International survey: New Zealand has the world’s heaviest housing burden! Booming property market attracts international attention

High house prices drive large numbers of New Zealand workers to Australia

In a 2015 analysis, economists Chang-Tai Hsieh and Enrico Moretti said restrictions on housing supply in major US cities had imposed substantial costs on the American economy. Their research found that a lack of affordable housing in cities including New York, San Francisco and San Jose had driven large numbers of workers away, costing the US economy around US$1.6 trillion a year.

Economist Peter Nunns examined the nationwide economic impact of New Zealand’s housing supply imbalance as early as 2019. He found that zoning restrictions in major New Zealand cities had caused a severe imbalance in housing supply and argued that this misguided government policy had played a “key” role in rising house prices.

High house prices are driving a continuing exodus of workers, particularly from New Zealand’s major cities. Auckland and Wellington, the country’s two major urban centres, are among the worst affected. Figures show that net migration from New Zealand to Australia has increased in recent years, significantly affecting New Zealand’s economy.

Nunns estimated that easing restrictions on housing supply could deliver total economic benefits of up to NZ$210 a year, equivalent to 7.7% of GDP.

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Property became a major vehicle for accumulating wealth after the Second World War 

From the 19th century to the middle of the 20th century, the rise of industrial economies around the world made owning a detached home an important marker of the emerging middle class. It was from this period that people developed a “clear” understanding of the value of housing. After the Second World War, rising land prices also made property a major vehicle for accumulating wealth.

Rising land prices, deliberate government restrictions on land use, and encouragement from banks and governments to direct more money into the mortgage market ultimately led to soaring house prices and extensive private borrowing. This also directly contributed to property market volatility and the potential for financial crises, including the global financial crisis of 2007, which was triggered by a property bubble.

 

New Zealand’s ageing population further exacerbates the housing shortage

House prices continue to rise while wages grow very slowly. In large and medium-sized cities with expensive housing, the wealth gap between homeowners and those without homes is widening. 

A study by the International Monetary Fund found that rising household debt can have positive effects in the short term by stimulating economic growth and employment through the housing market. However, within 3 to 5 years, these effects reverse as heavily indebted households are forced to rein in spending, slowing growth in other sectors and increasing the likelihood of a financial crisis.

Figures show that Auckland is currently one of New Zealand’s most expensive housing markets and has experienced the world’s fastest deterioration in housing affordability. House prices rose by an average of 1% a year from 1965 to 1995, before annual growth jumped to 4% from 1995 to 2015.

For many people, owning a home is becoming increasingly out of reach. New Zealand’s home ownership rate is now at its lowest since the 1950s, and homeowners are getting older. Among people aged 25–29, home ownership fell from 61% in 1991 to 44% in 2018. Over the same period, the rate among people in their 30s fell from 79% to 59%.

 

Population ageing has also reduced household sizes in New Zealand, further worsening the housing shortage. 

According to Stats NZ, the average household had 3.7 people in 1951 and 3.0 in 1981, compared with just 2.7 today. Although new home consents in 2020 reached their highest level in 46 years, they remained below the per-capita level of 1973.

As in other countries, political considerations surrounding New Zealand’s property market mean politicians across the spectrum indirectly support rising house prices.

CoreLogic head of research Nick Goodall said the current governing party——Labour, currently has little political will to address housing problems because most voters are homeowners. In market terms, their homes are these voters’“nest eggs”。

 

New Zealand’s booming property market attracts international attention, with house price growth the second-highest in the world

Last week, the Knight Frank Global House Price Index showed that global house prices had risen by 7.3% over the past year, while New Zealand recorded a remarkable 22.1% increase, the second-fastest growth in the world.  

This was the fastest growth since 2006 , also reflecting how property market growth in many countries has spiralled out of control. 

The study showed that house prices in Turkey rose by 32% over the previous year, giving it the world’s highest rate of house price growth, an even more dramatic increase than New Zealand’s. 

Among the top ten, the United States recorded 13.2% growth, Sweden 13%, Austria 12.3% and Norway 10.9%. Canada ranked 11 and Australia 18, with annual growth of 10.8% and 8.3% respectively. 

The report’s researcher, Everett-Allen, said 13 countries recorded double-digit house price growth last year. Several markets, including China, New Zealand, Ireland and Canada, have introduced cooling measures this year.

In month 4 of this year, Bloomberg, the world’s largest financial information company, ranked New Zealand’s housing market among the least affordable in the world. The 2021 annual Demographia International Housing Affordability report ranked Auckland the world’s fourth-least-affordable city for housing.

The property market is shaped by highly complex market and political factors. For the government, stabilising the market and maintaining its healthy development drive all policy measures. For the market, once house prices have risen, the likelihood of a sharp fall is very small. For those who need a home to live in, it is never too late to buy.