New Zealand has seen its house prices leap in the final quarter of 2014, at the same time as sales increased by 24.2% year-on-year. The strongest December for sales since 2006 came as national median house prices rose to $450, 000 – $23, 000 up year on year, but a slight drop from November 2014. In Auckland the median price hit a new record, of $678, 000.
To put those figures in perspective, New Zealand’s median price rose 5.4% over the whole of 2014, compared with 9.8% over 2013, and whole-year sales were down by 7% on 2013.
‘The data for December shows very strong sales growth compared to 12 months ago,’ says Real Estate Institute of New Zealand (REINZ) CEO Helen O’Sullivan. It’s also ‘a much higher level of sales than we would normally expect for the final month of the year,’ traditionally a slow month, Ms. O’Sullivan went on.
Over the last couple of years New Zealand has experienced a real estate boom, but that is increasingly confined to Auckland, while prices in the rest of the country have moderated. As the national median price rose by 5.4%, a modest rise on the country’s 3.1% GDP growth, Auckland’s prices skyrocketed, rising by 13%, more than four times the rate of GDP growth. That money has to come from somewhere, and it’s not coming from a similar growth rate in the New Zealand economy as a whole, so where is it coming from?
The answer to that question can be found in the title of the NZ Property Investment & Building Guide. Produced as a joint effort by the Panmure-based Chinese firm MultiMarketing and Auckland construction and industry publisher Mark Graham, the Guide offers assistance to Chinese seeking to invest in New Zealand. While some look further afield, the vast majority of these overseas investors are buying properties in Auckland.
One result is that housing in Auckland is now among the most unaffordable in the world, accelerating past Los Angeles, Toronto, New York, Perth, Boston and Brisbane, according to the 2014 Demographia International Housing Affordability Survey.
Auckland is home to a quarter of New Zealand’s population, so the risk of a property bubble is serious – as the University of Canterbury’s architect in residence and urban commentator Tim Nees says, ‘the effects of a bursting bubble are a risk not just for Auckland but for the whole country.’
What might bring New Zealand’s soaring housing market crashing down to earth? Westpac chief economist Dominic Stephens points out that some of the more local supports have a time limit. ‘Low interest rates are driving prices up at the moment, but they are not going to last forever,’ Mr Stephens opines, adding, ‘the same thing with the Canterbury rebuild – that’s not going to be stimulating the economy forever, [and] the population boom won’t last forever.’ When local economic drivers stop pushing, will overseas investors feel the sag and pull out too, bring New Zealand house prices crashing down?