Big, bold and urgent action is needed to stop house prices rocketing further, says a new report from the ANZ.
The median house price used to be three times the household median income in the 1990s, taking around seven years to save for a deposit. Now it’s at seven times the median household income and saving at the same rate would take 15 years.
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Photo: RNZ / Nate McKinnon
Chief economist at ANZ, Sharon Zollner, joined panellist guests Patrick Smellie and Lynda Hallinen to discuss what needs to be done.
Zollner says property prices are unprecedented in terms of their relativity to incomes which is a “real concern”.
“Whenever anything breaks into new highs like that it automatically makes you worry because, along with those house prices, we now have record high household debt and that is going north quickly.
“The definition of debt is consumption brought forward from the future, which is fun at the time, but then the future eventually arrives.”
She says that with house prices growing at the rate they are, we’re now looking at a boom/bust scenario for the market.
“The further away from fundamentals it runs, the greater the chance of an uglier correction. I do think this unsustainable, the level we’re seeing at the moment. It is, of course, extremely unusual to see a housing boom in what is ostensibly a recession.”
Zollner says home owners and prospective buyers need to prepare themselves for risk and accept that a cooling in the market is not out of the question.
“Yes it’s bricks and mortar and you can insure it against a fire, but house prices can be really quite volatile.”
Businessdesk’s Patrick Smellie says he’s thought about writing a column about an impeding bubble burst many times since 2005.
“I don’t think anyone’s prepared to stick their neck out and say that this bubble will burst anytime soon. It could, but it feels to me as if this has been created in part by very low interest rates so maybe the only thing to change it would be if interest rates were suddenly to rise.”
Smellie says that with Treasury forecasts showing no sign of an interest rate rise, and with borders soon to open, he believes house prices will continue to rise.
“People who like the idea of being in a relatively remote, democratic, safe country which managed covid well will probably come steaming in in a way which we haven’t seen before.”
Gardener and author Lynda Hallinen says she thinks Prime Minister Jacinda Ardern will live to regret her great statement that there will never be a capital gains tax in a government led by her.
“I hate to say it, but you’re going to hope to get her out then. It just can’t keep going on.”
Hallinen says she was looking back over some of the homes she’s owned throughout the years and saw that an old, crosslease house she bought for $160,000 sold last month for $1.1 million.
“It’s exactly the same house, they haven’t even painted it.”
However, Smellie says the capital gains tax is a red herring and only would have hit a small proportion of investors.
“You’ve got to attack this it at its source and that’s to do with supply. We just don’t build enough houses quickly enough.”
He says the government needs to support pre-fabricated housing.
“They’re available, they can be imported, they can be made consistent with the New Zealand building code.”