If you bought a house in Auckland in 1999 – well done you! According to the recent OneRoof Property Report, Auckland has had an average increase in value of around 253 percent over the past 20 years - meaning that a house purchased there for $235,000 in 1999 would be worth around $830,000 in 2019.
This level of growth is in line with my often-expressed view that Kiwi house prices roughly double every ten years and, according to the report, it was repeated in many other parts of the country – although Mackenzie region, in the central South Island, completely blew that benchmark out of the water with a 508 percent increase in its median sale price. This means that a house bought there for $71,000 in 1999 would be worth $435,000 today.
Predictably, the Property Report was followed by a flurry of opinions with some commentators suggesting that the same trend of huge increases in housing prices will continue into the future while others outlined all of the reasons why they won’t and can’t.
I’m very much in the can camp. The evidence of the past four decades is that house prices will continue to increase strongly into the future – with around five to six years of growth and four to five years of flat prices in any given ten year period.
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But is this really good for the nation? Should we continue to allow such strong growth? Or should governments be doing whatever they can to curb house price inflation, or perhaps keep it to an acceptable level? In my opinion the answer is a resounding no to the latter. Here’s why:
1. Attempts at house price control don’t work.
Pretty much without exception, the various Government attempts to control house prices, over the past few years, haven’t worked. The Reserve Banks loan-to-value deposit restrictions, the foreign buyers ban, the Brightline test, the ring-fencing of tax losses and a series of other interventions in the housing market – not one of them has made a jot of difference to house prices and capital growth has marched on following it’s 40 year cyclic trend regardless.
2. And they have unintended consequences.
It gets worse. Not only have these initiatives not made any difference to house prices – but they’ve also screwed up the housing market in other ways. Examples of this would be the LVR restrictions which have closed tens of thousands of Kiwis out of the opportunity to buy their first home, and this Governments various rental reforms which have slashed confidence in rental investment leading to higher rents, and will ultimately lead to a reduction in the availability of rental stock at the very time we need many more such dwellings.
3. House price growth offsets the impact of inflation.
In reality – much of the growth in the value of our homes doesn’t actually make us wealthier – it simply means that the house sustains the value it had when we bought it rather than being eaten away. In other words – if house prices didn’t increase the ‘real’ value of your home, over time, would be a fraction of what it was when you bought it. The combined effect of this would be to gradually make us poorer relative to those in other countries.
4. Ultimately, the market will fix itself.
If we’ve learnt anything over the past few years – it’s that the housing market is self-regulating. Prices have flattened in Auckland, on their own, and will soon do so in other parts of the country – and it now appears that the market is building enough houses - without the need for KiwiBuild. We also know that house price inflation can’t continue on its current trajectory forever. This is because mortgage interest rates are close to being as low as they can go, which means there’s a limit to how much more they can contribute to price increases – and because we will eventually reach a point where prices are so out of sync with household incomes that we simply can’t physically afford to pay any more.
So, am I suggesting that Governments should simply ignore housing? Not at all! Rather, I’m proposing that they should be focused on supporting those who are in most need of assistance, rather than trying to control the market.
If we accept the idea that home ownership is a priority and that we should be doing everything we can to increase our nations home ownership rates – then our efforts should be going into supporting first home buyers. This would include initiatives such as removing the ability of the Reserve Bank to impose LVR restrictions on first home buyers, and the introduction of first home buyer incentives and a comprehensive shared equity program.
Next week the National Party will be releasing their housing policy in Auckland. Let’s hoped they’ve listened.
- Ashley Church is the former CEO of the Property Institute of New Zealand and is now a property commentator for OneRoof.co.nz. Email him at ashley@nzemail.com
