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

34 Pages Posted: 25 Jun 2015

See all articles by Ryan Greenaway-McGrevy

Ryan Greenaway-McGrevy

University of Auckland Business School

Peter C. B. Phillips

University of Auckland Business School; Yale University - Cowles Foundation; Singapore Management University - School of Economics

Date Written: June 22, 2015

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 financial 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 effect 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.

Keywords: Bubble, Exuberance, Collapse, Contagion, Dating methods, House prices, Property market, Sup test

JEL Classification: J61, R23, R30, C33

Suggested Citation

Greenaway-McGrevy, Ryan and Phillips, Peter C. B., Hot Property in New Zealand: Empirical Evidence of Housing Bubbles in the Metropolitan Centres (June 22, 2015). Cowles Foundation Discussion Paper No. 2004, Available at SSRN: https://ssrn.com/abstract=2622496 or http://dx.doi.org/10.2139/ssrn.2622496

Ryan Greenaway-McGrevy

University of Auckland Business School ( email )

12 Grafton Rd
Private Bag 92019
Auckland, 1010
New Zealand

Peter C. B. Phillips (Contact Author)

University of Auckland Business School ( email )

12 Grafton Rd
Private Bag 92019
Auckland, 1010
New Zealand
+64 9 373 7599 x7596 (Phone)

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States
203-432-3695 (Phone)
203-432-5429 (Fax)

Singapore Management University - School of Economics

90 Stamford Road
178903
Singapore

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