Leon Chen
Aug 27, 2019
A recent study shows that in 2014, the median house price in Herne Bay, a suburb of central Auckland, surged by 77.78%, from NZ$1.125 million to NZ$2 million. During the same period, Grafton, a popular area for students, also saw its median house price rise from NZ$320,000 to NZ$605,000, a jump of 89.06%.
New Zealand house prices plummeted after the 2008 global financial crisis, but Herne Bay and Grafton subsequently experienced their largest annual increases.
Throughout 2014, over 51 residential areas in the Greater Auckland region saw house price increases exceeding 20%. If we calculate house prices in Auckland, Hamilton, Tauranga, Wellington, Christchurch, and Dunedin from 2005 to 2019 on a six-month basis, we can see that in the first half and middle of 2015, some areas of Auckland experienced double-digit price increases. Led by Herne Bay and Grafton, house prices in some affluent areas became unaffordable in a short period. Because these affluent areas are mostly close to the city center business district, prices in downtown residential areas also soared, leading to a supply shortage. Previously affordable housing became unaffordable.
2014 marked the beginning of the property boom, with Auckland's North Shore experiencing the most significant price increases—over 25.57% (nearly NZ$211,969), directly surpassing the million-dollar mark. However, throughout the boom, the North Shore's growth rate declined rapidly: only 10% in 2015-2016, and a further drop to 2% in 2016-2017. Under the combined impact of high prices, foreign buyer bans, and sellers holding back properties, the North Shore is at the center of the current Auckland property market slowdown. The performance of the North Shore property market can be seen as a microcosm of the future of other areas in Auckland, and even some high-growth regions across New Zealand.
Since the North Shore is mostly inhabited by new, high-quality immigrants, it is more attractive to international markets and high-net-worth individuals. It is only natural that the housing prices in this area are the first to boom and the first to decline.
In mid-2017, house prices in areas like Waitākere and Papakura continued to grow slowly. While house prices in central Auckland and the North Shore fell by 5% to 8%, these areas only saw a 2% to 3% drop.
The data shows that money is now flowing into the areas surrounding Auckland: Kaipara saw a 34% increase in the first half of 2017 and is still up 2%; Hauraki saw a 22% increase in six months and is still up 6%; Waikato's house price growth peaked in 2017, but is still up 3%.
Initially, investors might look to invest in economic centers like central Auckland and the North Shore. Once their assets appreciate, they exit and reinvest in the city's outskirts. These outlying areas offer lower property prices, allowing them to purchase more properties after their assets have appreciated.
The pattern around Hamilton was similar, with local house prices rising 13% in the second half of 2015, followed by a 10% increase every six months until the end of 2016. Six to twelve months later, this trend spread to the neighboring Waikato and Waipa rural areas, where house prices rose 8% to 13% every six months until the end of 2017. Similarly, the Tauranga real estate boom began to gradually decline by the end of 2016 and shifted to the nearby Bay of Plenty town, resulting in a 7%-17% increase in local house prices by 2017.
In Wellington, house price growth has shifted from the city center to Lower Hutt, and more recently to Porirua, where house price growth was between 12% and 16% at the end of 2018. However, as investors have turned their attention to the Kapiti Coast or Wairarapa, house price growth in Porirua is now beginning to slow.
With nationwide house price growth slowing and global economic growth decelerating, the future of New Zealand, a country heavily reliant on exports, is causing considerable concern. During the last global economic crisis, New Zealand house prices plummeted; how risky is the property market now?
The Property Institute of New Zealand (REINZ) just released data last week showing that house sales in July increased compared to the same period last year, with some smaller regional centers showing relatively strong price performance. Therefore, there is no risk in the property market. Historically, economic recessions have not led to a significant drop in New Zealand house prices.
New Zealand house prices only experienced a significant drop in the 1970s. Between 1975 and 1980, house prices fell by 38%, followed by New Zealand's first modern "house price boom." This was due to two major surges in global oil prices and losses suffered by New Zealand's major export customers after Britain joined the European Union (then the European Single Market) in 1973, both of which contributed to the decline in house prices.
While the financial crises of 1998 and 2008 impacted house prices, neither triggered a housing market collapse. Auckland house prices declined by 6.6% after the 1998 Asian financial crisis and by 8.6% during the 2008 global financial crisis. Both declines lasted a little over a year before prices began to rise again. These declines occurred against the backdrop of a house price boom (which roughly doubled in 10 years).