New Zealand's homes top an 'obscene' $900 billion combined value

Auckland's North Shore is out of reach for first home buyers.
SIMON MAUDE/FAIRFAX NZ

Auckland's North Shore is out of reach for first home buyers.

The runaway property boom has driven the combined value of all homes to over $900 billion for the first time, according to Reserve Bank figures.

At the end of December, the Reserve banks figures indicated New Zealand homes were worth a combined $873 billion.

But property data company CoreLogic said the total at the end of March would rise to $905 billion. Corelogic provides the figure to the Reserve Bank for its July update. 

The rise has incensed affordable housing campaigner Hugh Pavletich, who called it "obscene and dangerous" that houses and apartments were worth about four times the country's gross domestic product (GDP).

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"It's just ridiculous," Pavletich said. "Obscene and dangerous is the only way to describe it."

In 2014 Pavletich compared the ratios in different countries of housing stock value to GDP. He found New Zealand's was 3.2 times GDP, behind only Australia, but ahead of the United Kingdom, Canada and the United States.

"The housing stock should not be worth more than 1.2 times GDP to 1.5 times, tops, but nowhere near this 3.6 getting close to four times GDP," Pavletich said.

The median house now costs about 10 times the median household income in New Zealand's metropolitan areas.

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"Normal is three times," Pavletich said.

In March 2011, the value of housing in New Zealand was $605 billion, but Pavletich said the country had not built $300 billion of properties since then.

Rapid rises in land prices caused by cities' artificial urban limits, and a dearth of building during a period of high immigration were behind the massive rise in house prices, he said.

"All we are doing is running a welfare scheme for the banks with excessive mortgages. They are the only real winners here."

Westpac economist Michael Gordon said the housing stock to GDP ratio was something people should expect to change over time.

For a long time houses sold at about three times household incomes, but since then interest rates had dropped to sustained lows bringing the cost of mortgages down, and pushing prices up, Gordon said.

"A fair chunk of it is that interest rates have fallen a long way," he said.

"There are different schools of thought to what degree that is permanent."

There had been talk of intervention from the Reserve Bank and politicians crashing the market, but there could be a "win-win" for existing homeowners, and those wanting to buy, Gordon said.

This involved a mix of densification, by building Auckland up with more properties on each parcel of land.

That could provide lower cost housing without affecting the prices of existing properties.

"You would get affordable housing and existing property owners would not take a bath," Gordon said.

The prospect of Auckland desification had driven prices up, but prices may have gone too high, Gordon said.

 - Stuff

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