Research article

Why Housing Markets Differ Across The Globe

Which markets have seen the end to the boom and bust cycle and which ones never busted?

Across the world and through the ages, the single fundamental driver of residential property demand has always been the number of households in a population wanting a roof over their head. The price of those roofs is then a function of the number of properties and the amount of money available with which households can compete for them.

Translated into global investment property, this means the following three factors will make for house price growth in excess of general inflation:

  Growing population

■  Growing affluence

  Limited land and/or housing supply

The absence of one of these variables can stall a housing market and the absence of two or more can send property values downward.

Having boiled the global housing market down to just these three variables: demographic, economic and supply-side, it is important to point out that the way these variables play out on the ground and at different times is extremely complex and results in a wide variety of market behaviours.

The combined effect of economic performance and recessionary cycles, inflation and fiscal regimes, demographic changes, the availability and cost of finance as well as land supply politics, policies and planning, not to mention cultural, legal and tenure norms means that housing markets behave in very different ways across the globe.

Understanding and navigating this complexity is a formidable task for any investor in their home environment, let alone on the global stage. This document is designed to provide the key information needed to understand a wide variety of world residential markets and then to home in on a few of the most internationally-invested markets in cities and resorts for a deeper look and prognosis on how they might behave in future.

Global Housing Market Performance

Figure 1 shows just how differently housing markets have behaved over the last 30 years. It shows average house price movements in different countries, adjusted for just one of many external variables that impact them, namely, inflation. It shows that there were an enormous range of experiences in different housing markets before the Global Financial crisis of 2008, and there has been an equally enormous variety of experiences since.

Figure 1

FIGURE 1Real (inflation-adjusted) house price experiences around the world: 1985 – 2015

Source: Savills World Research, OECD

Housing market experiences around the world

There are four ways that global real estate markets have behaved since 1985. We have divided national housing markets into four main groups:

(1)  Boom-busters

(2)  Stabilisers

(3)  Deflators

(4)  High-risers

Different demographic, economic, and supply side factors have played out in different countries – with extremely varied results.

1. The Boom-busters

These markets are the ones that often get most attention. All of them have seen property values fall since 2007, some of them very substantially. For two countries (the Netherlands and Ireland) real property values fell back to the level they last saw at the Millennium. They have started to recover but real, inflation-adjusted, values are still well below their former peak. France, having recovered in real terms almost to peak levels after 2008, has since double-dipped and is still below peak, though not as substantially as Spain, Italy and the Netherlands.

Three of the Boom-busters (Italy, France and Spain) saw similar real price rises and falls in the previous market cycle of the late 1980s and early 1990s. It is interesting to note, however, that Denmark, the Netherlands and Ireland were previously much less volatile than they were in the last economic cycle.

Figure 2

FIGURE 2The Boom-busters, real house prices

Source: OECD

Figure 3

FIGURE 3Characteristics of the Boom-busters

Source: Savills World Research

2. The Stabilisers

The Stabilisers are a mixed group that cover a range of circumstances and illustrate how different circumstances and different policies, ranging from loose credit but strong economic recovery to consistently more stable and consistent lending environment have enabled countries to get back, or remain on a more even keel.

Two countries seem to have been permanently stable, though not high rising, since 2000 while some are seeing a repeat of boom-bust and recovery seen in the 1980s and 1990s. The UK and the USA looked like Boom-busters a few years ago but have been saved by population growth and economic recovery, particularly in major growth-cities.

Finland suffered only a small dip but recovered and has flat-lined in real terms since 2010. Belgium did not dip but, since 2008, has also plateaued. In the USA price falls were long lived. Only a pronounced economic recovery and significant inflation-adjusted uplift in residential property values since 2012 stops it remaining in the Boom-buster basket.

The UK’s pre-2007 boom was more pronounced but subsequent falls were shorter-lived. The market as a whole has stabilised rather than recovered but the average performances of both the UK and USA disguise significant recovery in key cities.

Figure 4

FIGURE 4The Stabilisers, real house prices

Source: OECD

Figure 5

FIGURE 5Characteristics of the Stabilisers

Source: Savills World Research

3. The Deflators

Deflators are countries that have seen continued and consistent house price falls in real terms, and sometimes in nominal terms too. The defining characteristic of the most pronounced deflators, Germany and Japan are significantly below-average or even falling rates of population growth which are continuing to decelerate. Switzerland’s population growth is decelerating – and forecast to start falling in future years.

Against this, (perhaps surprisingly) rates of GDP growth have been below-average compared to the other countries under study here and median household incomes are only average when cost of living adjusted.

Switzerland clearly looks different to Germany and Japan as housing has grown in value from its very depressed millennial levels – but has still not regained its 1980s peak. Falling population will continue to depress mainstream property values but, in Alpine areas, overseas buyer demand and constrained supply is likely to boost value growth.

Specific markets within the deflator countries are very capable of bucking the downward trend. Tech industry growth and inward migration to Berlin means values are more likely to rise there while the rise of tourist and leisure resorts in Asia could boost Japan’s ski resorts, for example.

Figure 6

FIGURE 6The Deflators, real house prices

Source: OECD

Figure 7

FIGURE 7Characteristics of the Deflators

Source: Savills World Research

4. The High-risers

For homeowners in many parts of Europe and the USA, it is difficult to imagine there are some countries that either didn’t see or soon recovered from the effects of the debt crisis in 2008 and whose housing markets have continued to grow and now stand higher than they did in 2007, sometimes substantially higher. They are all either in the Commonwealth (Canada, Australia, New Zealand) or Scandinavia (Norway, Sweden).

In all these countries, the three main drivers of house price growth have continued driving. Population growth rates are high and stable or accelerating, household incomes are high by international standards and economic growth has been high and stable or accelerating. Supply conditions vary from country to country and location to location but key cities are frequently experiencing demand at a rate unmatched by supply.

The polar differences between these high risers and the deflators show how critical the combination of demand and supply drivers and policy responses can be. The highrisers show the key success factors that investors need to look out for in high-performing markets: growing population, growing affluence and the constraints on urban growth that many developed countries, and a large number of emerging ones, are now prey to.

Figure 8

FIGURE 8The High-risers, real house prices

Source: OECD

Figure 9

FIGURE 9Characteristics of the High-risers

Source: Savills World Research

Scandinavia: home of the high-risers

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