One of the World’s Hottest Real-Estate Markets Tries To Cool
Kanebridge News
Share Button

One of the World’s Hottest Real-Estate Markets Tries To Cool

New Zealand is pulling every lever to tame property prices.

By Mike Cherney
Mon, Nov 8, 2021 12:07pmGrey Clock 4 min

New Zealand is emerging as a test case of whether authorities can restrain rising home prices without tanking the market and destabilising the economy at the same time.

The South Pacific nation’s efforts could offer a blueprint for the many other countries facing a similar dilemma after the coronavirus pandemic. A combination of low rates, economic stimulus and changes in buying patterns as people work remotely is pushing real-estate values higher all over the world, pricing out many first-time home buyers.

The problem is particularly acute in New Zealand, where housing supply failed to keep up with population growth over much of the past decade. Home prices have risen more than 30% in the past year, according to a property-price index from the Real Estate Institute of New Zealand.

The country’s home-price-to-income ratio, a measure of affordability, is the highest compared with the long-run average among 30 key economies analyzed by research firm Capital Economics. For each economy, the firm created an index setting at 100 the long-term average of the ratio of home prices to incomes. New Zealand’s score on the index was 178, or well above its long-term average.

Governments have several tools at their disposal to influence real-estate prices, including boosting housing supply either through direct investment or changing land-use regulations, restricting mortgage lending and offering financial assistance to first-time buyers.

Economists and policy makers debate whether central banks should use interest rates to try to rein in housing prices by influencing the cost of borrowing. Higher rates could make mortgages more expensive and cool demand for housing, but they could also have unwanted impacts on inflation or employment, the traditional areas of focus for central banks.

New Zealand is pulling every lever. In October, the country’s central bank raised its benchmark interest rate to 0.5% from a record-low 0.25% and signalled more increases over the next year, in part because of skyrocketing home prices. And earlier in the year, New Zealand’s government, in a novel move, directed the central bank to consider home prices when making decisions about monetary policy, even though bank officials warned that would have little impact on the market and could lead to lower employment and below-target inflation.

New Zealand has also restricted low-deposit lending, a move designed to reduce risky mortgages and lower the chance of a damaging housing market correction, which could destabilize the broader economy. Starting Nov. 1, only 10% of lending to owner-occupiers can have a loan-to-value ratio of more than 80%, down from the 20% of lending that is allowed now. It is working on debt-to-income restrictions as an additional tool.

The government also plans to make higher-density housing easier to build in cities and limit the deductibility of interest costs on residential property investments. The tax change aims to stem investor demand for existing residential properties, a dynamic that has contributed to higher real-estate prices in the past and made it more difficult for first-time buyers to get on the property ladder.

Whether New Zealand’s efforts have a measurable impact on housing prices, without any unwanted economic or social side effects, isn’t yet clear.

In September, the latest month for which data is available, property prices in seven of New Zealand’s 16 regions reached record median levels, according to the Real Estate Institute. Prices in Auckland, the country’s biggest city, declined 4% from August to September, but a Covid-19 lockdown in the city had curtailed buying and selling. The institute said it expects activity to pick up when the lockdown lifts.

Gareth Kiernan, chief forecaster at Infometrics, doesn’t expect New Zealand home prices to fall soon. All the government and central-bank measures combined might succeed in slowing price increases, he said, but that still means a grim outlook for first-time buyers.

Demand is also likely to increase, Mr. Kiernan said. The government recently decided to allow residency for tens of thousands of people on temporary visas, which means more people will be looking to buy homes. And the construction industry is still struggling to build houses fast enough to meet existing demand.

Mr. Kiernan said interest rates would need to rise by quite a bit more than currently expected to bring about a fall in prices. New Zealand’s central bank in August projected that the cash rate would reach 1.6% by the end of 2022 and 2% in the second half of 2023.

Even if home prices stopped rising, and assuming incomes grow 3% a year, the home-price-to-income ratio would take until 2050 to decline to its level in 2000. Mr. Kiernan said.

“It’s going to remain very painful I think, very difficult for people wanting to get into the housing market, for a long time,” he said.

Capital Economics, in its recent analysis, expects home-price inflation in major economies to moderate naturally in the coming months and isn’t expecting a destabilizing drop in prices.

However, it said the risk of a crash is elevated in countries such as New Zealand where affordability was stretched even before the pandemic. Other countries in a similar situation include Canada, Denmark, Australia, Sweden and Norway, the firm said.

“We would not say that house price falls in any of these countries are certain or imminent—some have been flashing red for several years yet house prices have continued to defy gravity,” the economics firm wrote. “But it would not take much to tip them over the edge.”

 

Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: November 7, 2021



MOST POPULAR
11 ACRES ROAD, KELLYVILLE, NSW

This stylish family home combines a classic palette and finishes with a flexible floorplan

35 North Street Windsor

Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.

Related Stories
Property
Winning neighbourhoods where home values rose most in FY24
By Bronwyn Allen 18/07/2024
Property
Jennifer Lopez and Ben Affleck Officially List Their Massive Beverly Hills Mansion for $68 Million
By BECKIE STRUM 12/07/2024
Property
The faster pathway to building wealth is no longer how much you earn, investors believe
By Bronwyn Allen 11/07/2024
Winning neighbourhoods where home values rose most in FY24

We reveal the No. 1 areas for price growth in each capital city

By Bronwyn Allen
Thu, Jul 18, 2024 3 min

Home values across Australia rose by a median 8 percent in FY24, delivering the equivalent of $59,000 in new capital growth to the two-thirds of the population that owns a home, according to CoreLogic data. Investors received total returns of 12.2 percent over the year, including capital gains and gross rental income.

Very tight supply and demand in most capital cities except Melbourne and Hobart was a significant driver of the capital growth, with the smaller and more affordable capital cities of Perth, Brisbane and Adelaide experiencing the most price appreciation over the year. A lack of properties for sale trumped the usual dampening effect of higher interest rates.

As usual, some areas outperformed their city’s median growth benchmark. Here are the top SA3 areas for capital growth in each capital city of Australia in FY24. SA3 areas are large suburbs, or districts incorporating clusters of suburbs, with more than 20,000 residents.

 

Sydney

Home values across Sydney rose by a median 6.3 percent in FY24. The No. 1 area for growth was Mount Druitt. Its median value rose by 13.96 percent to $859,939. Mount Druitt is located 33km west of the CBD. It incorporates the suburbs of Mount Druitt, Ropes Crossing, Whalan and Minchinbury. The Mount Druitt community is very multicultural with almost one in two residents born overseas. It is home to many young families, with the median age of residents being 33 compared to the NSW median of 39.

 

Melbourne

Home values across Melbourne rose by a median 1.3 percent in FY24. The top area for capital growth was Moreland-North with 4.71 percent growth. This took the district’s median home value to $746,488. Moreland-North includes the suburbs of Hadfield, Pascoe Vale and Glenroy. It’s a multicultural community with a particularly large contingent of residents with Italian ancestry. One or both parents of 66 percent of residents were born overseas, according to the 2021 Census.

 

Brisbane

Home values across Brisbane rose by a median 15.8 percent in FY24. The No. 1 area for growth was Springwood-Kingston in Logan City. Its median value swelled by 25.55 percent to $710,569. Springwood-Kingston is approximately 22km south of Brisbane CBD. It incorporates the suburbs of Springwood, Kingston, Rochedale South and Slacks Creek. It is a multicultural community with one or both parents of 55 percent of the residents born overseas, according to the 2021 Census. More than 15 percent of residents have Irish or Scottish ancestry.

 

Adelaide

Home values across Adelaide rose by a median 15.4 percent in FY24. The best area for capital growth was Playford in Playford City. Its median value soared by 19.94 percent to $530,991. Playford is approximately 40km north of Adelaide. It incorporates the suburbs of Elizabeth Downs, Elizabeth Grove, Angle Vale and Virginia. It is home to many young people under the age of 40. The median age of residents is 33 compared to the state median of 41.

 

Perth 

Home values across Perth rose by a median 23.6 percent in FY24. The No. 1 area for growth was Kwinana in Kwinana City. Its median value skyrocketed by 33.19 percent to $618,925. Kwinana is approximately 37km south of Perth CBD. It includes the suburbs of Leda, Medina, Casuarina and Mandogalup. Henderson Naval Base is located here and there is a significant community of servicemen and ex-servicemen living in the area. It is home to many young families, with the median age of residents being 33 compared to the state median of 38.

 

Canberra

Home values across the nation’s capital rose by a median 2.2 percent in FY24. The best area for capital growth was Weston Creek. Its median value rose by 5.24 percent to $937,740. Weston Creek is approximately 13km south-west of the CBD. It includes the suburbs of Weston Creek, Holder, Duffy, Fisher and Chapman. Approximately 43 percent of residents have a bachelor’s degree, which is on par with the ACT median but much higher than the national median of 26 percent. Household incomes are about 35 percent higher than the national median. Almost one in five residents work in government administration jobs.

 

Hobart

Home values across Hobart fell 0.1 percent in FY24. The top performing area for capital gains was Sorell-Dodges Ferry with 2.78 percent growth. This took the area’s median home value to $615,973. Sorell-Dodges Ferry is approximately 25km north-west of Hobart. It incorporates the suburbs of Richmond, Sorell, Dodges Ferry, Carlton and Primrose Sands. The area has a large community of baby boomers and retirees, with the median age of residents being 43 compared to the Australian median of 38.

 

Darwin

Home values across Darwin rose by a median 2.4 percent in FY24. The No. 1 area for growth was Litchfield. Its median value moved 3.21 higher to $672,003. Litchfield is about 37km south-east of Darwin and includes the suburbs of Humpty Doo, Acacia Hills and Southport.  It has a high proportion of middle-aged residents, with the median age being 39 compared to the territory median of 33. About 12 percent of residents are Indigenous Australians. The biggest industries are government administration and defence. Median household incomes are about 35 percent higher than the national median.

 

MOST POPULAR
11 ACRES ROAD, KELLYVILLE, NSW

This stylish family home combines a classic palette and finishes with a flexible floorplan

35 North Street Windsor

Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.

Related Stories
Property
A Window Has Cracked Open For Buyers Looking For Homes Along the French Riviera
By KATE TALERICO 07/07/2024
Property
Property of the Week: 5903/1A Barangaroo Avenue, Barangaroo
By Josh Bozin 19/06/2024
Money
In France, Investors Get the Centrist Limbo They Wanted
By JON SINDREU 10/07/2024
0
    Your Cart
    Your cart is emptyReturn to Shop