Global Courant
Michael Wilson was hopeful when he put his three-bedroom house up for sale: More than a dozen potential buyers showed up for the first viewing.
But a year later, the property is still for sale. Bid after bid fell through because the prospective buyers could not sell their home.
Welcome to New Zealand, one of the most turbulent housing markets in the world. Over the past 18 months, homeowners and investors have lost billions of dollars in wealth after prices that rose during the Covid pandemic began to fall as mortgage rates also skyrocketed.
“If we had put it on the market, say, two months before we originally did it, it would have sold literally the next day,” said Mr. Wilson. He and his wife, Jade, may have finally found a buyer for their three-bedroom home in Te Awamutu, a pretty North Island town of 13,000. But if they’re lucky, they’ll get paid about 15 percent less than they originally asked for.
The disruptions to jobs, wages and living conditions caused by the pandemic caused a yo-yo effect on housing markets in many countries, including Sweden, Britain, Canada and Australia. Few places have experienced such a wild swing as New Zealand, which last week in a recession.
Real estate in New Zealand has traditionally been expensive and scarce. Now, a combination of even higher prices, poorly built homes and the corrosive effects of rate hikes has put the housing crisis at the top of the agenda ahead of this year’s national elections.
During the pandemic, when people took advantage of low mortgage rates and relaxed lending rules, house prices rose by nearly 50 percent. Since November 2021, after New Zealand’s aggressive central bank embarked on one of the most aggressive rate-cutting cycles in the world to deal with rising inflation, prices have fallen by 17.5 percent, driving the more than 6 billion dollars in household wealth, according to Statistics New Zealand estimates.
Home sales fell to a record low in the three months through December, and homes are now on the market for an average of 47 days, with some languishing for months.
Calls for the government to address the housing shortage became more urgent in February, when once-in-a-generation storms and flooding damaged thousands of North Island homes, some beyond repair. Then in May five people were killed in a devastating fire at a hostel in Wellington, the capital, inhabited mostly by men without stable housing.
Despite relatively low wages and ample land — New Zealand has five million residents spread over an area the size of Colorado — a lack of buildings, coupled with low borrowing costs, meant buyers had long been willing to pay for older homes that were in poor condition. built and isolated.
“You’re just lucky to have shelter, rather than worrying about the quality of shelter,” says Shamubeel Eaqub, an Auckland-based independent economist.
Since the early 1980s, construction in New Zealand has failed to keep pace with population growth, following new restrictive zoning regulations and high building prices restricted development.
Property values in New Zealand are also highly sensitive to the rise and fall of interest rates. Unlike US mortgages, which are effectively backed by the government and often fixed for periods of up to 30 years, home loans rarely have fixed interest rates for more than a few years. Buyers and homeowners with mortgages now face interest rates of at least 6.5 percent on new loans, up from about 2 percent in 2020.
Housing problems affect virtually every corner of the population, including those on painfully long waiting lists for social housing, underserved tenants for whom owning property seems out of reach, and more affluent people who bet heavily on real estate and are now investing in value see it fall.
are houses are among the least affordable in the worldwith an average price of 780,000 New Zealand dollars, or about $480,000, compared to about $407,000 in the United States, according to Redfin.
“You have a huge number of people who live week to week, paycheck to paycheck, who see an extraordinary amount of their take-home pay consumed by housing costs,” said Chris Bishop, a member of parliament for the centre-. right-wing opposition National Party. “It’s a big driver of inequality and poverty in general.”
The problem has defied policy solutions by successive governments, and politicians know that the stakes are high for New Zealanders. Most New Zealanders own a home and 57 percent of household wealth consists of land and houses, This is reported by the Reserve Bank of New Zealand. That’s partly because there’s no capital gains tax, meaning money made from sales is typically not taxed.
“Real estate investing is New Zealand’s great hobby,” said Max Rashbrooke, a New Zealand economic inequality researcher.
Adding to the gloom: a rare moment of bipartisan housing policy appears to be on the back burner.
In late 2021, New Zealand’s two main political parties jointly signed legislation making it easier to build three-storey buildings in the central areas of cities and towns, to avoid sprawling suburban sprawl. But National Party leader Christopher Luxon said last month he intended to reverse that commitment and return to a model in which many new homes are built on former farmland on the outskirts of cities.
Prime Minister Chris Hipkins said he had called on the opposition to offer amendments to the law rather than scrap it.
The dueling approaches of the two parties will be put to the test in October’s national elections.
Meanwhile, homeowners are doing what they can to manage the tricky mix of more expensive mortgages and falling prices.
Lisa Lamberton recently sold her house in the town of Whanganui and is moving further north to be closer to her family. She is philosophical about paying higher rates. “If you’re a homeowner, at some point the rates aren’t going to be in your favor,” said Ms Lamberton, 42,. “From my perspective, it was always going to happen.”
James Faber, a warehouse manager and part-time real estate investor in Palmerston North, spent months trying to sell a property when the market fell. It eventually sold for about 360,000 New Zealand dollars, 130,000 less than he had hoped.
To avoid a similar wait, Mr Faber, 38, put another property up for auction last month with a starting price of one New Zealand dollar, against the advice of his lawyer and his estate agent. The house eventually went for NZ$400,000 — more than other comparable recent sales, he said, but much less than the council’s estimate of NZ$570,000 18 months earlier.
Even then, he said, he was shocked by the lack of interest in the auction. “It’s a ridiculous dollar reserve,” he said. “I still can’t believe half the town didn’t come to the open house.”
