Auckland University professor of urban planning Elham Bahmanteymouri explains why Kiwis have poured so much capital into housing, while other countries are content to rent.
There is a growing divide between the housing haves and have-nots and, without outright house price falls, it will be difficult to rectify, ANZ economists say.
The bank’s latest property report showed house prices were running at more than 10.5 times disposable incomes in June. That was up from 8.3 in June 2019, pre-Covid.
“Simply bonkers” numbers were to blame for this, with annual house price inflation running at around 30 per cent and the annual median household disposable income at $72,939 in June, the economists said.
Four months after the Government announced its suite of new housing policies, the housing market remained robust and prices lifted by 1.6 per cent in June.
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This meant the gap between those who had been able to buy a house and those who were still trying to save a deposit widened further in June, the economists said.
An example was that someone who bought a $1 million house a year ago with a 20 per cent deposit and an $800,000 loan fixed at 3 per cent, would have made unrealised gain minus interest costs of more than $275,000.
But someone who did not have the 20 per cent deposit a year ago would have had to save another $60,000 to maintain purchasing power to buy that same house.
Despite being encouraged by real estate agents, Simon Oosterman refused to sell his home at auction as he feels the system is unfairly rigged against young first-home buyers.
That meant an extra $165 in savings per day would be required just to stand still – versus an unrealised daily gain of more than $750 per day for those lucky enough to be on the other side.
But the economists said the scary thing was that with the optimistic assumption that house price inflation for the foreseeable future was zero while income growth was 5 per cent a year, it would take six years for the house price to income ratio to return to pre-Covid levels.
Other scenarios were even more sobering and showed it could take decades for affordability to improve, they said.
For example, if house price inflation was 2 per cent while income growth was 4 per cent it could take 15 years for the ratio to return to pre-Covid levels.
And if house price inflation was 3 per cent while income growth was 4 per cent it could take 37 years for the ratio to return to pre-Covid levels.
These projections highlighted how difficult it was for policymakers to make housing more affordable in a timely manner without a house price crash, the economists said.
“While the take-your-medicine approach has some appeal as the quickest solution, it would cause a lot of collateral damage to the likes of economy-wide employment; it wouldn’t just be recent home buyers’ problem.”
It was not feasible for growth in house prices to significantly outpace income growth for much longer and increasing mortgage rates should cool the market, but they expected progress towards housing affordability would be very slow-going.
“The Government could speed this up with more aggressive supply-side policies, such as freeing up land, cutting red tape, funding greenfield infrastructure, and importing the right skills.
“There’s scope to cool the housing market without spooking the horses too much… We don’t need this housing party to carry on; it’s doing a lot more harm than good at this point.”
Affordability issues have been in the spotlight this month, as Massey University’s recently released Home Affordability report showed house prices nationally were now 12.4 times the average wage.
But, despite declining affordability, first-home buyers remained active in the market.
CoreLogic’s latest buyer classification figures showed their share of purchases was 25.1 per cent in June and 24 per cent over the second quarter of this year, up from 21 per cent over the previous two quarters.
And new Reserve Bank mortgage lending data showed first-home buyers borrowed more than investors in June for the first time since June last year.