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The shortage of property myth

It has been a constant refrain of the property market commentary for many years – "there is a shortage of property on the market"; "property shortages driving up prices" etc.

The reality is that compared to 2008 there is a shortage.

In that year there were 163,488 properties listed for sale and sales totalled 56,071 indicating a clearance rate of just 34%. Compare those figures to the latest data showing that in the past 12 months just 130,307 new property listings were added to the market. Sales over the past 12 months to June 2014 have totalled just 76,637, indicating a clearance rate of 57%. Simply put, more of the properties that are listed today are selling than in 2008 and the number of properties listed is down significanty.

However, as with all statistics, every conclusion you draw is influenced by the data set you choose. 2008 was the start of the global financial crisis and the worst year for New Zealand property for many generations. Judge anything against those days and the picture will be skewed.

If, on the other hand, you line up the data for the first six months of each of the past seven years for which data is available, the picture is very different. (Note there is no listings data before 2007).

Total property listings for the first six months of each of the past six years have barely changed. This year, total listings have reached 63,436 properties listed for sale; hardly any change from last year or the previous year and 2010 saw a bit of a rise in listings. So to say we have a shortage of listings is stretching the truth.

The fact is that we now operate in a very stable supply market. Much as real estate agents may wish to see more properties on the market, the fact is levels in 2007 and 2008 are purely historic fact, not a target to be achieved.

Even in Auckland, where the pressure in the property market is judged to be felt the worst, listings are barely changed comparing this year to last or in fact any of the past six years – the Auckland property market is experiencing a steady supply of new listings. So steady that you could be fairly confident that the balance of 2014 will see a further 22,000 properties listed between July and December.

New listings Auckalnd Jan June.png

Clearly the number of new listings alone does not tell the whole story of the property market, especially in regard to pressure of demand on even a stable supply and so to the above stats you need to represent the level of property sales as in the chart below.

Across the country in the first six months of this year total sales have reached 36,164, down 11%, as compared to the first six months of 2013, whereas listings have barely changed. In terms of a clearance rate in these first six months of this year, the total sales of 36,164 represent, as noted earlier, 57% of the new listings. A year ago the figure based on the first half of 2013 was 62%, indicating that there is less success in property sales and therefore clearly no shortage.

Focusing on the Auckland market, there is no doubt that here the clearance rate of property is far higher. For the first six months of this year a total of 15,090 properties have been sold, with a total of 21,002 new listings – a clearance rate of 72%. The same time a year ago the clearance rate was 78%, indicating the easing in any pressure in this market over the past year with that steady supply and slowing sales – therefore no shortage! 

Former Realestate.co.nz chief executive Alistair Helm is founder of Properazzi.

Comments and questions
7

I dont quite understand how turnover of houses indicates supply and demand.

Whoever sells a house would likely buy another house. Price is the best signal in any market of what was happening with supply and demand.

Totally. I think Alistair has missed the point of his own question. Supply of listings is unrelated to supply of housing. A consideration of new home consents vs migration and population growth might be a better analysis.

If it were true that the population was a near static number, Alistair's analysis would fit like a glove.

Totally agree with the earlier post

Good data Alistair.
I have been saying this for over a year. The data doesn't support claims of a housing crisis in Auckland and there is no rational support for the current bubble prices other than rampant speculation based on cheap mortgage debt. To show how divorced from reality Auckland is, try comparing to a similar Aussie city, Brisbane or Adelaide. For Brisbane in particular, it is an attractive place to live, a population nearly 1m bigger than Auckland, with double the GDP (70b in auckland, around 140b for Brisbane) so per capita wealthier. Brisbane gdp is growing by around 1.5% and their unemployment rate is around 4%. So lots of jobs.
But whereas $1m will buy you very little in an inner suburb in Auckland (maybe a 3 bed do up on a half plot), it will get you a 5 bed renovated villa with pool in one of the top suburbs in Brisbane. And i am talking NZD. Check out the Aussie property websites.
And no, Auckland is not comparable to Sydney or Melbourne. Those cities have vastly larger populations and economies (both are bigger than all of New Zealand) and are home to multiple large multinationals and present immense career opportunities. Auckland is not in their league.
The Auckland bubble is about to deflate rapidly. This week the US Fed admitted employment growth is faster than they anticipated and they may have to raise rates faster in response. This will cause offshore money rates (which drive our mortgage rates) to spike up and cause big problems for trading partners like China which is trying unsuccessfully to manage its own mother of all credit bubbles. None of is is going to be good for property prices, even if we weren't in an overhyped bubble.

1. Auckland is only so big (landwise) - no where commutable to expand.
2. Auckland is under assault from cashed up foreign 'investors'.
3. There are a large number of empty homes (purchased by foreign 'investors') in the inner suburbs.

Please provide data for no.2 and no.3

Is there any reason why the first six months are selected for this analysis? I'm not too sure why sales/listings between July and December don't matter.