Is the New Zealand property market affordable for everyone?


  • The affordability crisis in the real estate market appears to have worsened for Kiwi home buyers.
  • Building permits topped the 50,000 mark in the 12 months to March 2020.
  • The increased leverage acquired by the buyers has not equally seeped into the different strata of society.

While the pandemic has created uncertainty in the housing market, the affordability crisis appears to have deepened for Kiwi home buyers. Property prices soared as growing demand quickly outstripped the existing supply of property. However, house prices showed a slowdown after the central bank raised interest rates. But the market as a whole looks very vulnerable.

Despite the uncertain circumstances, the demand for ownership has not entirely died out. Data released by Statistics NZ shows the annual number of building permits crossed the 50,000 mark in March. This marked a 24% increase from the year ended March 2021 and is a clear indication that property developers are responding to the strong demand for property in the country.

About half of the newly licensed homes were multi-unit homes and the rest were single-family homes. The growing supply of real estate in New Zealand is expected to significantly ease the housing crisis in the country. However, the more pressing question is whether the new properties would be evenly distributed among homebuyers.

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Buyers get increased leverage

Real estate prices have been falling lately as demand in the market wanes. The New Zealand property market has passed the peak demand period, although current demand levels are also high. Leverage power is slowly rising on the buyers’ side, marked by tough competition.

Additionally, buyers have had time to do their due diligence and make informed choices about the type of property they want. This increase in the review period has resulted in a slowdown in real estate sales. Consequently, prices fell in all regions, including Auckland and Wellington.

Buyers are also enjoying a larger inventory than about a year ago, when there was an acute shortage of properties for sale. Inventory increases resulted from a slower rush among buyers to tap into the housing market.

Speculation is rife that the employment data due in the coming months could come out in favor of potential home buyers. Economists predict that the country’s unemployment rate could reach a historic low in the coming months.

A possible fall in unemployment should pave the way for higher wages, which could support households in a high interest rate environment. However, the central bank could take a more aggressive approach to interest rate tightening if there is a combination of strengthening employment, robust wage growth and falling unemployment.

Will this increased leverage trickle down to all homebuyers?

Once again, first-time buyers found themselves at the bottom of the pool of beneficiaries of the increase in housing supply. The majority of those excluded from the buyer population include young Kiwis who cannot afford a home at the persistent prices. More worrying is the widening gap between high and low income groups, which is precisely why the distribution of assets is not equitable.

What has resulted from this growing disparity is a set of young homebuyers becoming increasingly dependent on their parents to fund their housing needs. A large part of the young population now depends on the “mom and dad bank” because their regular income is insufficient to buy a house. Thus, a substantial increase in inequality becomes evident among those entering the market. In the current scenario, financially stable parents might find it easier to simply help their children buy their dream home rather than wait for prices to drop.

However, these parents also had to dip into their retirement savings to raise enough funds to fully fund their children’s dreams. Compared to a generation ago, when middle income groups could easily afford to buy a home, the current scenario paints a scary picture. Additional fears revolve around the sustainability of such a move by parents. Once the house is paid for, young buyers will need to save enough to meet the housing needs of their children.

The New Zealand property market has been the life and soul of the country’s GDP, with the impact of market changes showing up on overall economic growth. So the growing gap between first-time home buyers and those who own multiple properties also reflects the income disparity in the economy. A rise in wages could go a long way towards tackling this gap, although the true state of the economy would become more apparent in the years to come.

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