An investment analyst has delved into the commonly held belief that New Zealand house prices increase every 10 years.
Mark Lister, head of private wealth research at Craigs Investment Partners, said it was a long-held view that values spiralled by that magic number each decade, so he wanted to discover if it was true.
Lister confessed first up: "I'm no property hater", going on to say he would advise any young person to try to get into property as soon as they were able: not only did it put a roof over their head and introduce stability to lives but it also neutralised people from future rent rises.
"Having said that, I do think many New Zealanders have a rose-tinted view of the housing market, overestimating the returns and underestimating the risks, he warned.
For an asset to double in a 10-year period, it needs to rise by 7.2 per cent annually, Lister noted. The Reserve Bank's house price data dates back to 1962, which Lister said provided a pretty good sample of how the market has performed over the long term.
"At first glance, the numbers are good. New Zealand house prices have increased 8.2 per cent per annum over that 58-year period, so they've in fact doubled every nine years," he found.
However, the strongest period for the housing market was in the 1970s and 1980s, when inflation was rampant at 11-12 per cent a year, and interest rates higher still.
"Since we tamed the inflation beast in the early 1990s, its been a very different environment and the gains have been much more modest. That backdrop makes comparing these different eras apples and oranges. It's more useful to look at 'real' house prices, which means the change in price after inflation is accounted for," Lister said.
Since 1962, real house prices had grown at an annual rate of 2.8 per cent.
"That's not nearly as exciting as the statistics your friendly real estate agent will give you, but it does line up nicely with the economic indicators you'd expect it to," Lister said.
Real GDP in New Zealand has grown 2.5 per cent annually over the last 30 years, and annual population growth has averaged 1.3 per cent and Lister said that to be fair, prices have been running hotter than average over the past 20 years, in the 4-5 per cent range.
He sees falling interest rates as being the single biggest driver of house prices going up in recent year.
And they're not looking like rising again any time soon. If anything, they could sink lower, Lister noted.
To get to the punch line, he says: "The old saying is accurate. House prices have indeed doubled roughly every 10 years. However, it's also based on some periods in our history when inflation was exceptionally high. This makes the rule of thumb much less useful, and potentially a little less accurate, from here."
Dominick Stephens, Westpac chief economist, confirmed Lister's analysis.
"It is true and accurate and makes the main points well. Going back to the 1960s, nominal house prices have in fact doubled every decade, but real house prices adjusted for inflation have not," Stephens said.
Before the 1960s, house prices did not double every decade in either real or nominal terms. A chart of real annual house price inflation from 1920 until 2008 showed this.
"There have been periods of decline and periods of increase," Stephens said.
Owen Vaughan, editor of NZME-owned property listing site OneRoof.co.nz, said most housing markets in New Zealand had seen huge price jumps in the last two decades - some as high as 500 per cent.
"Plenty of forecasters have said over the years that New Zealand house prices can't possibly go any higher only to be proven wrong by the market," he said.
"However, the price leaps seen in the last decade - fulled by a potent combination of high migration, low building rates and cheap lending - are unlikely to be matched in the years ahead.
"If that trajectory did continue, the average price of a house in Auckland could rise to almost $3 million by 2040 - more than three times what it is now. That clearly isn't going to happen if wages rise at a much lower trajectory," Vaughan said.