Analysis of global housing trends

Citation

Reed, R.G. (2014), "Analysis of global housing trends", International Journal of Housing Markets and Analysis, Vol. 7 No. 3. https://doi.org/10.1108/IJHMA-06-2014-0015

Analysis of global housing trends

Article Type: International Housing Data From: International Journal of Housing Markets and Analysis, Volume 7, Issue 3

This analysis focuses on current trends on three global housing markets and provides an insight into medium-to-long-term housing trends based on varying metrics. The information is sourced from government agencies, and the data facilitate a useful comparison to other countries. This paper commences with an analysis of the “house price to rent” ratio in New Zealand between 1998-2012, followed by examining the number of “house building permits” issued in Germany between 2003-2012. The final country is Japan where the land price indexes for all urban land, six large cities and all urban land (except six large cities) is examined. The objective is to provide an international housing market discussion and facilitate a comparative analysis, as well as highlight data sources which are suitable for housing research. It is also intended to inspire further research into housing-related topics which arise out of this analysis.

The graph in Figure 1 was adapted from Statistics New Zealand (2013) relating to the “house price: rent ratio” and covers the 15-year period between 1998 and 2012. Referring to the ratio in the second quarter of 1998, it can be observed that the median house price was approximately 17.5 times the annual median housing rent. However, this ratio can be divided during this time period into three distinct phases. During the first phase (1998-2003), the ratio is relatively unchanged; however, it rises sharply (i.e. in excess of 150 per cent) during a growth phase between 2003-2007. During the final phase (2007-2012), there is a level of volatility; however, the ratio remains relatively unchanged, remaining at approximately 23 at the end of 2004. It is clear the increases in house prices are not being followed by increases in rent, where the only real decline (2007-2008) could possibly be partly attributed to the global financial crisis and lower house prices. Nevertheless, an increase in this ratio has implications for the housing market including more households deciding to rent (not buy), as housing affordability has clearly decreased over this period. Possible solutions may be for government stakeholders to provide an incentive for entry into home ownership after exiting from the rental market.

Figure 1. House price to rent ratio 1998-2012 – New Zealand

The annual number of housing building permits issued in Germany is presented in Figure 2. It can be argued that there is an effect from the global financial crisis observed post-2008 with the lowest point of approximately 12,000 permits, when compared to the peak of 28,000 permits five years earlier. The early years of the twenty-first century was linked to the highest quantity of housing building permits issued, followed by a period of lower demand from 2005 to 2010. However, in recent years, there has been a recovery in the number of housing building permits issued, although the peak demand in 2003 and 2005 has not yet been replicated.

Figure 2. Number of housing building permits Issued 2003-2012 – Germany

The data displayed in Figures 3 and 4 refer to changes in the value of urban land in Japan between 1970 and 2012. Figure 3 highlights the aggregate information for all urban land and can be divided into two distinct phases, 1970-1991 and 1992-2013. The first phase commences with an index of approximately 20 (1970), then rising to 130 (1991), equating to a relatively steady increase of 650 per cent. However, the second phase ends in 2013 with a defined decrease down to 60, equating to a decrease of nearly 50 per cent over this 13-year period. In real terms, the level of the index in 2013 was similar to the index in 1980, 33 years prior. Another observation is the lack of year-to-year volatility in the graph with a relatively linear change over both phases.

Figure 3. Urban land price index 1970-2012 – Japan: all Urban Land

Figure 4. Urban land price index 1970-2012 – Japan: six large city areas and all urban land (excluding six large city areas)

Following on from Figure 3, the graph in Figure 4 highlights housing indexes in six large city areas and an urban land (excluding six large city areas. In similar manner to Figure 3, there are two distinct phases for both indexes. Dominating the graph is the sharp increase in the index for six large city areas which peaked at approximately 230 in 1991. The largest single annual increase (60) occurred between 1989 (160) and 1990 (220), with the largest single annual decrease (40) observed between 1991 (230) and 1992 (190). By 2013, the value of vacant land in six large city areas had returned to 1985 levels.

The other index (urban land excluding six large city areas) also confirms 1991 as the year when the index was highest; however, the level of change was markedly less than for six large city areas only. Nevertheless, there was the same gradual increase to the 1991 peak, followed by a gradual decline to 2013. Arguably, land values in the six large city areas were adversely affected by speculative investment causing the standard “bubble-bust” scenario, where demand for land diminished substantially and there was a long-term over-supply scenario.

The data in these graphs have provided an important insight into housing trends occurring in different global markets. For example, the ratio of housing prices and the cost of renting is an important issue in New Zealand; however, it receives less research in Germany due to the higher proportion of rental households. Another interesting aspect refers to how well housing markets recovered from the global financial crisis as medium-term data is now available. There is strong evidence to support a long-term recovery; however, the cyclical nature of housing markets suggests an inevitable downturn will again be observed in many global housing markets.

References

Federal Statistical Office (2014), “Short term indicators – building permits”, available at: http://www.destatis.de/EN/factsfigures/indicators/shorttermindicators/buildingpermits/buw210.html (accessed 03 May 2014).

Statistics Japan (2014), available at: http://www.stat.go.jp/english/data/nenkan/1431-17.htm (accessed 05 May 2014).

Statistics New Zealand (2013), “Rental affordability 1998-2012: regional distributions”, available at: http://www.stats.govt.nz/browse_for_stats/people_and_communities/housing/Rental-affordability-1998-2012.aspx(accessed 01 May 2014).

Corresponding author

Richard G. Reed can be contacted at: mailto:richard.reed@deakin.edu.au

Faculty of Business and Law, Deakin University, Victoria, Australia