Auckland House Prices – Economics 101

The Reserve Bank Deputy Governor, Grant Spencer, made some strong statements in the media Wednesday 15 April about wanting the Government to introduce a capital gains tax on property investments.

The media is continually full of stories about the housing booms in Auckland and Christchurch, telling us that we have an investment bubble and that an overheated market will destroy the NZ economy, our banking system will fail, the sky will fall etc.

Economics 101: when demand exceeds supply, prices increase.  When supply exceeds demand, prices fall.  When supply and demand meet, prices settle into an equilibrium.

Has anyone noticed that the Christchurch real estate market has not been mentioned in the last few months??

In Christchurch, we finally have a situation where the market is reaching equilibrium, as the housing supply has increased due to houses having been repaired and new houses have been built.

In February 2015, Harcourts has reported that the average selling price in Christchurch was $402,752 – a reduction of 13% on the average house price in February 2014. Statistics over the latter months of 2014 showed an increasing number of listings, a declining number of sales and a slowing average house price sale, which is now in decline.

In February 2010, the average Auckland house price sale was $521,323.  In February 2015, the average Auckland house price was $747,521 (Source: Barfoot and Thompson).   This is a cumulative return of 43.39% over 5 years, or an average of 8.68% per annum.

On 28 February 2010, the NZX 50 index with imputation credits sat at 3394.25.  On 28 February 2015, the NZX 50 index with imputation credits sat at 6751.95. (source: NZX) This is a 98.93% increase, or an average of 19.79% per annum.

Why are there no calls in the media for extra taxes to be added for sharemarket investors?   We certainly have an overheated NZ share market.

Currently, Australians are getting the same story about Sydney property prices as we have been hearing about Auckland for months.  Sydney property prices have increased 14% in the year to 31 March (Source: Sydney Morning Herald)  and all this in a market which has capital gains tax AND stamp duty on property sales.

Tax is not the answer – increasing supply or decreasing demand is the answer.   Free up land banks, make it easier for subdivision, require immigrants to NOT live in Auckland…… simple Economics 101.

(P.S.  I am not advocating that you buy NZ shares – you have totally missed the boat on that one!  Buy cheap, sell high – not the other way around!)