The recent surge in Australian house prices has sparked curiosity among Kiwi homeowners, who are left wondering if it's time to hop across the Tasman and invest in the Australian property market. While the idea of a property boom in Australia might be enticing, the reality is far more complex and nuanced. In this article, I'll delve into the factors at play and offer my insights on why a Perth-style boom in Auckland is unlikely, but not impossible. So, let's explore the possibilities and consider the broader implications for both markets.
The Australian Property Boom
Perth and Brisbane have seen a significant surge in property prices, with Perth leading the charge with a 24.5% increase over the last year. This boom has left many homeowners in New Zealand envious, as they witness the rising prices across the ditch. However, it's essential to understand the factors driving this growth and the historical context that shapes the relationship between the two countries.
One key factor is the timing of the boom. Australia didn't experience the extreme rollercoaster that New Zealand went through during the COVID-19 pandemic. While New Zealand's house prices skyrocketed by 42%, Australia's prices rose by a more moderate 22%. This difference in the magnitude of the boom has significant implications for the future of both markets.
The New Zealand Market: A Different Story
New Zealand's housing market has been on a wild ride, with prices peaking in 2021 and early 2022, only to experience a substantial correction. When interest rates started rising, the market had already peaked, leading to a larger decline. Today, house prices in New Zealand are still around 15% below their peak, with Auckland experiencing a more significant drop of over 20%.
In contrast, Australia's market went through a smaller downturn, with prices falling by 13%. This means that the Australian market reached the recovery stage sooner, while New Zealand is still navigating a series of false starts. The difference in the magnitude and timing of the boom and bust cycles has significant implications for the future of both markets.
Migration and Confidence: Tailwinds for Australia
Australia has several tailwinds that are driving its property market growth. One of the most significant factors is migration. At its peak, net migration was adding more than half a million people a year to Australia's population, contributing to a 2% population growth rate. Today, this rate has eased to around 1%, but it's still higher than New Zealand's, which has fallen to roughly 0.5%.
The Australian economy has also proven more resilient, with an unemployment rate of 4.3%, compared to New Zealand's 5.4%. This gives Australian households more confidence, supports lending, and encourages buyers to stretch and purchase properties. These factors create a positive feedback loop, driving up property prices and creating a more stable market.
The Historical Relationship Between the Two Countries
New Zealand and Australia have a history of moving in similar directions, with New Zealand typically lagging behind Australia by six to nine months. This relationship is driven by the fact that both countries respond to many of the same forces: interest rates, migration, bank lending, and confidence. However, the intensity of the boom and bust cycles can vary significantly.
The Signs of Recovery in New Zealand
While a Perth-style boom in Auckland is unlikely, there are signs that the New Zealand market is recovering. The number of property transactions has broadly recovered, with just under 80,000 homes sold in a year, close to the long-term average of about 82,000. Listings are being absorbed more quickly, with around 22 weeks' worth of homes on the market, compared to 31 weeks at the worst point of the downturn.
Some property markets in New Zealand have already quietly recovered, with property values in Invercargill City, Queenstown-Lakes, Christchurch City, and Southland now higher than they were at the peak of the market in 2021 and early 2022. These signs of recovery are encouraging, but they don't necessarily indicate a broader market boom.
The Unlikely Boom: Why Auckland Might Follow Perth
While a Perth-style boom in Auckland is unlikely, it's not impossible. The Australian market is already responding to similar forces that are beginning to emerge in New Zealand. If interest rates continue to rise, migration picks up, and confidence grows, the New Zealand market could see a more significant recovery. However, it's essential to recognize that the intensity of the boom and bust cycles can vary significantly between the two countries.
In conclusion, the recent surge in Australian house prices has sparked curiosity among Kiwi homeowners, but the reality is far more complex. While a Perth-style boom in Auckland is unlikely, the New Zealand market is showing signs of recovery. The relationship between the two countries is driven by historical patterns and shared forces, but the intensity of the boom and bust cycles can vary significantly. As an Auckland-based economist and property investment advisor, I believe that the New Zealand market is on the path to recovery, but it's essential to approach it with caution and a long-term perspective.
