New Zealand’s housing market, one of the most troubled in the world, has experienced significant fluctuations over the past 18 months. The COVID-19 pandemic led to a spike in housing prices due to low mortgage rates, but the subsequent increase in mortgage rates caused prices to plummet. Homeowners and investors have lost billions of dollars in wealth, and properties are languishing on the market for extended periods. This article explores the statistics and challenges plaguing New Zealand’s housing market, shedding light on the causes and consequences of the crisis.
The Pandemic’s Impact
During the pandemic, house prices in New Zealand rose by almost 50% as people took advantage of low mortgage rates and relaxed lending rules. However, since November 2021, the country’s central bank implemented aggressive rate-tightening measures to address rising inflation, causing prices to drop by 17.5%. This decline has wiped out over $6 billion in household wealth, according to Statistics New Zealand estimates. Home sales hit a record low in the three months through December, and houses now spend an average of 47 days on the market.
New Zealand has traditionally faced a shortage of housing, with high prices and poor construction quality. The combination of soaring prices, lack of building, and rising interest rates has exacerbated the crisis. Buyers have been willing to pay exorbitant amounts for poorly built and insulated older homes due to the scarcity of alternatives. The median price for homes in New Zealand is 780,000 New Zealand dollars (approximately $480,000), making them among the least affordable in the world.
Inadequate Housing Policies
New Zealand’s housing crisis has proved challenging for successive governments to resolve. The issue affects various segments of the population, from those on long waiting lists for public housing to underserved renters who cannot afford to buy property. Even more affluent individuals who invested heavily in property are now witnessing their investments decrease in value. The country’s high rates of inequality and poverty are significantly influenced by the housing problem, as many people struggle to meet housing costs.
New Zealand’s housing crisis can be attributed to several factors. Since the 1980s, building has not kept pace with population growth due to restrictive zoning laws and high construction prices. Property values are highly susceptible to fluctuations in interest rates, as most home loans in New Zealand have variable rates that can increase substantially. The absence of a capital-gains tax also contributes to the speculative nature of the housing market, with homeowners avoiding taxation on profits from property sales.
Political Response
The government’s attempts to address the housing shortage have been met with limited success. Bipartisanship on housing policy broke down recently, with conflicting approaches to construction regulations. While legislation was passed to encourage construction in central areas, the opposition party intends to revert to building on farmland at the edges of cities. The different approaches will be a central issue in the upcoming national elections.