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 properties 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 significantly.
However as with all statistics, every conclusion you draw is influenced by the data set you choose. 2008 as we all know was the start of the Global Financial Crisis and the worst year for NZ 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 6 months of each of the past 7 years for which data is available, the picture is very different. (Note there is no listings data prior to 2007).
Total property listings for the first 6 months of each of the past 6 years have barely changed.
This year, total listings have reached 63,436 properties listed for sale; hardly any change from last year or the prior year, 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 6 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.
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 6 months of this year total sales have reached 36,164 down 11% as compared to the first 6 months of 2013, whereas listings have barely changed.
In terms of a clearance rate in these first 6 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 6 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 past year with that steady supply and slowing sales - therefore no shortage!
The above article was written by Alistair Helm, and is republished with his approval. The article was originally published on Properazzi here.
13 Comments
... Hugh Pavletich's message , his constant refrain , has been missed by so many : We do not have a shortage of houses nearly so much as we have a shortage of land allowed for residential development ....
The cost of sections has increased many times over , whereas the costs of construction have not ...
... strip away the land value of many house packages , and you'll see a modesty priced dwelling is perched atop a " King's ransom " in land ...
Cost of construction has increased quite considerably.
The cost of finance has also increased, which makes build new houses less interesting as an investment (high equity plow in, low rent yield, high intertest and taxation) why would someone take that risk. Throw in the high cost of council work to provide working infrastructure charged on as DC... no thanks.
So that means it's more effective yield to buy something with a few miles/years on it. It's worth less but chances are the tenant isn't going to pay a "under 5yr premium" in rent.
Which increases demand.
Which pushes up the price.
And interest rates are higher so FHB are going to have to go in at lower leverage, which ties them to the wheel for longer.
Landlords are going to want higher rents across the board, as interest rates are up. higher rents can be got because the only other option is to buy...at the higher interest rate...which they would have done so if they were going to or able to. That pushes elasticity on the renters, lack of choice differentiation for cheap rentals make supply inelastic.
Result pressure to push rents up. The higher the rent the better the yield. higher yield means better bidding power and eventually higher prices...starting the loop again. and chances are the FHB is saving depreciating cash slower than the interest is inflating the house prices...
Listings stay the same.....but the population keeps growing. Just a thought.
Strange. The data I see above doesn't seem to line up with what I am seeing. Sinse the LVR's were introduced I can't seem to find anything worth looking at? Just bad properties. Maybe it's a quality issue.
Jamin... more than just a thought... Its' a big deal... Alistair was kinda remiss in not including population it in his analysis.. in my view.
Without the population changes...the above analysis is less useful... ie.. the above statistics could be from both a declining city or an increasing city ( population) ( unlikely...but possible ..just for the sake of argument ).... yet the the implications in regards to supply/demand and price, in the medium term,... are obviously ... vastly different.
I think in 2006 Auckland had about 1.3 million people .... now we have over 1.4 million... and growing..
The same time a year ago the clearance rate was 78% indicating the easing in any pressure in this market over past year with that steady supply and slowing sales - therefore no shortage!
This conclusion becomes a little bit lame when you add in population changes....
the supply side of a market is always alot easier to gauge than the demand side...
rather than use the word shortage.... maybe "price change" is a better term...
just my view.....
There aren't many good reasons to sell in NZ.
Cashing out... unless you've got a bigger fish to pay for...just isn't worth the overhead.
I wonder what the gross yields (after rates) are in different parts of the country, but generally the RBNZ and government have made it worthless to invest in anything else. High cost of doing business, tax, interest, wages...reduces the value of starting anything straight forward in anywhere but the big centers, and they're dominated by multinationals
Great article. Good to see the statistics presented and analyzed in a meaningful way.
The graphs show that the supply of houses for sale is relatively stable.
The demand flucutates a lot more.
It could be argued that the high clearance rates, especially in Auckland over the last two years, indicates that there is a shortage. Almost anything that comes up for sale gets sold. In Auckland, at the moment, there is high demand for a constant supply. This constitutes a shortage.
Alistairs article is almost plagiarism .
Olly Newland wrote a long article on this site, along a similar vein a month or two ago and asked "shortage, what shortage and why the fuss?"
Just throwing in charts and figures available anywhere is not good enough.
It is merely a sign of laziness masquerading as research .
if people like Alistair want to be taken seriously then at least they should come up with fresh material and not piggy back on the work of others.
Fantastic article Alistair explained in an accurate and factual account of where the market is. Will be very interesting to see what this looks like in 6months.
As for your comments about Olly Newlands article Big Daddy here my take on Olly.
I think its time Olly pull out his property clock and had a good look.
· Share market peak/Falling share prices
· High/Rising Interest rates
· Falling commodity price
· Stagnating or falling rents
Olly seems to have gone down the track of just been another property spruiker. It is all most like he got the cycle wrong this time round and he is trying to hold the market up so he can cash up retire and head for the hills. Could it be Omelette Olly again?
What we all need to be watching at the moment is China and see weather it holds together. Good article to look at on you tube is (How China fooled the World: by the BBC) it may be time to start looking for a chair the party maybe over.
My understanding of Ollys current thinking is that the market is nearing its peak and it's time for caution.
He does not "spruik" but spends most of his time analysing the portfolios of those who have been reckless over the years and assisting them back to financial health.
Alternatively he gives prudent and conservative advice to those who want to invest in the market very carefully.
He has a large team of experts who assist him and they are all very busy day in and day out.
I always like reading Big Daddy's posts and observing how Olly writes about himself and his ideas in the third person, under the name of "Big Daddy'.
Great fun. But of course he has to because Olly always has some interesting observations on the property market, given his years of experience, but if he posted under his own name the moaning, doom, gloom and despondency brigade on interest.co.nz would just personalise their nonsense responses.
Hang in there Olly... sorry 'Big Daddy'.
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