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Affordability suffers as house price juggernaut moves on

New Zealand has some of the least affordable housing in the world – and it’s likely to get worse before it gets better.

That’s the warning from Quotable Value (QV) general manager David Nagel, who notes that residential property prices continue to trend upward in all major centres, defying the economic uncertainty brought on by Covid-19 and the recent election, as well as any predictions of a post-lockdown dip.

“A very low interest rate environment has encouraged both first-home buyers and investors to compete for the very limited supply of entry-level housing stock, driving prices upward. With the long-term forecast for housing demand in New Zealand looking positive, it is difficult to see the market take a significant turn for the worse any time soon,” he says.

“Of course, we are still likely to see some speed bumps in the coming months as some of the economic stimulus packages come to an end. We’re also likely to see a second, deeper wave of redundancies that could impact homeowners more than the first wave did. But the market appears to have a level of momentum now that will be difficult to slow while interest rates continue to fall.”

On one major measure of housing affordability, New Zealand was ranked ninth by the International Monetary Fund’s Global Housing Watch for price-to-income in the first quarter of this year, behind Luxembourg, Portugal, Netherlands, Germany, Hungary, Czech Republic, Austria and Slovakia.

Of these countries, only Luxembourg, Czech Republic and Slovakia had faster growing house prices than New Zealand over the last 12 months, according to global property consultancy Knight Frank’s latest Global House Price Index, which ranked our country as having the 11th fastest growing house prices in the world.

“The good news is the likes of Hungary, Portugal and Luxembourg are way out in front of us when it comes to housing affordability, so we’re unlikely to overtake them anytime soon. But the bad news is I wouldn’t be too surprised to see us move up a couple of places on that list in the future.

“When you look at the OECD’s own house price affordability rankings, Austria narrowly beats us out when it comes to price-to-income. However, I don’t believe that they’ve had quite the same level of property price growth that we continue to experience, even despite Covid-19.”

However, David Nagel was encouraged by the incoming Government’s commitment to repeal and replace the Resource Management Act, as well as improve the availability of land for housing through better integrated planning and investment in urban development, infrastructure and transport, and set standards for quality urban design.

“This will certainly help – though New Zealand’s housing market won’t suddenly become affordable overnight,” he added.