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(Photo: Jessie Casson via Getty Images)
(Photo: Jessie Casson via Getty Images)

Covid-19May 1, 2020

What’s up with New Zealand’s housing market?

(Photo: Jessie Casson via Getty Images)
(Photo: Jessie Casson via Getty Images)

Economists warn that house prices are about to see a sharp correction. The NZIER public good team explains why this is happening, and how we can handle it.

For the first time in recent history, New Zealand has been preoccupied by something that isn’t the housing market. With the entire country locked down for four weeks, there have been bigger fish to fry. Now that the lockdown has loosened and the Reserve Bank has lifted loan-to-value (LVR) restrictions, all eyes will be on house prices – will the market be flooded with ex-Airbnb rentals? Will depleted Kiwisavers stop new buyers? Here, we explore how changes in the housing market don’t just affect buyers and sellers; they can affect us all. 

If you haven’t heard, houses in New Zealand are expensive. Really expensive. It’s not just wannabe homeowners making noise about nothing, it’s official; in 2016, the International Monetary Fund found New Zealand has the highest house-price-to-income ratio in the world. To make matters worse, our houses are also not even great quality – one Otago researcher found up to 10% were unfit for living. Recently, the state of our housing market was bad enough for a United Nations official to declare it a threat to human rights. That’s because expensive housing contributes to heaps of problems; overcrowded houses are bad for health, increase family violence, and widen inequality by disproportionately affecting Māori. 

Despite the soaring prices, agreement on the significance of home ownership continues to unify the nation. It’s important for us culturally; alongside a quarter acre, a car, and 2.5 kids, home ownership completes the Kiwi dream. But it’s also important because renting is rubbish. You’ll have heard the rumours about landlords from Hell, who turn a blind eye to mouldy carpets, and make sudden rent increases. While there are rules in place to protect renters, in reality it’s often hard to find alternative housing, leaving renters in a difficult position. But ownership isn’t plain sailing either, with mortgages hard to get and taking longer and longer to pay off. We know New Zealand is special for many reasons, but what is it that makes our houses so pricey? 

Why are our houses so expensive? 

Firstly, when we talk about house prices, it’s helpful to differentiate between house and land prices. Actually, research from Statistics New Zealand and NZIER finds that the house bit – including the building materials and labour – has stayed relatively stable over time. It’s the price of the land you build on that is seriously increasing. It essentially comes down to a standard observation underpinning how prices are determined; demand and supply. Our demand for space to live is increasing (due to normal population growth and migration) but the amount of space available is limited. 

Of course, we’re not literally running out of room. New Zealand has got a fair bit of green space throughout the country (we’re pretty famous for it). But some parts are protected, and the most popular places to live have strict regulations on where and what you can build, as well as real physical limits. Think of the cities with the highest house prices, Wellington and Auckland; Wellington’s most desirable areas can’t expand because of the hills and, obviously, the sea. Auckland is stuck between two harbours and while planners opted for a sprawling approach, the favoured areas are limited in scale. 

Not all regions feel these strains in the same ways, or are equally popular for prospective homeowners. While house price increases were pretty similar across the regions from 2000-2007, from 2008 onwards there is a major geographic divergence. It’s not just the cities with the biggest employment opportunities in high demand; places which are both popular with tourists and have constrained house supply, like Wanaka and Nelson, also have surging house prices. 

House price surges around the country since 2008. Source: NZIER.

Confidence is key 

So basic supply and demand explains part of the house price rise. Of course, our slowly growing population and low-level migration are pretty standard, and often considered ideal for developed countries. Where things get interesting is when people get confident the price trend will continue. This confidence comes from common understanding that house prices are going to carry on going up. We know the population is growing, and the sea and mountains aren’t moving, so we feel sure that house prices will continue to rise. It’s so obvious that house prices are rising, savvy investors spot a smart opportunity, and buy houses safe in the knowledge they can sell them for a decent profit in a few years. This extra demand pushes the prices up, and the price increase attracts the attention of other savvy investors, who start bidding on the same houses, pushing up the prices further. 

This phenomenon of price increases driven by people thinking the prices will carry on increasing is called speculation, and when house prices are driven up by speculation, that’s called a bubble – AKA a problem. You guessed it; bubbles can burst. It might only need a tiny trigger for investors to change their mind and start selling their houses, rapidly prompting others to follow suit. Economists warn about a “sharp correction” in house prices, which means they expect house prices to fall to their “true” value. The problem is, it’s difficult to know what part of house prices are true and what part are speculation, so we don’t know the size of that correction. Imagining what the house market would look like without speculation gets tricky, because alongside speculative buying there’s also been other factors pushing house prices up; low interest rates making mortgages more attractive, and increased migration into the country. The unknown size of a price correction is a source of instability – speculative bubbles always burst, whether it’s houses, stocks, Bitcoin, or even, in 16th century Amsterdam, tulip bulbs.   

A price crash? I like the sound of that… 

If you don’t own a house, a price crash sounds like it could be a good thing. People who just want a place to live could buy up the stock at cut prices – affordable housing for all! The problem is, houses are such a major feature of our economy that even someone with no interest whatsoever in buying one can be affected by a price crash. 

For example, imagine a couple in their 60s. They’ve owned a home for 30 years, and are planning on downsizing soon to help through their retirement. Since house prices have been consistently going up, they can expect to make a sizeable profit when they sell. A price crash would mean a major dent in their savings, and the general response to a less secure financial future is to start spending less (though they might recoup something by accessing a smaller place for less). They might cut back on dinners out, or retail spending. 

And if other people in New Zealand suffer the same loss and respond in this way, that’s bad news for staff in the shops and restaurants, who then also lose confidence in their future earnings, and spend less. Then we’re stuck in cycle where no-one has confidence that their income will be secure in the future. That cycle is called a recession, and once the cycle starts, it can be difficult to stop. 

So, if houses are overpriced, but a price crash is bad, what do we do? 

It’s a question that has had politicians scratching their heads since the 1990s. What we want to achieve is a gradual slowdown in house prices, but any sign of stopping can be enough to make investors pull out, risking a collapse if they all lose confidence at the same time. One way to tackle the problem is to make buying houses for re-sale less attractive. That’s where tax makes a useful policy tool – income from selling a house is taxable, but it’s difficult to enforce. Another way to reduce demand is to make renting more attractive, by introducing longer-term leases and greater freedom to make minor house alterations. There are also options for changing the supply side, by making better use of the land we currently have and freeing up more to use. This is where the debate on housing regulation comes in; limiting building heights and banning small apartments helps keep standards up but also reduces capacity to respond to increasing prices by scaling up supply. 

The housing market presents a complicated problem which affects us all one way or another, regardless of home ownership status. It’s this tangle of interests where some want relaxation of regulations to increase supply, and others want taxes to reduce demand, that means it’s a real challenge to move forward. Any serious policy intervention is going to involve a trade-off, making the decision both economic and political.

Keep going!
Director of health Ashley Bloomfield, who, on most days, reads the numbers that will define how the rest of this year plays out (Illustration: Simon Chesterman)
Director of health Ashley Bloomfield, who, on most days, reads the numbers that will define how the rest of this year plays out (Illustration: Simon Chesterman)

SocietyMay 1, 2020

Covid-19: New Zealand cases mapped and charted, May 1

Director of health Ashley Bloomfield, who, on most days, reads the numbers that will define how the rest of this year plays out (Illustration: Simon Chesterman)
Director of health Ashley Bloomfield, who, on most days, reads the numbers that will define how the rest of this year plays out (Illustration: Simon Chesterman)

The latest in our series of charts, graphics and data visualisations by Chris McDowall. David Garcia worked with Chris to create today’s charts.

This work is entirely funded by the generosity of The Spinoff Members, with support from the Science Media Centre

These posts collate the most recent statistics and present them as charts and maps. The Ministry of Health typically publishes data updates in the early afternoon, which describe the situation at 9am on the day of release. These data visualisations are interactive so use your mouse or thumb to hover over each graph for more detail.

This afternoon’s Ministry of Health figures report that the total number of confirmed and probable Covid-19 cases increased by two to 1,479 (1,132 confirmed and 347 probable). This is the 13th consecutive day of single-digit increases. A total of 1,252 people have recovered which is an increase of 11 since yesterday. There were no further deaths overnight.

The number of significant clusters with 10 or more cases remains at 16, although one of these clusters was closed overnight. There are six people in hospital which is an decrease of one since yesterday. For the third day running, there are no known Covid-19 cases in intensive care units.

Yesterday, 5,328 tests were processed. The ministry reported averaging 4,523 Covid-19 lab tests per day during the week ending April 30. A total of 139,898 lab tests have been conducted since January 22. There are 59,266 test supplies in stock, down from 67,542 yesterday.

This chart compares active and recovered cases. Active cases are confirmed or probable cases of Covid-19 where the person has neither recovered nor died. Recovered cases are people who were once an active case, but are at least 10 days since onset and have not exhibited any symptoms for 48 hours.

The overall downward trend of active case counts that started around April 8 continues. Note how the blue curve is levelling off, while the purple bars continue to decline. This means there are very few new cases being reported while existing cases steadily recover.

This table shows the number of active cases, recovered people and deaths in each area. Whanganui, Wairarapa, Tairāwhiti and West Coast all have no active cases. The largest number of active cases are in Canterbury (36), Waikato (34), Waitamatā (34) and Auckland (23).

You can sort the table’s rows by clicking on the columns titles.

The symbol map shows confirmed and probable Covid-19 cases arranged by district health board. In keeping with the relatively small number of new cases, there is minimal change in regional counts. Waitematā (up one to 224), Southern (no change at 216), Waikato (no change at 186) and Auckland (up two to 175) remain the four district health boards with the largest number of active cases.

There are 15 significant clusters under investigation by the Ministry of Health and one closed cluster. Once again, no new cases were reported in any cluster overnight.

For the first time the ministry announced that they had closed a cluster. This was the Wellington Wedding cluster. The ministry anticipates closing more clusters over the next few days.

Closing a cluster signifies that ministry is confident there is no longer transmission of the virus within, or associated with the cluster. A cluster can be closed after 28 consecutive days pass since the most recent onset date of a reported case. This period corresponds to two incubation periods for the virus.

This chart shows the number of active, recovered and deaths associated with each cluster. The ministry has not released formal counts associating deceased persons with clusters. Instead, we compiled these numbers from ministry media releases about each case.

In most clusters, the number of recovered cases outweighs the number of active cases. Three clusters buck this trend. Both Auckland residential care facilities and the Rosewood aged care cluster in Christchurch all have more active than recovered cases.

This chart shows cases by the date they were first entered into EpiSurv, ESR’s public health surveillance system. Note that the number of cases reported on a particular date may not match the number of cases reported in the last 24 hours. This is because the number of confirmed and probable cases reported in the last 24 hours includes cases that were entered on an earlier date as “under investigation” or “suspected” whose status has now been changed to confirmed or probable.

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