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.
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 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.
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.
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.
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.