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How general elections affect the property market

It is a question that I have often heard asked. As well as being a regular explanation made when laying the blame for a period of quieter sales leading up to the general election.

So the question is – are there any facts that can be brought to bear to substantiate or dispel this belief? I have never seen any factual analysis – that is until now.

There have been seven general elections held over the past 22 years for which accurate property sales statistics have been kept by the Real Estate Institute. That should be sufficient data to provide some insight.

The question is then how to evaluate the period running up to the election as compared to a normal period to see if there is an effect? A further and broader question: is when is there ever a normal period in the property market with so many variables at work? In my view looking at year-on-year sales volume variance is not robust enough; while it deals to the seasonal factor, it is open to the influence of different stages of the property market cycle.

The measure I have come up with is a seasonal comparison. It uses the three preceding months leading up to each general election date and calculates the representation those months were of the total sales for that year. I then compared that percentage representation as a single figure against the norm for the same three months of the year based on a larger set of preceding data going back to 1992.

In other words, to take the example of the last general election in November 2011, I took the sales for the months of August/September/October of 2011 and calculated that against total sales in 2011, which was 8.84%. I then compared that to the normal average of the months of August/September/October across all years from 1992 to 2010, which was 8.59%. So, in this particular case, I would say that that election in 2011 saw no negative impact on property sales in the lead up to the election. In fact sales were slightly ahead of normal.

Here is the result of this analysis for each of the eight general elections since 1993.

Click to zoom.

What to make of these results?

You could say that on average general elections depress property sales as five of the eight elections caused property sales to decline as compared to normal. However, there is no real consistency. The completely and significant opposing variance in the results for 1993 and 1996 are too significant to ignore.

I did look at the issue of political leaning of elections as a factor. National won the 1993 and 1995 elections and the 2008 and 2011 elections which saw varied outcomes, whereas Labour's impact in winning the other elections, all of which led to falls in sales, so maybe the political factor is key?

Without a convincing answer I reflected on the impact economic sentiment has on the property market at the time of each election. I plotted these variance to the norm for the three months run up to each election against the GDP trend from Reserve Bank data.


Now in my view this correlation makes sense and aligns the election to the cycle of GDP as follows:

1993 - GDP on a surge, economic optimism = 14% rise in relative sales

1996 - GDP declining, economic pessimism, compounded by first MMP election = 19% decline in relative sales

1999 - GDP starting recovery from Asian crisis, economic caution = 7% decline in relative sales

2002 - GDP cautious recovery from post 2001 falls, economic caution = 2% decline in relative sales

2005 - GDP declining, economic caution = 1% decline in relative sales

2008 - GDP collapsing, economic pessimism = 5% decline in relative sales

2011 - GDP recovery, growing economic confidence = 3% rise in relative sales

It would be safe to say that, not surprisingly, the impact of an election on the property market is more a reflection of the economic confidence at the time than any across-the-board view that elections dampen property markets.

As to September 2014, well, with one month's data in the system, I am sorry to say for all those looking to blame the election for a dampening of sales results – it doesn't look like it.

(Click to zoom)

Former CEO Alistair Helm is founder of Properazzi.

Comments and questions

There are a number of factors to the current housing price variations that hasn't been considered, these being:
1) interest rates are on the rise
2) many buyers and especially 1st time buyers are unable to afford the 20% deposit imposed by banks today
3) many of the quality housing is not coming onto the market as sellers don't want to get a bad price
4) quality housing is being snapped up by investors and not owners
5) generally the number of houses coming onto the market is actually declining so buyers don't have much opportunity to buy - rather than the house sales declining

There are a number of key issues any government should address for the well being of New Zealanders in the housing market and these are As follows:
1) prevent investors from owning more than 5 residential properties or total value of over $5million - if they don't comply then their rental values should be constrained
2) low cost properties are a recipient of social disaster as the ongoing costs are higher
3) new properties need to build with space around then rather than sub section on top of sub sections
4) industry is very important to where housing is developed and the government should be encouraging industry to be setup in non congested parts of the country where mass populations are accessible from or even better located to relieve population overload
5) transport to residential areas is important and alternatives should be considered such as overhead monorail or express bus lanes

As ever confused

Thanks Alistair
Excellent analysis as always. But it won't stop the real estate agents trying to spin the slowdown.
What I don't understand is why agents persist in trying to paper over what is really going on, which is a collapse in demand finally pricking Ak's property bubble. We are now seeing the volume collapse lead to price falls even in Auckland (see this month's QV data) and this will only accelerate as it was all credit fuelled and everywhere in the world finance costs are rising (other than the EU, but that is a basket case and they don't buy our houses).
Given agents only get paid when a house sells, it is in their interest to recognise what is going on with buyers and start talking vendors prices down. But for some reason they seem happy to keep listing houses at stupid prices and seeing them sit unsold or fail at auction.
I predict a big correction closer to Christmas, when spring stock compounds the large inventory currently sitting unsold, agents can't buy food or toys for their families and have to hand back their leased BMWs...

Great theory but for the Chinese buy up which creates higher prices in the more desirable areas with a ripple effect to the outer suburbs. Auckland prices aren't going anywhere except upwards.

The middle end has collapsed and deservedly so. The top and low ends are still very strong however. Just need to go to auctions to know that. But nothing to do with the forthcoming election - basic economics about supply and demand, and elasticity of demand.