Don Brash
Don Brash was Reserve Bank Governor from 1988 to 2002 and National Party Leader from 2003 to 2006.
On the last day of 2024, the New Zealand Herald ran an article under the heading “House prices start to rise”. The first sentence quoted OneRoof, an organisation owned by the publishers of the New Zealand Herald and specializing in promoting house sales, stating that “OneRoof’s latest monthly house price index shows prices are starting to climb again.”
While the article acknowledges that in some parts of the country house prices remained subdued in 2024, the entire emphasis of the article is that because house prices have started to move higher in some areas this would be a great time to buy.
The article quotes the OneRoof editor as noting that, while average house prices in Auckland ended 2024 $30,000 below the level at the end of 2023, “the sharp uptick in prices in the three months ending December draws a line under nearly three years of market volatility and decline in the city.”
The editor is quoted as saying that “most of the best performing suburbs [across the country] this year have average property values of less than $500,000 – well within the reach of budget conscious first-home buyers and investors”.
The following day, the New Zealand Herald ran a more balanced article entitled “House prices 2025: What to expect”. That article began with a sentence stating that “Kiwi house prices might have fallen for most of 2024, but crystal ball-gazing property pundits are tipping a turnaround this year.” It went on to quote economists from two banks, both of which seemed to have a strong interest in talking up the prospects for house prices. Kiwibank chief economist Jarrod Kerr is quoted as telling OneRoof that recent interest rate cuts were the turning point: “We can sort of put the flag in the ground and say, ‘Hey, this is the bottom’.”
Further down the article the impression given was more balanced, with reference to rising unemployment, uncertainty about the prospects for our economy because of uncertainty about China’s economy, and problems in the building industry. Jarrod Kerr is quoted as saying that the “nation’s housing crisis is still a long way from being solved”.
It is hard to avoid the conclusion that the Herald has a strong interest in talking up the prospects for the housing market, whether because of their direct commercial interest in the success of OneRoof or because of a belief that a booming housing market is best for their overall prospects.
On 22 February last year, a Herald editorial stated that “for better or worse, it is hard to imagine a booming economy in this country that isn’t underpinned by strong house price growth”.
But it is precisely the strong house price growth of the last several decades which lies at the root of most of our social and economic problems.
Relative to household incomes, house prices in our major urban centres are absurdly over-valued, largely because of the deliberate policies of local governments, which have pushed section prices to ridiculous levels, as the Productivity Commission and others have shown.
And for the editor of OneRoof to describe house prices of $500,000 as “well within the reach of budget-conscious first home buyers” just shows how out of touch with the reality of the great majority of first home buyers he is.
A young couple starting a family, and perhaps working 60 hours a week between them at, say, $26 per hour – some 10 per cent above what the minimum wage will be by 1 April this year – will have a pre-tax household income of some $81,000 per annum. This means that a house priced at $500,000 is already more than six times this family’s household income – whereas a multiple of three times is generally regarded as being “affordable”. And of course in Auckland, where the median house price is roughly double that $500,000 figure (which applied to the West Coast of the South Island), house prices are still ridiculously out of reach for the average wage earner.
The consequences of these still-elevated house prices in terms of social distress are all around us. Solve that problem, and many other social problems melt away.
Moreover, the fact that we have come to expect house prices to keep rising faster than incomes is a significant contributor to New Zealand’s lousy household saving rate – why save when homeowners are convinced their wealth keeps rising without any saving required? – and to a persistent need to borrow from overseas.
It’s no surprise that New Zealand’s balance of payments deficit is currently the highest in the developed world.
But there are some grounds for believing that house prices may finally have ended the three-decade period when they rose significantly faster than incomes. For some strange reason, neither of the Herald articles I quoted from make any reference at all to the far-reaching policy changes which the current government is undertaking with the clear intention of preventing further house price escalation.
These changes include obliging local authorities to zone for housing sufficient land for the estimated need over the next three decades; removing the restriction on building small “granny flats”; allowing for greater intensification around transport nodes; freeing up the rules and regulations arising from the Resource Management Act; and reducing some of the rules and regulations which currently make house-building such a constipated process.
If the government is serious about these policy changes – and Chris Bishop, Chris Penk and Simon Court certainly seem to be – it would be unwise to make a substantial bet on house prices continuing to rise faster than incomes, as they have done over the last 30 years. And if these policy changes actually produce a gradual decline in house prices over, say, the next decade, the effect on our society would be profound indeed.
This article was originally published by Bassett, Brash and Hide.
