Is The New Zealand Property Market Affordable For All?

Wednesday, 25 May 2022, 2:53 pm
Press Release: Kalkine

Summary

• The affordability crisis in the property market seems to have worsened for Kiwi home buyers.
• Building consents rose above the 50,000-mark in the 12 months leading up to March 2020.
• The increased leverage gained by buyers has not equally seeped into different sections of society.

As the pandemic created uncertainty in the property market, the affordability crisis appears to have aggravated for Kiwi home buyers. Property prices skyrocketed as rising demand quickly overshot the existing supply of property. However, housing prices have been showing a slowdown after the central bank has raised interest rates. But the market at large seems highly vulnerable.

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

About half of the newly consented homes were multi-unit homes, and the rest were stand-alone houses. The rising supply of property in New Zealand is expected to ease the country’s housing crisis to a considerable extent. However, the more pressing question is whether the new properties would be divided equally among the home-buying population.

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Buyers gaining increased leverage

Real estate prices have been declining of late, with demand easing in the market. The New Zealand property market is past the period of peak demand, though current demand levels are also high. The leveraging power is slowly rising on the buyers’ side, marked by tough competition.

Additionally, buyers have obtained the time to do their due diligence and make informed choices on the type of property they want. This increased examination period has resulted in a slowdown in property sales. Consequently, prices have declined across all parts, including Auckland and Wellington.

Buyers are also enjoying a larger stock compared to about a year ago when there was an acute shortage of properties on sale. The stock increases have resulted from a slower rush among buyers to tap the housing market.

Speculations are rife that the employment data expected in the coming months could rule in favour of potential home buyers. Economists are forecasting that the country’s unemployment rate could reach a record low level over the coming months.

A possible drop in unemployment is likely to pave the way for higher wages, which might support households in a high-interest rate environment. However, the central bank might take a more aggressive take on interest rate tightening if there is a combination of stronger employment, robust wage growth and lower unemployment.

Will this increased leverage pass on to all home buyers?

Once again, first-time homebuyers have found themselves at the bottom of the pool of those benefitting from the increased housing supply. A majority of those left out of the buying population includes young Kiwis who are unable to afford a house at the persisting prices. More worrying is the widening gap between the high-income and lower-income groups, which explains precisely why the distribution of property is not equitable.

What has resulted from this increasing disparity is a set of younger homebuyers becoming increasingly dependent on their parents to finance their housing needs. A significant ratio of the young population now depends on the “bank of mum and dad” as their regular incomes are insufficient to buy a house. Thus, a substantial rise in inequality is becoming evident among those entering the market. In the current scenario, financially stable parents might find it easier to just help their children buy their dream home rather than waiting on prices to decline.

However, these parents have also had to dig up their retirement savings to gather enough funds to fully finance the dreams of their kids. Compared to a generation ago, when middle-income groups could easily afford to buy a house, the existing scenario paints a scary picture. Additional fears revolve around the sustainability of such a move by parents. Once the house is paid for, the young buyers will have to save up enough to fulfil the housing needs of their children.

The New Zealand property market has been the life and soul of the nation’s GDP, with the impact of market changes appearing in the overall economic growth. Thus, the rising gap between first-time home buyers and those with multiple properties is also reflective of the income disparity in the economy. A rise in wages could significantly help battle this discrepancy, though the real state of the economy would become more apparent in the coming years.

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