Investors leading property price escalation in Tāmaki Makaurau Auckland

The common view that investors have been pushing up house prices in Tāmaki Makaurau Auckland has been widely shared in the media, without any evidence behind it. In his doctoral thesis, Dr David White researched whether this was the case. In the process, he developed a unique and replicable approach that identified a cause of over-pricing in the Auckland property market.

Dr White researched whether there is a linkage between investor behaviour and house price escalation in Auckland from 2003 to 2018.

“I interviewed investors and organisations such as banks and real estate agents, who often influence investor decisions, to understand how property decisions are made. I then utilised the user-cost equilibrium model, which imitates rational decision making for durable assets such as housing, and compared the results.”

Using the relatively new field of behavioural economics, Dr White identfied that investors relied on biases and heuristics (‘rules of thumb’) in their decision making, resulting in price escalation.

“Behavioural economics proposes that when making decisions, we sometimes take ‘shortcuts’ in our analysis, such as relying on biases and heuristics rather than objective analysis, and this can lead to under or over pricing. There was strong evidence for biases and heuristics in investor decision making in Auckland and these all had an effect of an upside bias in pricing and thereby contributed to house price escalation.”

Dr White says the result was unsurprising in that it matched the widely-held view that investors were causing house prices to escalate. However, there was another surprising finding.

“My research uncovered that there was a ‘social good’ aspect to investor motivations. Many participants reflected on the important role of investors in providing homes of good quality and in providing certainty of lease term for occupiers. This contrasted with the image sometimes portrayed of housing investors having a ‘profits over people’ attitude.”

As for advice for current buyers, Dr White recommends buyers be aware that house price escalation is cyclical and be cautious in 'getting on the bandwagon'.

Dr White is an alumnus of Te Kunenga ki Pūrehuroa Massey University alumnus, having graduated with a Bachelor of Business in 1989 and a Master of Business Administration [PD1] in 1995. He currently teaches in the property team in the School of Economics and Finance on a part-time basis while continuing to work in the property industry.

“I particularly enjoy teaching property development, giving students an appreciation of the way cities change over time, reflecting a balance between private and public interests.”