The hot housing markets of Sydney, Melbourne and Auckland might seem a world away from the more subdued markets of Canberra, Hobart and Palmerston North.
Not only has growth in those big city markets over the past year or so been supercharged, which has led to some eye-popping prices, but they sit in major business and economic centres.
This is in stark comparison to the markets in the smaller centres, which have seen much slower growth and more constrained conditions.
Yet a new study from Motu Economic and Public Policy Research Trust, which looked at houses prices in sixteen cities in Australia and New Zealand, has found they are all part of a single housing market.
Motu senior fellow Arthur Grimes said they found that all sixteen cities share a price trend and are influenced by the same long-term factors.
“Of course, temporary ‘shocks’ such as an influx of migrants have an effect, but these wear off over a period of time.
“This means the major cities in Australasia share a weak form of a single housing market.”
A weak form single housing market means that house prices are affected by a single price trend – although different cities might react in differing degrees to this trend.
Differing reactions to the overall trend are likely to reflect either geographical or planning constraints, Grimes said.
“Such constraints can affect how much land is available and therefore how land prices respond to migration.”
However, when it came to price dynamics, the study revealed a more differentiated pattern – which made for three distinct city groups.
These were leaders (Melbourne, Sydney, Adelaide, Canberra, Brisbane); followers (Perth, Hobart, Wellington, Auckland, Darwin); and laggards (Dunedin, Christchurch, Palmerston North, Hastings, Tauranga, Hamilton).
All leader cities are within Australia and all laggards are within New Zealand, while the (mid-group) followers comprise a mix of Australian and New Zealand cities.
This means that the effects of any shocks are first experienced in the major Australian cities.
They then impact on the more peripheral Australian cities plus Auckland and Wellington and, finally, they flow through to the more peripheral New Zealand cities.
The study’s findings also have implications for macroeconomic policy, Grimes said.
“We found little evidence that monetary policy is effective in determining long-run real house prices.
“This means governments need to look at areas other than macroeconomic policy if they are interested in controlling house prices.”
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