Recently I read a very thorough article about the international housing market which was entitled ‘Housing Bubble about to Burst, Market About to Crash’. It went into great detail about the unaffordability of housing in countries such as Australia, Canada, the United Kingdom and New Zealand and about how the median multiple (the median cost of a home divided by average household income) had doubled over the previous decade. The conclusion of the report – that the housing market was about to crash – would have been frightening for us here in New Zealand were it not for one small detail. The article was written in 2010.
Suffice to say, the New Zealand housing market didn’t crash in 2010 – nor at the tail end of each of the previous property booms going back to 1980 – despite repeated predictions that it would.
Nevertheless, such reports (both international and local) predicting the imminent demise of the New Zealand property market are relatively easy to find with a little online research. It should come as no surprise that we’re now seeing them again. Not a month goes by without some commentator or other predicting that, this time, it’s all over for the Kiwi property market and that carnage lies just ahead.
In the last few days it’s been the turn of Bloomberg, a privately held financial, software, data, and media company headquartered in New York that writes on economic and geopolitical issues. While their hard-hitting report stops short of actually predicting a housing market collapse, Bloomberg describes Canada and New Zealand as being ‘most vulnerable to a correction in house prices’. It describes both countries as being on ‘the most unsustainable path, with the cost of housing compared with wages the highest in the world in both countries’.
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The report also comes hot on the heels of another report on the Kiwi economy, from the OECD, which flagged New Zealand's housing market as the biggest potential issue for the economy. But, as I said above, neither of these reports would have been out of place in 2010.
And therein lies the problem. If you cry ‘wolf’ often enough people stop listening.
In contrast to these predictions, the New Zealand housing market has actually been remarkably robust, and predictable, since around 1980. Even though economic conditions since that time, have fluctuated wildly between high inflation, high interest rates, low migration to low inflation, low interest rates and high migration, we’ve seen houses double in value roughly every ten years since 1980, without a significant collapse in house prices at the end of any of those cyclic booms, as we’ve seen happen in other countries.
There are lots of theories about why this is the case, and why the New Zealand market acts differently to most other housing markets in the western world, but for me, it’s enough that it does.
So should we simply ignore reports which alert us to the risks in the market? Not at all!
These reports are correct in identifying that house prices in New Zealand are getting further and further out of step with household incomes and that growing gap is an issue about which we should be all concerned. But leaping to the assumption that these conditions will inevitably lead to a market crash based on a one-size-fits all approach to international house prices is little more than sensationalism and is unsupported by the evidence or the history of this market.
Could it be different this time? Of course. Although the catch cry of ‘it’s different this time’ has been such a feature of each of the past two booms that it has now become something of a cliché.
There’s no doubt that change is coming to the fundamentals of our housing market and that the current model is economically unsustainable. But, in my view, that change will be gradual and will be characterised by social and economic adaptations such as changes in where and how people live, migration to lower cost regions and longer mortgages which we don’t expect to entirely repay within a working lifetime.
Meanwhile – for those awaiting the much touted property market collapse – don’t hold your breath.
Ashley Church is the former CEO of the Property Institute of New Zealand and the Auckland Property Investors Association. Email him at [email protected].
