New Zealand has experienced an unprecedented housing market boom over the past two years, but it is far from unique, with most countries experiencing similar issues.
Strong housing demand coupled with limited supply, rapidly rising prices and affordability issues are causing concern around the world.
While the latest Knight Frank Global House Price Index shows that prices in New Zealand have risen the fastest over the past five years, 48% of the countries monitored have recorded annual price increases of more than 10 %. This represents an increase from 13% before the pandemic.
The top 10 ranked countries, which included New Zealand, Australia, the United States and Canada, all saw annual price increases of more than 15%.
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But many cities have seen even bigger increases. The top 25 cities in the Knight Frank Index all saw increases of more than 20%. Wellington and Auckland were among them, but also three cities in Canada, four in Australia, including Sydney, and five in the United States.
Knight Frank researcher Kate Everett-Allen says prices have been pushed up by government stimulus, savings accumulated during lockdowns, a pandemic-induced reassessment of lifestyles and unemployment rates. low interest.
This has left many countries facing housing affordability and supply issues. The New Zealand Initiative’s chief economist, Dr Eric Crampton, says New Zealand is far from unique in its problems.
Home prices everywhere will continue to rise until new supply meets demand, he says. “As the capacity to build more homes arrives and supply increases, demand will decrease, rents will drop and prices will normalize.”
“But supply chains are a mess globally and in many places it has become harder to build homes. It retards development. And, in some places like San Francisco, the problems are even more difficult to solve due to restrictive planning regulations.
Australia, as the Trans-Tasman neighbor and the country that attracts the most Kiwi migrants, has the market to which New Zealand is most often compared.
While Australia may be much larger, the two markets are remarkably similar in composition and trend, says Tim Lawless, head of research at CoreLogic Asia-Pacific.
The Sydney and Melbourne markets tend to lead the broader market and dominate the headlines, as do Auckland and Wellington. Other urban or regional markets follow, often suffering the “halo” effects of larger markets.
As New Zealand markets have seen astronomical price increases, so has Australia. CoreLogic’s latest home value index showed the national median value rose 22.1% in the year to the end of December. That left it at 709,803 Australian dollars (758,484 New Zealand dollars).
Over the same period in New Zealand, CoreLogic has a national average price up 27.6% to $1,006,632, while the latest Real Estate Institute figures push the national median price up 21.5% at $905,000.
Prices have risen by double digits each year in all major cities, with Sydney, Melbourne and Brisbane recording increases of 25.3%, 15.1% and 27.4% respectively. This left their medians at AUD1,098,412, AUD795,108 and AUD683,552.
Lawless says there are similar affordability and credit pressures to New Zealand across Australia, but the pace of gains is slowing and, after a rare period of synchronization, conditions are diversifying into different cities.
“Momentum has slowed quite sharply in Melbourne and Sydney, with an increase in new listings and affordability constraints cooling the markets down a bit.”
But in cities like Brisbane and Adelaide and some regional markets, like Queensland and Tasmania, momentum remains and there is no evidence that value growth is slowing, he says.
“These areas have fewer affordability issues and better support for housing demand, with
Queensland in particular shows strong interstate migration. Additionally, there has not been the same supply response as in other regions, with advertised supply remaining well below average.
Australia’s prices are often quoted as more affordable than New Zealand’s, but Lawless says that when converted, there’s not much difference between Auckland’s and Sydney’s prices, or Wellington and Melbourne or Brisbane.
And while there are various federal and state government incentives for first-time home buyers, there are also stamp duties and capital gains taxes. Stamp duties, which vary from state to state, have a big impact on affordability, he says.
“They increase the deposit and transaction fees involved, and make it harder to get your foot in the door. That’s the problem for first-time home buyers, rather than servicing a mortgage. But they have not slowed the rise in prices.
Rental markets are also tight in most areas, with vacancy rates at record highs and rents up around 10%, adds Lawless.
Historical links to Briain mean it is another housing market often compared to New Zealand. Although it has not skyrocketed to the degree of some other markets, it has also experienced a boom.
Prices have risen 9.8% in 2021, which equates to more than £24,500 (NZ$48,300) and is the biggest annual increase in cash since March 2003, according to the House Price Index of Halifax. This left the national average at an all-time high of £276,091.
Halifax chief executive Russell Galley said the market defied expectations, despite Britain being in lockdown for much of the first six months of the year.
Lockdown savings and a six-month stamp duty holiday were contributing factors, he says. “The lack of homes available for sale and historically low mortgage rates have also contributed to pushing annual house price inflation to its highest level since July 2007.”
He expects the rise in prices to continue, but that compared to the past two years, it will be at a slower pace.
There are regional variations. According to Halifax, Wales recorded the highest annual price increase and, in England, the North West region recorded the highest increases while London recorded the lowest. But the average price in London was £525,351.
Housing affordability researcher Hugh Pavletich explains that one factor to consider when comparing markets is that many other cities have a much higher proportion of mid- to high-density homes and that living in an apartment is widely accepted.
Traditionally, New Zealanders like bigger homes and lots of space, he says. This means that our housing stock has more single-family homes that are more expensive to build and suitable for fewer people.
“It is only now that this is starting to change with the new town planning rules and the desire to increase supply through densification. But we are also a different society, less docile, and place a higher value on private property rights than many European countries with populations closer to ours.
Countries such as Sweden (10 million) and Austria (9 million) are often cited as real estate markets that New Zealand can draw inspiration from.
Sweden is cited for a successful government-sponsored building program with which it tackled a severe housing shortage from 1965 to 1974, while Austria had government policies that actively supported the construction of homes in buy and rent locally for decades.
In Austria, this means that supply has followed needs and that rental accommodation is plentiful and affordable. But the homeownership rate is 55.4%. New Zealand’s was 64.5% at the time of the 2018 census.
Pavletich says renting is a more viable and attractive option in places like Austria. “I believe that we can learn a lot from Europeans about secure occupancy systems for rental accommodation. Our current “insecure” system is simply not acceptable. »
Despite strong public housing and rental systems, European countries have not been spared from the global price spike. In the Knight Frank index, Sweden ranks fourth with an annual price increase of 20.3% and Austria ranks 27th with 10.4%.