The price of properties in New Zealand is so high that even abandoned or falling apart houses have price surges.
Although known around the world for its Covid resilience, together with its stunning mountain scenery, its beautiful people, and its modern cities, New Zealand has gained a reputation for being one of the least affordable housing markets in the world.
Licensed real estate agent Femke Burger feels it is “cruel”.
It has taken 10 months for the 32-year-old insurance broker to find a home in Wellington, the country’s capital, with up to 100 other people competing for public viewings.
Although she saw a total of 60 properties, she had to try several times to find a property both affordable and appealing. To stay competitive during that time, she raised her asking price four times to NZ$700,000 ($493,000).
“In the past ten months, I have suffered a cost of about NZ$150,000. I can’t figure out what’s happening. It’s a mystery,” she said. “It’s a total sacrifice and this is terrifying — I won’t have any savings to live on.”
New Zealand has been identified in an updated report as one of the most expensive housing markets based on the income of all OECD countries.
Almost one in three New Zealanders live in Auckland! It’s an exciting city that celebrates vibrant cultural diversity. According to the urban planning consultancy Demographia, it is also the fourth most expensive city in the world. So, if you’re looking for an affordable house or even an investment second property, don’t expect to get one there.
Many people complain that house prices are higher than they might buy on a reasonable basis. The New Zealand property market has experienced an upward trend over the past year, with the national median house price rising over 20% to NZ$780,000.
Among Aucklander’s real estate market, the price spike has been more dramatic; the median price has now exceeded NZ$1.1 million.
There is no wonder why so many investors flock to buy-to-let properties. The market is in full swing with the low borrowing costs and high demand for rental properties.
A number of new records are being set in the property market. Increasing borrowing costs have occurred due to the extremely loose monetary policy, as interest rates have dropped to historic lows.
As global values rise, the resilience of New Zealand, which has virtually vanquished Covid-19, will come to play a key role in accelerating them.
There are countless stories about people who are spending more money on a house than they will ever need. In March, a real estate website, OneRoof, reported that a 3-bed bungalow in the Greenlane suburb of Auckland sold for a staggering $5.98 million at auction. Its valuation had been set at NZ$2.6 million.
Currently, dilapidated houses, also known as “dungers”, are a hot commodity in New Zealand. A derelict “slum house” in Avondale sold earlier this year for NZ$1.4 million, which caused a wake-up call for Auckland property owners.
In order to sustain housing opportunities for new and first-time buyers, the country’s newly elected prime minister, Jacinda Ardern, is struggling to maintain control over the real estate market.
In New Zealand, owning a home has been a cultural rite of passage for decades. But current statistics are showing that homeownership is at its lowest rate since the 1950s – 65%. A government study shows that the average homeowner is more than 14 times richer than the non-owners.
Katherine and Blair Ducketts, a couple that lives in Wellingtons, feel left behind in their new reality. They’ve had to focus on paying rent in raising three children and paying rent for a 20 per cent mortgage deposit.
For the 46-year-old surveyor Blair, who lives in Auckland, the question is, how would she and his wife come up with a deposit of NZ$200,000 and still have money left over after that?
“If we hadn’t needed a deposit, we’d have a house years ago. We have always made our rent on time, we can pay our mortgage,” he said.
While Kathryn, 47, says she chose to put her children’s education before her house purchase, she still feels the pain of that decision. People think it’s too late to tell people we are renting, she said. “I do not feel as if it’s a burden,” she added.
Infometrics estimates that the median house price has increased to 6.7 times the yearly average. A house price decline of 55% or a household income increase of 123% will be required to return us to the affordability level of three for economic consulting.
The government has begun implementing a series of steps in order to assist first-time buyers.
In spite of this, the extent of the problem is terrifying.
Finance Minister Grant Robertson handed over responsibility for moderating house prices rises to the central bank in February and forced it to set monetary and financial policies with greater consideration to the real estate sector. This will enable the imposition of greater macroprudential controls, such as debt-to-revenue and interest-only loan caps on investors.
In response to these proposals, Ardern relaxed the tax rules that promoted speculative investments in residential property last month. The amount of time for taxing investment income will be extended to 10 years instead of five years of deductions in order to reimburse investors for home loan interest payments.
The measures will probably not have much of an effect on pricing soon given the weight of the move, Kelvin Davidson, a senior economist at research firm CoreLogic said. As he explained, “We expect a slowdown in sales. Not as much activity as usual, with only slower rates, but not falling.”
He said the reforms will rather result in a reduction of rental supply and increase in rents as landlords try to recoup losses.
Also, the New Zealand Investors’ Association has rejected the reform, arguing that the dire situation is rather due to a lack of housing.
Brad Olsen, the senior economist at InfoMetrics, explained that: “Tackling housing under-supply will require a sustained period of high building levels in New Zealand in order to address the housing crisis.
“There’s no doubt that the government housing framework is a significant step forward in solving housing issues; however, what we need to do is make more land available for homes,” he said.
The view is still grim for the Ducketts, in spite of the recent government reforms. Blair labels it “a tease.”
“It feels like you get your hopes up and they get it smashed again and again. And you give up finally,” he said.
Despite all of her initial troubles, Femke Burger was finally successful in finding a home. A bid of NZ$825,000 for a two-bedroom, semi-unit was accepted last week.
She said that she spent more than she had planned, and she eventually got something she didn’t think about beforehand. “While there have been some huge compromises, I’m still very excited,” she concluded.