Record house prices nothing to celebrate
OPINION: The "mini-boom" boosting Wellington regional house prices is neither.
There is nothing "mini" about a tidy but unspectacular 1920s three-bedroom Kilbirnie weatherboard selling for $562,000 - $102,000 more than RV. That's actually crazy when you consider that a year ago similar homes in the same area were selling for about $20,000 over RV.
And how is this a boom? Who is better off – other than the banks and real estate agents?
The buyer is certainly no better off. And unless the vendor is moving country, she/he is going to be buying their next property - even if it's in a retirement village - in the same over-heated market. No-one is gaining as the virus that is Auckland's house price spiral spreads throughout the country - certainly not the first-homers trying to get started.
In fact, I would argue we are all becoming worse off.
Every extra dollar that has to be paid off a mortgage is one less that can be spent elsewhere in the economy or, preferably, invested in an asset or in a business that actually produces something and employs people.
We have talked for decades - but done little - about making New Zealand a high-income, high-technology economy. Remember the Knowledge Wave conference in 2001?
If we want our children to enjoy the incomes of scientists, engineers and technologists, we need to invest in the businesses that will create those jobs and keep them here.
We can't expect anything to change if we all just keep pouring more and more money into houses - and second and third houses. All we are doing is pushing up our collective cost of living.
It's not a new argument.
In 2005, two years before KiwiSaver, then-Finance Minister Michael Cullen said that New Zealanders would have to save and invest more - and not have it all tied up in housing - if the country was to retain ownership of a bigger share of its productive assets. Back then the national median house price was $265,000.
In 2010 Finance Minister Bill English announced tougher tax rules for investment properties, saying they would help encourage saving and investment in productive assets. By then the median house price was up to $350,000.
In March the median house price reached $495,000 – a 41 per cent increase in less than six years; in Auckland it reached $820,000.
You'd think that was something to celebrate, judging by the media coverage. House price records smashed – was the headline on the Real Estate Institute of New Zealand's statement last month.
Why not Housing costs reach all-time high?
Why did one Wellington real estate agent last week say that recent suburban price rises were a "long over-due catch-up" after several years of no capital gain? Why should we expect capital gains every year if there is sufficient housing stock to match local economic and population growth?
Artificially low interest rates - here and worldwide - are fuelling at least an asset bulge and probably a bubble.
Low rates may be here for a while and that, coupled with this country's on-going favourable tax treatment for property investment, is only going to make matters worse.
Fortunately we have options. We need to build more homes and we need to stop councils and other regulators coming up with ever more creative ways of making them more expensive to build.
But a land tax and/or a capital gains tax also has to be on the table. Ending the full tax deductibility on interest payments for investment properties, as suggested last month by former Financial Services Council chief executive Peter Neilson, is another good suggestion.
But the time for talking is over. We need to stop arguing about the role of offshore investors in this market and focus on the future we want for our children.
And if a collection of blunt instruments is needed to end our collective obsession with real estate – so be it.
Gavin Evans is a Wellington business journalist and parent. He pays a mortgage on the family's one home. The views expressed are his own.
- The Dominion Post