WELLINGTON, Aug 6 - Desperation among homebuyers is pushing New Zealand house prices to record highs, overpowering the government's efforts to rein in the red hot market and putting in jeopardy key policy promise of Prime Minister Jacinda Ardern.
Nearly 15,000 homes sold for more than NZ $1 million during the last 12 months, compared with just 5,500 in 2020, according to the Real Estate Institute of New Zealand's Million Dollar Price Report.
In the capital of Wellington a 50 year old derelict house which was not too dangerous to enter was sold for almost NZ $1 million - a price far higher than expected.
The new owners didn't step foot inside before purchasing it. even we could not enter, said Ray White from the real estate group Ben Atwill, which made the sale. From what I am seeing, there is no stopping premium dollars from flowing through.
Such runaway home prices have made New Zealand's property market one of the most unaffordable in the world, and the measures introduced by the government and the central bank have so far done little to cool demand.
This is largely because of pandemic-inspired policies that have translated into cheaper mortgages, allowing affluent investors to build up homes and increase portfolios of rental investment properties, while locking out low and mid-income earners https: www.reuters.com World the-great reboot how-new - zealands-much-admired-covid 19 response-helped fuel-housing crisis 2021 - 03 - 16
The government has tried to rein in the market through policy changes by applying new taxes for property investors and monitoring flipping activity, in which investors buy a house, quickly renovate it and sell it for a large markup. Such investment has pushed house prices to a national average of NZ $820,000 by nearly 30%, on top of a 90% rise in the preceding decade.
Homebuyers don't want to miss out on what seems like a gold rush, and there is no evidence investors are leaving in a hurry, said independent economist Tony Alexander who publishes a survey of real estate agents with REINZ.
This week, the central bank of New Zealand said it was concerned about sustainable borrowing and house prices were above high risks. It has proposed tighter mortgage lending and debt-to-income restrictions https: www.reuters.com article New Zealand-lending - rbnz-idUSL 4 N 2 P 93 NK.
Economists expect the bank to go further and increase interest rates at its policy meeting on Aug. 18.
The Reserve Bank has highlighted that it's not seeing any real reaction to the changes made so far, said Brad Olsen, principal economist and director of Infometrics. The risk of having such a large pile of debt has continued to ring alarm bells.
Housing has become a policy headache for Ardern, who secured a second term in office last year to the back of her success in managing the coronavirus pandemic. New Zealand has about 2,500 coronavirus cases, with the last one occurring in February.
Opinion polls this week showed her party's popularity lost since the election, while her rivals were gaining support.
When she was elected in 2017, one of the problems with her platform was ending the free run of property investors and building affordable homes.
But her centre-left government's flagship Affordable-housing project, Kiwibuild, foundered. The government has not been able to reduce the red tape around land approval, making land artificially scarce. Private developers say the costs and consent process make properties unaffordable.
Ardern has not yet introduced a capital gain tax to cool the market.
The Capital Gains Tax is an economic dynamite, Olsen said. A lot of people also own homes, so the housing issue is tied inextricably to politics.
Human Rights Commission launched an inquiry into the housing crisis https: www.reuters.com World asia-pacific new-zealand human rights commission-launched inquiry-into-housing-crisis -- 2021 - 08-2002, saying it was causing a humanitarian crisis as young people were deprived of their basic right to live in a decent home.