Marlborough Property Investors' Association
New Zealand’s housing shortage has become a crisis but a number of factors are working against massive price increases, says BNZ chief economist Tony Alexander.
Speaking at the Institute of Financial Advisers annual conference in Auckland yesterday, he said he had decided to start using the term "housing crisis" after media reported comments Social Development Minister Paula Bennett made about rent hikes in caravan parks.
Alexander said the story highlighted a problem with housing affordability resulting from a lack of supply coming on to the market, particularly in Auckland where supply problems are most acute.
“There’s going to be a housing affordability problem at the lower end of the socioeconomic spectrum; people are going to be living in caravans, garages, sleep-outs etc.”
He said there had been investigations into housing affordability but nothing had really been done, largely because options such as expanding urban limits or increasing urban density would be unpopular with many voters.
“Do you want to see a vast increase in housing supply that may decrease the value of your housing?” he asked the audience.
“We are part of the problem; we don’t want to see radical change in the system.”
Alexander said the strangled supply was being met with a rapid increase in demand, particularly from young first home-buyers who had been waiting unsuccessfully for house prices to drop.
“They’re thinking, ‘I’ve got to get my foot on the ladder’. We’ve had four years of young buyers sitting and now they’re on the market at the same time.”
However, he also listed a number of reasons why house prices were unlikely to repeat the sorts of gains seen between 2002 and 2007.
One factor potentially limiting house price growth is credit growth, which Alexander said is running at 1%-1.5% per year as opposed to the 10% yearly growth in the boom years.
He said the household debt ratio had increased from about 80% in the late 1980s to 145% today and it “won’t go to 200%.”
This build-up in household debt paralleled a large increase in the house price to income ratio, which he said was 3.8 before 1992 and is now at seven times incomes after peaked at 7.5 during 2007; Alexander said the ratio was unlikely to reach 10.
He also said a rise in construction activity in Auckland and Christchurch, signalled by a rise in building consents, would take some of the supply pressure off the housing markets in these cities.