Michael Wilson had high hopes when he decided to sell his three-bedroom house. The initial showing attracted numerous potential buyers. However, over a year later, the property is still on the market. Offer after offer fell through because the prospective buyers couldn’t sell their own homes. This is reflective of the housing market in New Zealand, which has experienced significant turbulence.
New Zealand is facing one of the most challenging housing crises in the world. Homeowners and investors have suffered substantial losses in the past 18 months due to the sharp decline in prices, which coincided with rising mortgage rates during the Covid pandemic.
Mr. Wilson expressed his optimism, stating that if they had listed their house just two months earlier, it would have sold almost immediately. Fortunately, they may have finally found a buyer for their property, but they will have to settle for a price that is 15% lower than their original asking price.
The pandemic’s impact on jobs, wages, and living conditions has resulted in a rollercoaster effect on housing markets worldwide, including countries like Sweden, Britain, Canada, and Australia. However, few places have experienced such extreme fluctuations as New Zealand, which recently slipped into a recession.
Historically, property in New Zealand has been expensive and scarce. The housing crisis, exacerbated by soaring prices, poorly constructed homes, and rising interest rates, has become a top priority leading up to the national elections this year.
During the pandemic, with low mortgage rates and relaxed lending rules, house prices skyrocketed by almost 50%. However, since November 2021, when New Zealand’s central bank adopted a hawkish stance to combat inflation, prices have plummeted by 17.5%, wiping out over $6 billion in wealth for households, according to Statistics New Zealand.
The housing market has hit record lows in terms of sales, with houses remaining on the market for an average of 47 days or even longer. The urgency for the government to address the housing shortage increased in February when severe storms and flooding damaged thousands of homes on the North Island.
Unfortunately, New Zealand’s housing crisis affects all segments of the population, including those on long waiting lists for public housing, renters who cannot afford to buy property, and even affluent individuals who have made big investments in property that are now plummeting in value.
The lack of affordable housing in New Zealand is a significant issue that fuels inequality and poverty. The median price for homes in New Zealand is 780,000 New Zealand dollars, compared to about $407,000 in the United States, making them among the least affordable in the world.
Successive governments have struggled to find effective policy solutions, and this issue has become a top concern for New Zealanders. Most New Zealanders own homes, and a significant portion of their wealth is tied to land and houses. Additionally, the absence of a capital-gains tax means that profits from property sales are often not taxed.
Furthermore, recent bipartisan efforts to address housing policy have hit a roadblock. The legislation aimed at easing the construction of three-story buildings in urban areas was co-signed by the two main political parties but seems to be unraveling. A return to building on farmland on the outskirts of cities is now being proposed. The upcoming election will be a test of these differing approaches.
In the meantime, homeowners are grappling with the challenges of higher mortgage rates and decreasing property values. Individuals like Lisa Lamberton, who recently sold her home and is moving to be closer to family, understand that rates may not always be in their favor.
James Faber, a warehouse operator and part-time property investor, had to sell a property at a significant loss due to the declining market. To avoid a similar situation, he recently listed another property at auction with a starting price of one New Zealand dollar. Although the property eventually sold for 400,000 New Zealand dollars, more than recent comparable sales, it was still significantly less than its estimated value 18 months ago.
Faber was surprised by the lack of interest in the auction, stating, “It’s a fricking dollar reserve. I still can’t believe half the city didn’t come to the open home.”
Overall, the housing market in New Zealand is facing significant challenges, with homeowners and investors grappling with declining prices and limited solutions from the government. The upcoming election will play a crucial role in determining the future direction of housing policy in the country.
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