Ed McKnight: The biggest property crashes in world history and how New Zealand compares

Rents are on the decline and housing is becoming increasingly affordable – but is the property market crashing? 

Ed McKnight joined Jack Tame to look at some of the biggest property crashes in world history, and how they compare to New Zealand’s current property market. 

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Episode Transcript

Speaker 1 (00:07):
You're listening to the Saturday Morning with Jack team podcast
from News Talks.

Speaker 2 (00:11):
That'd be our personal finance expert. Every night. We'll have
all of the numbers. I'm sure at hand he is
comparing New Zealand's property market with the biggest property crashes
in world history. This morning, calder ed, great to be here, Jack.
We all know about the downturn. It's funny how these
things sort of go, isn't it. You know, just a
couple of years ago we were talking about the crazy

(00:31):
surge in the property market. But just how significant is
this downturn?

Speaker 1 (00:36):
Well, in historical contexts, it's big for New Zealand. This
is in fact the largest modern property downturn we've had.
Property prices fell about eighteen percent across the whole country
more well into the twenty percents for Auckland and Wellington,
got pretty close to thirty percent down in some areas.
But what woult it to do today was talk about, well,
how does that compare to worldwide downturns. And what's interesting

(01:01):
is I've got three of the largest property price downturns
I've been able to find, and one of the largest
ones in modern history was actually over in Ireland and
was relatively recent. And what you tend to see with
all of the downturns i'll talk about today is the
massive property price crashes are preceded by massive property booms.

(01:22):
And we know all about that here at news Held
with our COVID fueled boom before we saw the eventual
drop off, But over at Ireland it was even more extreme.
Property prices rose two hundred and seventy percent in just
ten years before the GFC came along, and then property

(01:42):
prices fell fifty six percent. Now that's like saying, imagine
owning a five hundred thousand dollars house and then all
of a sudden it's worth about two hundred and twenty
k and you have two hundred and eighty grand.

Speaker 2 (01:56):
Yeah that is I mean, that is absolutely massive, and
I suppose you know there there are if you're thinking
about it strictly in financial terms, there would have been
some big winners and some massive losers with that downturn.
But that's Ireland. Japan had one as well well.

Speaker 1 (02:11):
Japan is even more insane. So between I'm going to
teach you a new word to that, Jack. So between
nineteen sixty and nineteen ninety, property prices in Japan try
good tupled, Now that's that's fancy word to say. They
went up thirty times well times fire nineteen ninety compared
to nineteen ninety sixes. Here's an interesting fact for you.
At the time, it was said that the land underneath

(02:34):
the Imperial Palace in Tokyo was worth more than all
of the real estate combined in the US state of California.

Speaker 2 (02:42):
I mean, that's obviously absurd.

Speaker 1 (02:45):
Yeah, insane. And then property prices fell to petty on
where you were in Japan, sixty to eighty percent. But
here is the really interesting thing. Since property prices have fallen,
they have actually not yet recovered. So if you bought
a property in nineteen ninety one at the height of
the Japanese market, thirty three years later, it could still

(03:06):
be twenty three percent down on what you paid for it.

Speaker 2 (03:09):
That's interesting is that because Japan has a relatively stagnant population,
because they haven't had the massive population growth the lots
of other countries have had.

Speaker 1 (03:19):
Yeah, that in the aging population. And then on top
of that, you've also got a really interesting factor in
Japan where a lot of it is highly urbanized. So
if you look at an individual city like Tokyo, property
prices can still be really high and in many cases
will have recovered. But if we look at the overall
situation in Japan, house prices are still down at that

(03:39):
national level. So sometimes, just like we have to in
New Zealand, you can split out the cities from the
country as a whole. And actually, in our case, the
cities have performed worse compared to cheap areas in the
country at large. But the largest property downtown is an
interesting one. And I had to go way back in
time to the thirteen hundreds, and it's the Black Death

(04:02):
because the plague. The plague killed about half of Europe's population.

Speaker 2 (04:06):
That'll do that'll do it.

Speaker 1 (04:08):
You're laughing at that.

Speaker 2 (04:09):
Well, I'm not laughing at the plague, I'm you know,
but I mean, yes, it's probably the least of your concerns,
isn't it. If your portfolio is taking a bit of
a blood and half the population has been wiped out.

Speaker 1 (04:21):
Oh yeah, well, that'll do it, won't it did? And
property prices fellon estimated seventy to eighty percent. Now I'd
say estimated because back then they were more interested in
staying alive compared to keeping good property priced data records
for economics seven hundred years later. But those are the
three largest property downturns I could find, and if anything,

(04:42):
hopefully that gives some comfort to New Zealanders when they say,
do you know what our downturn was severe in terms
of property price and property price history we've had in
New Zealand, But it's quite small compared to some of
the largest ones we've seen around the world.

Speaker 2 (04:57):
Yeah, right, okay here, So are there any lessons apart
from avoiding another black death that we can take from this? Well?

Speaker 1 (05:04):
I think the big thing is that the signs that
a property market could get to bubbly is rapid price increases,
easy lending, and building booms. Those are the three big
things we saw in Ireland and are probably the most
similar to us over here in New Zealand. Easy lending,
building booms, and then rapid house price rises. We can

(05:24):
see a lot of that in New Zealand's experience in
twenty twenty twenty twenty one, property prices were up in
some cases well over forty percent. We had a lot
of boo building, and that building takes a while for
the houses to actually come onto the market, so sometimes
developers will start knocking them up during rapid price rises,
and then once they finally built, the market's going the

(05:48):
other way, and you've got the sextra supply coming on
and then the lending tap getting turned off. And it's
really interesting that house prices in New Zealand started falling
the month that the Triple CFA, which was a tough
lending rule that got passed back in twenty twenty one.
It was the same month that law came in the
lending tap got turned off. Our Property Priced Down Tune started.

Speaker 2 (06:08):
Hey, thanks so much, you'd really appreciate it.

Speaker 1 (06:10):
As always, Eve McKnight, Thanks Jake for more from Saturday
Morning with Jack Tame. Listen live to News Talks 't
B from nine am Saturday, or follow the podcast on iHeartRadio.