Benchmarking the NZ & UK Property markets

I am a keen observer of property markets outside New Zealand. The UK and the Australian markets provide what I judge the best benchmarking, as a guide for better appreciating global trends in real estate and property markets. The UK market especially provides a rich set of data on all aspects of these trends and that it is why it is often valuable to undertake some regular benchmarking.

The UK market certainly suffered a more severe correction at the hands of the global financial crisis than New Zealand in terms of property prices, however through a combination of rebounding economic confidence, a raft of government initiatives coupled with strong international buyer interest in London, the UK property market has seen a strong growth in the past year.

The past year has also been a period of strong growth in the New Zealandmarket where annual sales topped 80,119 for the 2013 year. This is a 43% increase on the lowest year of the past 20 years which was 2008 when just 56,071 properties were sold; however pre the financial and property collapse driven by the Global Financial Crisis, New Zealand saw consistent years through 2002 to 2007 when sales exceeded 100,000 a year.

The UK property market by contrast has just seen over one million sales in 2013, an improvement from their low ebb in 2008 of just under 850,000; however like New Zealand its prior peak years topped 1.6 million sales a year. To more accurately benchmark the two markets I have scaled these sales to the relative population thereby creating this chart showing the number of sales per 1000 population.

It can be seem there is a correlation between the two countries when it comes to house sales. Certainly the UK had a considerably higher rate of annual sales before the GFC. Both countries then saw significant falls and both have rebounded with the New Zealand rate of sales now ahead of the UK, probably a function of an early economic recovery.

The UK, just like New Zealand, was cited in the recent Demographia survey as having a high levels of unaffordability especially in the main cities, including London, which was close to the ratio of Auckland as the 10th most unaffordable city of those surveyed in the report (Auckland was the 7th most unaffordable).

Continuing this benchmarking between the two markets, the next logical comparison is house prices. I have sourced the comparable data from the Stratified Median House Price provided by the Real Estate Institute for NZ data and the Office of National Statistics for the UK using their Mix Adjusted data which is a direct match to the methodology of the Stratified Price.

The chart provides an interesting evaluation of the relative pricing of housing in the two countries. Both are national medians and both cover a wide spectrum of properties.

The price fall following the property crash in 2008 was 11% in NZ and 15% in the UK. From the respective pre-crash peak pricing to the current prices the UK is up 12% whilst NZ is up 14%. Naturally the rise from the bottom of the market in 2009 is more significant, the UK up 33% and NZ up 29%.

Finally drilling down to the key regions within both markets I have looked at the performance of the past 12 months in house price appreciation. For the UK the rise has been consistent across all major regions although the scale of the rise has been more spectacular in London, which has shown an 11.6% increase in prices, a region that now has a median house price of £383,000 (NZ$766,000) and an expectation of that rising to £500,000 (NZ$1m) by the end of the decade.

In the local market the past year has seen some volatility in house prices across the country using the REINZ Stratified and median house prices for the period up to November - this period chosen to match the UK data. Whilst the national rise has been just under 10% the range has gone from a 6% fall in Otago to a 16% rise in Taranaki with Auckland delivering just under 15% price rise.