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Over the past three years, house prices have increased 52 percent in Auckland, but only 11 percent in the rest of New Zealand. Regional variation in house price inflation is not unusual, but the extent of the current divergence between house prices in Auckland and the rest of the country is unprecedented.
Historically, Auckland house prices have trended upwards relative to those in the rest of New Zealand. But in instances when they have deviated significantly from house prices elsewhere, this divergence has subsequently reversed to some extent. Correction has occurred both via prices in the rest of New Zealand catching up to those in Auckland, and by Auckland prices falling to levels more consistent with those elsewhere.
1. Introduction
Since the beginning of the current house price upswing in mid-2012, nationwide house prices have risen 33 percent - underpinned by rapid house price inflation in Auckland and post-earthquake accommodation shortages in Christchurch, but more modest house price inflation elsewhere (figure 1).2
It will come as little surprise to readers that Auckland houses cost more - and prices have been growing more rapidly - than those in the rest of the country. But the extent of the current divergence is remarkable. The ratio of Auckland house prices to those elsewhere in New Zealand has trended up over time, but the extent of the increase in this ratio since 2009 is unprecedented (figure 2).
This Bulletin article does not attempt to pass judgement on whether Auckland house prices will fall, nor whether house prices in the rest of New Zealand will significantly lift. Rather, it provides historical context for the current house price upswing, using nationwide house price data from 1965 and regional house price data from 1981. In particular, it looks at the role of Auckland house prices in nationwide house price upswings over history. It does not attempt to explain why house prices have evolved as they have, but simply describes what has happened in a systematic, accessible way.3
Section 2 documents the trends in nationwide house prices since 1965 and identifies periods of high house price inflation over that time. Section 3 presents regional house price data since 1981, and compares Auckland house prices to those in the rest of New...