That is a staggering rise. Over those same period when the Auckland market was super hot the Auckland index rose just 34%. Compare that to the most recent 20 months leading up to the latest data for July 2018 - Tauranga's price index has risen by just 8% whilst Auckland has made a very modest 1% rise.

As to the comparison of Auckland property prices and Tauranga property prices today, as noted earlier, Tauranga median sale prices today are 24% cheaper than Auckland.

The median variance over the past 26 years is 21% cheaper; so today Tauranga property sales prices are a little bit cheaper than historical average against Auckland prices. Those are the facts of property statistics, I recognise that these facts are of little comfort as affordability, upon which the orgininal media article focused is all about income in comparison to price, and in that regard un-affordability in Auckland is as real as un-affordability in Tauranga.