Hot Property in New Zealand: Empirical Evidence of Housing Bubbles in the Metropolitan Centres

Abstract

Using recently developed statistical methods for testing and dating exhuberant behavior in asset prices we document evidence of episodic bubbles in the New Zealand property market over the past two decades. The results show clear evidence of a broad-based New Zealand housing bubble that began in 2003 and collapsed over mid 2007 to early 2008 with the onset of the worldwide recession and the …nancial crisis. New methods of analyzing market contagion are also developed and are used to examine spillovers from the Auckland property market to the other metropolitan centres. Evidence from the latest data reveals that the greater Auckland metropolitan area is currently experiencing a new property bubble that began in 2013. But there is no evidence yet of any contagion e¤ect of this bubble on the other centres, in contrast to the earlier bubble over 2003-2008 for which there is evidence of transmission of the housing bubble from Auckland to the other centres. One of our primary conclusions is that the expensive nature of New Zealand real estate relative to potential earnings in rents is partly due to the sustained market exuberance that produced the broad based bubble in house prices during the last decade and that has continued through the most recent bubble experienced in the Auckland region since 2013.

Dating the Timeline of House Price Bubbles in Australian Capital Cities

“…Expensive property, relative to potential earnings in rent, in Sydney can be explained, at least in part, by sustained market exuberance that has produced a bubble in the housing market since early 2014. This result is similar to the findings of Greenaway‐McGrevy and Phillips () for the Auckland property market in New Zealand since 2013.…”

“…() date several asset bubbles in the S&P 500 over 150 years. The closest paper to ours is Greenaway‐McGrevy and Phillips () who apply it to identify and date housing bubbles in New Zealand over the period 1993–2014, finding a current housing bubble in Auckland.…”

Catch Animal Spirits in Auction: Evidence from New Zealand Property Market

“…The results from the SADF test show that the bubble has started in March 2014, while the results from the GSADF show the bubble started in March 2013 and continued throughout 2014 and 2015. In a separate study, Greenaway‐McGrevy and Phillips () have found that recent housing bubbles appeared to start in Q4 of 2013 based on the price‐to‐rent ratios in the Auckland region . Thus, our results show an early indication of accompanying housing bubbles using auction sales.…”

“…Using an asset pricing approach, Bourassa, Hoesli and Oikarinen () find that a simple price‐to‐rent ratio measure performs well in both ex post and in real‐time bubble analysis. Meanwhile, Greenaway‐McGrevy and Phillips () show the presence of bubbles in major cities in New Zealand beginning from 2003 to 2008 using quarterly price‐to‐rent ratios.…”

Did bubbles migrate from the stock to the housing market in China between 2005 and 2010?

“…However, in as much as other diversification opportunities for Chinese individual investors are very limited, it is expected that speculative pressure may move between these two markets. The recently developed methodology by Greenaway‐McGrevy and Phillips () enables us to examine in a second step for China the migration of bubbles from the stock market to a first‐tier city real estate market (or vice versa). In order to conduct a high‐frequency study and to remedy the bias in official (low frequency) housing prices in China, we use an original weekly hedonic resale real estate price series of a major housing market in China, covering a sample starting before, and ending after, the global financial crisis: from 2005 to 2010.…”