The red-hot real estate market over the last two years has been a truly global phenomenon. New Zealand has seen some of the most dramatic increases in home prices anywhere in the developed world. In the face of skyrocketing home prices, the New Zealand government has been testing a wide array of measures to cool things down.
While the U.S. market has shown some signs of cooling in recent months, the housing market is still very frantic Down Under. Housing prices in New Zealand have risen 30% in the last year. Not only that, in real terms homes have become significantly less affordable.
According to the research firm Capital Economics, New Zealand ranks the highest out of 30 countries studied on its home-price-to-income scale. This metric of home affordability compares the average price of a home to the average income. In its study, Capital Economics set the historical standard for this ratio at 100. New Zealand was at 178. The U.S. by contrast was at 93, slightly more affordable than the average.
The main contributing factors to skyrocketing prices and plummeting affordability in New Zealand’s market will sound very familiar to anyone who follows U.S. real estate—ultra-low interest rates, the rise of remote work, and a housing shortage exacerbated by restrictive zoning laws.
The New Zealand government is pursuing a variety of methods to address these issues.
Last month, their central bank raised interest rates from 0.25% to 0.5% and signaled that higher rates will follow in 2022. The country has also tightened lending practices, reducing the amount of low-deposit lending to owner-occupiers.
In several densely populated urban areas, the government is moving to make building regulations less strict to make up for the deficit in available housing. Tax changes to discourage institutional investors from grabbing up homes are also in the works.
The impact of all these measures—both on the price of homes itself and on the economy at large—remains to be seen. New Zealand will doubtless be a major testing ground for whether massive amounts of government intervention will correct the market or cause it to come crashing down.