Ashley Church: Will house prices really double again?

COMMENT: A few weeks ago OneRoof ran a story in which I was quoted as confirming that the oft-quoted claim that house prices in New Zealand broadly double every ten years can now be empirically demonstrated to be true. It’s a view that I’ve played a significant part in popularising – having talked and written about it consistently over the past 15 years – but, until now, there hasn’t been much in the way of data to back the claim up.

With this in mind, I recently asked property data company, Valocity, to provide me with raw housing data showing the median house price for all houses in New Zealand, on the last day of each year, going right back to 1982.

I then analysed this information to determine whether the “ten-year” rule was real. The results were astounding and have provided a whole new insight into how the property market works.

They show that, between 1982 and 2011, the average growth rate of house prices over any ten year period is almost exactly 100% when averaged out across the entire thirty year period. This means that, at least for this period, the ‘ten year’ claim is no longer a ‘rule of thumb’ – it’s an observable fact.

However, the same data also shows that, in the period leading up to 2021, it actually took house prices an average of twelve years, rather than ten, to double - and the average rate of increase over the ten years between 2011 and 2021 actually dropped to 73%. This probably reflects the fact that house prices were getting more expensive over that time and that this “physical” price barrier was starting to impact on the prices being offered.

There are many more insights yet to be gained from this data and it’s still early days in terms of understanding what it all means, but there are definitely some useful headline themes that can be drawn from what we now know:

• House prices have increased consistently over each of the past four decades, despite domestic and international economic shocks such as the 1987 stock market crash, the Dotcom bust, the Asian financial crisis, and the GFC.

Ashley Church: “House prices have increased consistently over each of the past four decades.” Photo / Ted Baghurst

• The rate of house price growth is slowing - probably as a reflection of what the average kiwi can afford to pay. Whereas house prices increased by an average of almost exactly 100% per decade between 1982 and 2011 – that average rate of annual growth dropped to 73% between 2012 and 2021 and it actually took 12 years for house prices to double leading up to 2021.

• While past performance isn’t a guarantee of future performance, it would be extremely foolish to ignore the likely implications of these trends – specifically, that the current market uncertainty should be seen in the context of broader trends and that house prices will continue to double, over time, but that the time it will take for that to happen will be longer than the anecdotal ten years as houses become less affordable for first home buyers.

I was also amused to see that, despite these findings, Radio New Zealand still recently managed to run a story in which it derided “double your money property pitches”. The article quoted myself and others, and implied that the more evolved amongst us couldn’t possibly believe such nonsense.

The article also quoted the view of Reserve Bank Economist, Paul Conway, who recently claimed that property is unlikely to be a favoured form of investment in the future – a view which has been strongly rejected by more seasoned property commentators, but which has found favour amongst those looking to reinforce a particular worldview.

In fairness to the writer of the Radio New Zealand article, and others who continue to decry the idea that house prices will continue to double, none of these people have seen my new data as I’m yet to publish it in detailed form, so I can understand the scepticism.

Nevertheless, astute property buyers and investors will understand the importance of these new findings, and I’ll continue to write more on them as I uncover new information.

- Ashley Church is a property commentator for OneRoof.co.nz. Email him at [email protected]