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New Zealand property bubble
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New Zealand property bubble
The property bubble in New Zealand is a major national economic and social issue. Since the early 1990s, house prices in New Zealand have risen considerably faster than incomes, putting increasing pressure on public housing providers as fewer households have access to housing on the private market. The property bubble has produced significant impacts on inequality in New Zealand, which now has one of the highest homelessness rate in the OECD and a record-high waiting list for public housing.[clarification needed] Government policies have attempted to address the crisis since 2013, but have produced limited impacts to reduce prices or increase the supply of affordable housing. However, prices started falling in 2022 in response to tightening of mortgage availability and supply increasing. Some areas saw drops as high as around 9% - albeit from very high prices.
Unaffordable housing has produced profound impacts on New Zealand society. Between 1986 and 2013, home ownership dropped from 74% to 65%.
A house price bubble is defined by economist Joseph Stiglitz as a period of speculative purchases, where investors demonstrate willingness to pay a high price today because they believe that it will be as high (or higher) tomorrow. A 2016 study found evidence of a bubble in the New Zealand housing market from 2003, which stalled in 2007/8 with the impacts of the Great Recession. A second bubble appeared in Auckland in 2013, and until 2015 there were no notable spillover effects to other regions. However, from 2015 onwards, rapid price-growth occurred in smaller centres.[citation needed]
Housing in New Zealand has been strongly shaped by colonisation (beginning in the 19th century), pre-war state intervention, post-war state intervention and economic and financial reforms introduced since the 1980s. Although the indigenous Māori population traditionally lived communally, European settlers – many fleeing the slum conditions of Victorian Britain – established a trend favoring individually-owned houses, each built on a separate section of land – the fabled quarter acre, in a similar vein to the American white picket fence. New Zealand society as a whole continues to dream the dream of owner-occupied home-ownership despite changing economic and environmental conditions. The local real-estate sector promotes myths of moving onto (and up) the property ladder accordingly, and New Zealand politicians foster the idea of a stable democracy rooted in property-ownership.
In 1977, the Town and Planning Act was passed, which began to make it easier for NIMBYs to oppose new housing nearby and force down-zoning. This caused house prices to rise by an average of 2% for every 1% increase in population between 1977-2018, compared with 0.5% rise per 1% population increase between 1938-1977.
The fourth Labour Government (elected in 1984) rapidly introduced policies of economic deregulation, as a result of the previous Prime Minister Robert Muldoon's Think Big policies that had left the country heavily in debt. Investment in shares increased rapidly, often with little due diligence carried out. The 1987 sharemarket crash hit New Zealand's economy especially hard, with the NZSE dropping around 60% from its peak. Many investors who lost heavily in the 1987 crash never returned to the sharemarket, instead opting for the apparently safer option of property investment.
In 1989 Parliament passed the Reserve Bank Act, which emphasised keeping a lid on inflation and on interest rates, which in turn reduced the costs of borrowing for fixed assets such as houses. In the same year, tax exemptions for pension, insurance and other similar investments were abolished, but not for real estate. Two years later, the Resource Management Act (RMA) replaced a raft of regional-planning laws, including the Town and Planning Act. Some[who?] have regarded the RMA as an obstacle to building affordable housing. Although builds and sell-offs of state houses have happened in cycles since the inception of the state housing scheme, they were sold off in record numbers during the 1990s without being replaced. The number of state houses in the country peaked at 70,000 in 1991 until the sell-offs.
Alongside institutional reforms in the housing sector, problems with poor-quality construction, historic injustices and under-provision for the needs of indigenous Māori, and persistent income inequality, the lack of affordable housing is a critical issue. Since the Great Recession, the rapid growth in house prices has spawned an affordable housing crisis[citation needed] and housing has been a prominent issue on political agendas since 2013.[citation needed] Despite a number of policy interventions to address the crisis, prices have continued to grow across the country. As shown below, real house-prices increased almost three-fold between 2000 and 2018.
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New Zealand property bubble
The property bubble in New Zealand is a major national economic and social issue. Since the early 1990s, house prices in New Zealand have risen considerably faster than incomes, putting increasing pressure on public housing providers as fewer households have access to housing on the private market. The property bubble has produced significant impacts on inequality in New Zealand, which now has one of the highest homelessness rate in the OECD and a record-high waiting list for public housing.[clarification needed] Government policies have attempted to address the crisis since 2013, but have produced limited impacts to reduce prices or increase the supply of affordable housing. However, prices started falling in 2022 in response to tightening of mortgage availability and supply increasing. Some areas saw drops as high as around 9% - albeit from very high prices.
Unaffordable housing has produced profound impacts on New Zealand society. Between 1986 and 2013, home ownership dropped from 74% to 65%.
A house price bubble is defined by economist Joseph Stiglitz as a period of speculative purchases, where investors demonstrate willingness to pay a high price today because they believe that it will be as high (or higher) tomorrow. A 2016 study found evidence of a bubble in the New Zealand housing market from 2003, which stalled in 2007/8 with the impacts of the Great Recession. A second bubble appeared in Auckland in 2013, and until 2015 there were no notable spillover effects to other regions. However, from 2015 onwards, rapid price-growth occurred in smaller centres.[citation needed]
Housing in New Zealand has been strongly shaped by colonisation (beginning in the 19th century), pre-war state intervention, post-war state intervention and economic and financial reforms introduced since the 1980s. Although the indigenous Māori population traditionally lived communally, European settlers – many fleeing the slum conditions of Victorian Britain – established a trend favoring individually-owned houses, each built on a separate section of land – the fabled quarter acre, in a similar vein to the American white picket fence. New Zealand society as a whole continues to dream the dream of owner-occupied home-ownership despite changing economic and environmental conditions. The local real-estate sector promotes myths of moving onto (and up) the property ladder accordingly, and New Zealand politicians foster the idea of a stable democracy rooted in property-ownership.
In 1977, the Town and Planning Act was passed, which began to make it easier for NIMBYs to oppose new housing nearby and force down-zoning. This caused house prices to rise by an average of 2% for every 1% increase in population between 1977-2018, compared with 0.5% rise per 1% population increase between 1938-1977.
The fourth Labour Government (elected in 1984) rapidly introduced policies of economic deregulation, as a result of the previous Prime Minister Robert Muldoon's Think Big policies that had left the country heavily in debt. Investment in shares increased rapidly, often with little due diligence carried out. The 1987 sharemarket crash hit New Zealand's economy especially hard, with the NZSE dropping around 60% from its peak. Many investors who lost heavily in the 1987 crash never returned to the sharemarket, instead opting for the apparently safer option of property investment.
In 1989 Parliament passed the Reserve Bank Act, which emphasised keeping a lid on inflation and on interest rates, which in turn reduced the costs of borrowing for fixed assets such as houses. In the same year, tax exemptions for pension, insurance and other similar investments were abolished, but not for real estate. Two years later, the Resource Management Act (RMA) replaced a raft of regional-planning laws, including the Town and Planning Act. Some[who?] have regarded the RMA as an obstacle to building affordable housing. Although builds and sell-offs of state houses have happened in cycles since the inception of the state housing scheme, they were sold off in record numbers during the 1990s without being replaced. The number of state houses in the country peaked at 70,000 in 1991 until the sell-offs.
Alongside institutional reforms in the housing sector, problems with poor-quality construction, historic injustices and under-provision for the needs of indigenous Māori, and persistent income inequality, the lack of affordable housing is a critical issue. Since the Great Recession, the rapid growth in house prices has spawned an affordable housing crisis[citation needed] and housing has been a prominent issue on political agendas since 2013.[citation needed] Despite a number of policy interventions to address the crisis, prices have continued to grow across the country. As shown below, real house-prices increased almost three-fold between 2000 and 2018.