The New Zealand property market continues to surge ahead at record pace. A combination of low interest rates, insufficient housing supply, and tax incentives have put additional pressure on what was an already heated market. In the four month period ending February 2021, average property prices rose by $74,388 across the country. While this is great news for many, property owners are making record profits at the expense of housing affordability and increased rental stress.
Property prices in Auckland, Wellington, and elsewhere continue to skyrocket. According to CoreLogic, the country’s average property value went up by $55,834 in the 12 months ending October 2020. These significant gains were just the start, with prices accelerating at an unprecedented pace since late last year. According to separate data from the Real Estate Institute of New Zealand (REINZ), the median national house price increased by 22.8% to $780,000 for the year ending February 2021.
Property gains were experienced across the board, with the median house price in Auckland reaching a record high of $1.1 million, and the median price in Wellington rising by 35% to meet Auckland at $1.1 million. Porirua saw a huge increase in a short time period, with median prices rising by $273,000 to $980,000 in a single month. The Wellington region recorded a median house price of $890,000, with Upper Hutt houses priced around $795,000, and Lower Hutt prices averaging $839,000.
Strong prices are great news for property sellers, with the percentage of people selling their houses for a profit reaching its highest level since records began in the mid 1990s. According to CoreLogic’s latest Pain and Gain Report, an astounding 98.4% of property resales between October and December last year made a profit. While owner-occupiers did slightly better than investors, according to CoreLogic economist Kelvin Davidson, "It shows that, really, it’s the heat of the market. Everyone is a winner, whether you’re an investor or an owner-occupier, whatever sort of property and wherever you own.”
The truth, of course, is that not everyone can be a winner. Housing affordability is a serious and ongoing issue for young people and renters, with high prices, surging demand, and low supply numbers making home ownership little more than a dream for an entire generation of Kiwis. According to REINZ Chief Executive Bindi Norwell, ”It’s just that supply-and-demand equation at the moment... There’s so much competition for certain properties, and people are paying more than they would usually for a house, and that drives prices up overall.”
Moves are being made to cool the market, although without significant changes to housing supply, they're unlikely to make a real impact. The Reserve Bank has re-introduced loan-to-value (LVR) restrictions removed in November 2020 due to the COVID-19 pandemic. From March 1, investors will require a 30% deposit and first-home buyers will need a 20% deposit to get a loan. This will rise to 40% in May for investors, with the current strength of market activity largely driven by investors trying to beat the deadline.
According to Motu Research senior fellow Arthur Grimes?, previous chief economist and chair of the Reserve Bank, “It’s possible house prices could ease, level off, or even fall. It's also possible they could keep rising. We're in uncharted waters.” As prices continue to rise at such a rapid pace, however, one thing is becoming clear. According to Grimes, “I teach university students and almost all of them have given up hope of buying a house.”