Back in late 2011 I posted a comment on Facebook predicting that the Auckland property market, which had been in the doldrums since 2008, would start picking up the following year and that house prices would roughly double by 2016/17. The reaction was immediate, and mostly negative, with responders calling me naïve, delusional and irresponsible for raising the hopes of people who had seen the value of their homes languish for several years.
My prediction proved to be absolutely accurate – but the initial hostility was understandable. Even in 2011 there were still regular suggestions that the property market was about to crash (although these were no longer the stuff of daily headlines) – and there had also been earlier predictions that the property market had turned a corner, all of which had turned out not to be true. As a result, it was difficult to know who to believe or what the true indicators of an upturn would be.
So it’s against that background that I’m treating the latest predictions heralding the start of the next property boom with considerable caution. These have mainly been based on recent reports from two sources: Westpac, which is predicting that house prices will rise, nationally, by 7 percent in 2020 – and the Real Estate Institute, which has reported that median house prices across New Zealand rose 7.3 percent in the year to September 2019.
To be fair, neither of these organisations is using the word boom. That suggestion is coming from other quarters who have lost no time in talking up an imminent market recovery – pointing to seasonal sales figures, lower interest rates, relaxed Reserve Bank rules and the ongoing shortage of housing as evidence that the next property boom is at hand.
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In my humble opinion, it’s simply too soon to be making that call.
First, a few facts. Lower interest rates and a reported shortage of housing have both been with us for quite some time – yet the market has been flat, in Auckland, since around 2017 – so these factors, on their own, haven’t been enough to boost activity.
Yes, there’s certainly some evidence that investors are back in the market and taking advantage of last years Reserve Bank relaxation in the deposit required to purchase an investment property – but that activity is still tentative and at nothing like the volumes experienced during the height of the last boom. It’s also worth noting that, despite claims to the contrary, property investors don’t typically drive house prices up as they’re generally looking to pay as little as possible so as to maximise the value of their investment.
Most tellingly, that reported/projected annual increase of around 7 percent in house prices needs to be reviewed more critically. Firstly, it’s almost exactly the uniform annual rate of growth which would be required if house prices were to double over ten years (the "rule of 72" tells us that the value of something will double in ten years at an annual growth rate of 7.2 percent) – and since we know that house prices don’t increase uniformly, it’s more likely to be a statistical blip than a pattern. More importantly, national figures include the regions, many of which have house prices which have been increasing at a rate well above 7 percent, but where prices are now levelling off as they follow Auckland into a flattening period. In other words – there are at least two trends underway: Auckland, which will eventually start going up again – and the regions, which are flattening off and will stay flat for a few years, as Auckland has.
For all of these reasons it’s my view that the current lift in activity is seasonal - and I’ve seen nothing to change my belief that the property market will continue to follow its cyclic pattern of the past 4 decades. If I’m right, and this plays out as it has in the past, we can expect Auckland house prices to start a sustained period of growth in mid to late 2021 or early 2022 – increasing until around 2026-27, at which time house prices will be between 70 percent and 100 percent higher than they are now.
- Ashley Church is the former CEO of the Property Institute of New Zealand and is now a property commentator for OneRoof.co.nz. Email him at [email protected]
