The Real Estate Institute of New Zealand had to dip back into its bag of superlatives for its December report on the residential market: “Wellington was a standout region… Southland, Manawatū/Whanganui and Gisborne again saw really strong uplifts in price…”
To cap these tidings of comfort and joy, a bunch of people on the North Shore became millionaires, again, when a 7.1% annual uplift saw the median house price hit $1,050,000.
Barely had the REINZ put away the party hats when Demographia released its 2020 international housing affordability survey. The US-based urban consultancy takes a much dimmer view of housing statistics. Based on its house price-to-income ratio data, each of New Zealand’s eight surveyed local areas is now classified as “severely unaffordable”. “Severely” kicks in when a median household needs more than five times its annual income to buy a median house. Tauranga’s giddy ratio of 9.3 makes it the fifth most expensive of the 305 housing markets in Demographia’s global survey. Even London (8.2), San Francisco (8.4) and Los Angeles (9.0) are more affordable. Hamilton – the Tron, for goodness sake – is less affordable than Las Vegas.
Tauranga, with its high sunshine hours, lovely beaches, economic growth ticking along – what’s not to like? But the fact that a very small city in a very small country at the bottom of the Pacific is more expensive for its house-hunting residents than London or San Francisco should be a national shame.
For doing very little to avert this crisis over the past 20-30 years, a pox on all our political houses, I say.
We’re not the only country in the Western world blighted by housing unaffordability, just one of the worst. When The Economist – not prone to hyperbole – headlined a special report in its 18 January issue “The Horrible Housing Blunder”, you know it’s a “blunder” that’s moved far beyond a social media spat between greedy oldies and militant millennials. Although on that score, the millennials do have cause for anger. The Economist cites US figures, but they’d surely apply here: in 1990, a generation of baby boomers, then with a median age of 35, owned a third of America’s real estate by value. In 2019, a similarly sized cohort of millennials, aged 31, owned just 4%.
To explain New Zealand’s housing woes, local developers point to our restrictive land-use planning regime, a lack of financial incentives for councils and insufficient infrastructure finance. Barely 1% of our land is used for development, they say (while Auckland continues to carve up some of the country’s most fertile horticultural land for housing).
Most economists prefer the failure-to-build argument to the impact of our high non-citizen immigration rates, but how can you bring in 50,000 additional people a year – many of them settling in Auckland – and not put pressure on house prices? (See Graham Adams’ essay on immigration in the latest issue of North & South.)
Labour at least tried to curb foreign purchases of Kiwi properties by classifying them as “sensitive” under the Overseas Investment Act and introducing a residency test. You can bet overseas buyers are finding ways around the new rules; New Zealand remains “open for business” when it comes to flogging off our houses to foreigners.
There’s also our tax regime, which many argue favours property over other forms of investment –and there’s little chance of a capital gains tax resurfacing in the near future. There’s NIMBYism, often driven by ageing homeowners rolling around half-empty houses yet quick to protest any development that might compromise their lifestyle. Falling interest rates haven’t helped; they feed into surging house prices.
And yet, a handful of countries you’d think would be suffering the same unfair, inefficient housing markets are not. Some, like Switzerland, have simply ramped up and incentivised house-building. Then there’s Germany – where the rate of home ownership is just 50% and no one’s complaining. The difference is Germany has a rental sector that encourages long-term tenancies and, says The Economist, provides clear and enforceable rights for renters. With a steady supply of houses and apartments, and few tax breaks or subsidies for owner-occupiers, home ownership is far less alluring. And despite strong growth in some cities over the past few years, Germany’s real house prices are, on average, no higher than they were in 1980. Dummkopfs us.