New Zealand, one of the world’s most unaffordable property markets, is experiencing price spikes for even the most dilapidated homes.
Popular for the way it competently handled the Covid 19 pandemic, its breathtaking landscape and its widely-admired prime minister, New Zealand is now becoming notorious as one the most expensive housing markets on the globe.
Femke, who had been house-hunting for 10 months, summed it up as “brutal.”
The 32-year-old insurance case manager, who’s been in search of a home in Wellington, the country’s capital for that period, says she’s often had to jostle with up to 100 people at public home viewings.
It took her about 10 offers before she finally succeeded in finding a house after seeing about 60 properties. During that period, asking prices rose, forcing her to increase her starting budget of NZ$700K ($493K) four times to improve her chances.
“It’s mind-blowing that I spent upwards of NZ$150k on house value for those 10 months. I don’t quite understand that,” she said.
I’ve putting up all my savings in order to make this happen, and that’s a really frightening prospect.”
As a result of its high housing prices, New Zealand now ranks among the least affordable in the OECD. According to urban planning consultancy Demographia, Auckland, home to a third of the country’s population, is the fourth most expensive city in the world.
House prices are believed to be entering bubble territory. The national median was up over 20% in the year to February, taking the national average to NZ$780K. In Auckland, it soared to NZ$1.1 million.
An ultra-loose monetary policy is the driving force behind the explosive rise in prices, which has taken borrowing costs to new historic levels and accelerated a rush into higher-yielding investments such as real estate.
These drives are pushing up prices worldwide, but to an alarming rate in New Zealand, which has defeated Covid-19 and is recovering faster than most.
Every week there seem to be more stories of incredible prices being paid. In March, a simple three-bedroom apartment in the desirable Greenlane suburb of Auckland
for NZ$5.98 million at an auction – which is about NZ$2.6 million more than its local council evaluation, according to OneRoof, a real estate website.
Even “dungers” (tumbledown houses in New Zealand) are in hot demand. Despite its dilapidated appearance with peeling paint and boarded-up windows, a three-bedroom home in the Auckland suburb of Avondale sold for NZ$1.81 million in January, showing how valuable its land is to developers.
As more and more first-time buyers are locked out, Prime Minister Jacinda Ardern, who took office promising to close the gap between rich and poor, is being pressured to cool the market.
In New Zealand, owning your own home has always been a cultural rite of passage, but ownership has dropped to the lowest rate since the 1950s — 65%.
According to government figures, homeowners are usually wealthier than non-homeowners by 14 times.
Kathryn and Blair Duckett, a couple in Wellington couple are some of the hardest hit.
Bogged down with the responsibility of raising three boys and paying rent while struggling to save the required 20% deposit for a mortgage, they have been unable to afford to keep up with the mortgage payments.
Blair, a 46-year-old surveyor wonder “how the hell” he and his wife are to “save NZ$200K for a deposit and live.”
He said they would have had a house years ago if they didn’t need a deposit.
“Our payments on rent have never been missed, so we are able to service our mortgages,” he explained.
Kathryn, 47, explains that it is painful having to choose to focus on their children’s education rather than buying a home.
They don’t let people know they’re renting because it’s like a stigma, she said. People say they’ve been left behind.
Infometrics reports that the median home now costs 6.7 times the average yearly household earning.
A 55% drop in house prices or a 123% increase in household incomes is said to be necessary for an affordable multiple of about three, according to economics consultancy projections.
A rash of new tax breaks and measures has been rolled out by the government to encourage first-time home buyers.
This will hopefully tilt the scale in their favour and away from investors who have often be able to outbid newcomers because of tax breaks they had long enjoyed.
But the extent of the problem is overwhelming.
As Grant Robertson announced in February, a portion of the responsibility for reducing house price increases had been transferred to the central bank, requiring that the institution pay closer attention to the property market when setting monetary and financial policies.
Those policies may include tighter limits on interest-only lending and more macro-prudential regulations on investors.
Also, in March, Ardern tackled tax rules that had made speculative investment in residential rental property an attraction.
The ability of investors to claim mortgage interest as a tax-deductible expense will be phased out, and the period in which profits on the sale of investment property are taxed will be extended to 10 years from five.
Because of the weight of demand, Kelvin Davidson, a senior economist at CoreLogic, doesn’t expect the measures to have much impact on prices in the near term.
It is expected that sales will grow slowly, with less activity, but prices will not fall as much; they’ll only have less growth,” he said.
The New Zealand Property Investors Federation says the real issue is a shortage of housing. It sharply criticised the changes, saying it will result in a decrease of rental property and spike rents as landlords try to recover the extra costs.
Brad Olsen, a senior economist at Infometrics, said the housing crisis will not be resolved without an extended period of high building levels.
“A housing package from the government is a good start in addressing housing shortages, but more needs to be done to free up land for new homes,” he said.
The Ducketts don’t see much good in the government measures for them. Blairs says it’s just a tease. “Time and again, you get your hopes up only to have them dashed. And you eventually give up,” he said.
For Femke, however, the house-hunting saga has ended happily. Recently, her two-bedroom, semi-detached offer of NZ$825K was accepted.
She said in the end, she spent significantly more than her initial budget and bought something she would never have thought of at the outset. “The compromises have been big, but I’m still happy,” she concluded.