It would be easy to dismiss some of the research findings the Reserve Bank led the New Zealand property market with a grunt and a short, “Well, we knew that.”
However, thinking something and knowing something are not the same thing. What the RBNZ has done in comparing us to 12 other developed countries over the past 20 or so years has given solid form to long supposed “facts” – and in doing so has in fact established said “facts” as being a little more, even more, decisive factor in why our houses cost the earth, with the moon added for good measure.
I could have told you before that we have expensive houses, that we have taken in too many migrants and that our mortgage rates have come down a lot, even though we have not built enough new houses.
But consider for a moment these key findings from the RBNZ’s research and analysis (emphasis mine):
• While several other economies have seen rising house prices in recent years, the rate of increase is the highest in New Zealand.
• Among the economies we consider, New Zealand has seen the biggest drop in mortgage rates since the global financial crisis, and almost the largest increase in population.
• Despite the rapid pace of residential construction in New Zealand over the past decade, the number of dwellings per inhabitant remains low and below the OECD average.
Okay, that doesn’t mean our mortgage rates have come down a lot – it means they’ve come down MORE than any of the other countries in the sample. I did not know.
Also, it doesn’t say our population grew a lot, it says it was ALMOST THE STRONGEST among the sample. In fact, Australia “beat” us. And our cousins across Tasmania are also known to experience a bit of a scum in their housing market. Maybe a pattern here, huh?
So sometimes stating what might seem like “the obvious” is helpful when backed up by 20 years of data, especially if that data suggests the situation was actually worse than some (certainly me) thought. same.
I knew, yes, that obviously our mortgage rates had come down a lot. But I didn’t know that our mortgage rates had dropped much more than in other countries. And yes, I knew the population had grown a lot, but maybe I didn’t realize how much it had grown over a long period of time compared to other countries.
Add to that the already well-documented problems of housing supply and planning constraints and you have to say it would be a shock if our house prices HAD NOT been among the highest in the world.
And I’m now going to draw the conclusion that the RBNZ hasn’t (and I guess politically they wouldn’t dare) and say that we have grossly inflated house prices because we weren’t building enough houses at the same time as we were pumping thousands of them out of thousands more people in the country – and interest rates were coming down. This last element of course allowed people to pay “too much” for houses when they compete with everyone else, using a tidal wave of borrowed money that is now swallowing up people as rates rise. mortgages increase.
If you were to lay down a recipe for trying to get yourself the most expensive homes on the planet, you would…well, do what New Zealand did. You would do exactly what we did. “Expensive houses? Listen, don’t build a lot of them, then flood the migrants into the country, then lower the interest rates so everyone can pretty much afford to borrow a truck to compete with everyone else and drive up the house prices.
So. Welcome to New Zealand in 2022.
Okay, many of you will say again, “We knew that.”
Look, we all THINKED it. But the thing is, here it is in black and white. And it is now unavoidable. We ignore this information at our peril.
I said it until my face changed color, but I’ll say it again, this country urgently needs a population strategy. Preferably signed in blood by all major political parties. It is the highest priority.
Some might say that migration policy is the highest priority. No. He must take second place in relation to the population. We decide how big we want the population to be at any given time and migration policy has to be developed as a subset of that.
A population strategy. It’s urgent. Just do it.
You can’t let the construction of housing fall by the wayside and thus go haywire with the requirements. It takes us a long time to ramp up with residential construction (the detail of WHY it’s taking us so long is also something to watch).
We are consenting to the construction of many homes at this time – over 50,000 in the last 12 months. But as someone once said, you can’t live with consent. And the evidence is now mounting of a very rapid downturn to come in the residential construction sector. Any industry is likely to be cyclical, but the fact is we can’t have a situation in New Zealand where we keep going from boom to boom.
How could this be controlled? Well, Kiwibuild went bankrupt, but that doesn’t mean governments should rule out large-scale involvement in home building in the future in order to maintain consistency. You have to think about it. We need a fluid housing supply.
Mortgage interest rate. It’s a, sorry, interesting. You cannot control interest rates (despite what some have tried before) because they will inevitably reflect what is happening in the global economy. But you can have some control over how much people borrow. Mortgages are just too big now. Unless we return to a low interest rate environment again, some people are years into the struggle.
I would suggest the Reserve Bank go ahead and introduce debt ceilings as soon as possible.
But what about something larger too? What about limiting the proportion of loans banks can make to homes? It would be difficult and cause a stir, but now is the time to think about it. Our banks have become survival mechanisms for the real estate monster.
And then migration. I know I said a demographic strategy has to come first. But I am nothing if not a realist. Until we get one (and let’s be hopeful and optimistic), we need to take a serious look at migration.
The borders are open again. Politically, it would be too easy to simply reopen the floodgates. We can’t do that. Not unless there is an immediate housing and infrastructure response – and let’s face it, you know there wouldn’t be.
I thank the RBNZ for this research. State the obvious perhaps. But in a very good way. It’s clear. There are no arguments.
The things we’ve done in this country over the last 20 years have been a one-way ticket to ridiculous real estate prices.
It is up to us to learn these lessons on board. We cannot go back. And I’m afraid the dice are cast (as I’ve said before) for New Zealand which still has ‘expensive’ homes now.
But we know very clearly how we can stop making things worse. It depends on us.