Can you afford your first home in New Zealand? The answer may shock you!

Similarly, the latest survey data released this month by New Zealand's CoreLogic nz shows that, as of June this year, the national average house price had exceeded NZ$900,000 for the first time, with average prices in four major regions passing the NZ$1,000,000 mark.

The organisation said house prices were continuing their relentless climb, setting yet another record!

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The national average house price is now 12.4 times the average salary!

A housing affordability report from Massey University states that New Zealand house prices are now 12.4 times the average salary, well beyond affordable levels. Prices have continued to rise, and housing affordability nationwide has steadily deteriorated in recent months.

Although the government's housing market policies introduced this year were intended to stabilise prices and give first-home buyers a chance to get on the property ladder, the return of LVR restrictions and new tax measures have failed to cool prices. At the start of this year, Treasury forecast that annual house price growth would peak at 17.3% in the second quarter ending in June 2021, then slow to 0.9% after June 2022. The market now appears to have exceeded those expectations.

This leaves many people asking: why do house prices keep rising, and when will it end?

CoreLogic chief property economist Kelvin Davidso said several factors were contributing to the continued rise in house prices. The main reasons were:

Persistently low interest rates, meaning mortgage rates, are stimulating the housing market and encouraging more people to buy before rates rise. Meanwhile, the global pandemic continues to spread and the economic outlook remains uncertain, prompting substantial capital to flow into property. New Zealand's longstanding shortage of housing relative to demand is another factor. These are all major drivers of continuing price growth.

 

In fact, New Zealand's housing shortage was already a key driver of house price growth well before the new tax measures took effect in March this year, and it remains so. 

Davidso said:

“Although there are signs that sales volumes are beginning to fall and investor demand has eased, the stock of homes available remains near historic lows, putting pressure on property prices.”

The latest data from New Zealand real estate association Realestate.co.nz shows that the number of homes for sale nationwide in June, meaning listed homes that had not yet sold, fell 33.3% year on year. It also shows that new listings were down 14% compared with 2019.” These figures clearly indicate that housing supply is now even tighter than in 2019.

 

Rental homes reach a record share as investors buy most properties 

A recent analysis by Homes.co.nz chief executive Jamie Kruger indicates that New Zealand's housing supply has kept pace with population growth. However, the share of rental homes continues to rise, meaning most homes are in investors' hands. 

Using population and dwelling data from Stats NZ, Kruger calculated the ratio of housing stock, including owner-occupied and rental homes, to population in 1991 and 2021.

In 1991, there were 1,280,000 properties nationwide, of which 311,000 were rented out. Rental homes therefore accounted for 24% of total housing stock. But in 2021, 621,000 of the country's 1,870,000 properties were rented out, meaning rentals now represent 33% of housing stock.

 

Clearly, the share of rental homes has increased significantly, rather than the share of owner-occupied homes.

Kruger said national housing stock had increased by 586,000 properties over the past 30 years, with 52% of those being rental homes. This was twice the historical average. He also said that over the past 30 years, the ratio of rental properties to owner-occupied properties had risen from a quarter to a third.

This also means that most additional properties have been bought and rented out by investors rather than purchased by owner-occupiers.

 

Can you afford your first home in New Zealand? The answer may shock you! 

Colliers International conducted a housing affordability study using New Zealand's median house price and median household income. Based on current median household income in New Zealand, the amount each middle-income household can save per month (4 Weeks) (Saving money) is just 236 New Zealand dollars. If first-home buyers purchase a home at the current median price, their mortgage repayments every 2 weeks would be 926 New Zealand dollars, far beyond what a middle-income household can afford.

Economists from ASB and Westpac also noted that the property market has maintained strong growth this year and is becoming increasingly heated. Its resilience has far exceeded expectations. 

“There have been strong calls recently to raise the Official Cash Rate (OCR), while other economies are not yet ready for higher interest rates. This is also why the Reserve Bank has been weighing up whether to raise the OCR,” ASB said.

 

Economist: house prices will continue to rise next year 

Property economist Davidson said that, given current house price growth and the central bank's tightening monetary measures, banks were expected to raise interest rates again soon. 

He said: 

“Monthly data from the Real Estate Institute, CoreLogic and other organisations shows that although the return of LVR restrictions has had some effect on the property market, house prices nationwide are still rising. Growth is expected to slow next year. New Zealand's largest recent fall in house prices occurred during the global financial crisis, and there are currently no signs of a similar credit crunch. Credit remains available even as mortgage rates begin to rise. If house prices really do fall, industries across the economy will be affected and unemployment will rise. That is not what we want either.” 

The global pandemic continues to unfold, and vaccines, too, seem to remain a huge unanswered question. With the economic outlook highly uncertain, the market will have to determine where property prices go next. But in New Zealand, where housing is currently in very short supply, the price falls people are waiting for seem unlikely to materialise. As prices continue to climb, those who need to buy a home may face an increasingly difficult situation.