Two countries, 16 cities, 5,000km, but only one housing market

29/03/2016

Kiwis often talk about the Auckland housing market as if it were a lone wolf, unconnected to anything else in the country. Now, however, economic research shows that not only is Auckland part of New Zealand but, when it comes to housing, we’re all in it together with Australia.

A study from Motu Economic and Public Policy Research Trust looked at real house prices (official house prices adjusted by a consumer price index) in sixteen cities in Australia and New Zealand.

“We found that all sixteen cities share a price trend and are influenced by the same long-term factors," said Arthur Grimes, Senior Fellow at Motu. “Of course, temporary ‘shocks’ such as an influx of migrants have an effect, but these wear off. This means the major cities in Australasia share a weak form of a single housing market.”

With a weak form single housing market, house prices will be affected by a single price trend but different cities may react to differing degrees to this trend. These differing reactions to the overall trend may reflect either geographical or planning constraints.

“Such constraints can affect how much land is available and therefore how land prices respond to migration, said Dr Grimes.

Real House Prices, 16 Cities

Real House Prices

The paper also looked at price dynamics and found that shocks to Australasian house prices are experienced first in five Australian cities (Melbourne, Sydney, Adelaide, Canberra, and Brisbane). The effects then flow through to the more peripheral Australian cities (Perth, Hobart, Darwin), plus Auckland and Wellington. Finally the effects reach the price ‘laggards’ in New Zealand (Dunedin, Christchurch, Palmerston North, Hastings, Tauranga, Hamilton).

“We found little evidence that monetary policy is effective in determining long-run real house prices,” said Dr Grimes. “This means governments need to look at areas other than macroeconomic policy if they are interested in controlling house prices.”

The study Two countries, sixteen cities, five thousand kilometres: How many housing markets? by Ryan Greenaway-McGrevy (University of Auckland), Arthur Grimes (Motu), and Mark Holmes (University of Waikato) received funding from the Resilient Urban Futures Programme Grant from the Ministry of Business, Innovation and Employment.