They emphasise the need to change expectations
Housing unaffordability continues to impact Kiwis, especially those who are young and most vulnerable – and trends continue to move in the wrong direction. As a result, ANZ economists looked at ways to solve the housing crisis, highlighting the need to change expectations.
The latest ANZ Property Focus report revealed that the median house price nationwide has increased from around $100,000 in the early 1990s to $730,000 in 2020. However, incomes have not increased anywhere near as much – with the median house price in 2020 around seven times the average income, compared with three times the average income in the early 1990s.
ANZ economists said the government and the industry must release land, build more houses, and align supply and demand settings better.
“Even sustained stabilisation in house prices would require a monumental shift in the market and would be a vast improvement from the rapid house price inflation we are seeing currently,” they said.
They emphasised that the main cause of the housing crisis is that not enough homes have been built to meet population growth. Housing supply has also not been sufficiently responsive to changes in demand, financial conditions, and price.
“In recent decades, lower interest rates and increased credit availability have contributed to rising house prices, but the potency of these effects is directly linked to the fact that supply has not been responsive to changing trends. Reflecting these supply issues, we have an infrastructure deficit and a significant existing housing shortage, which we estimate could be anywhere in the realm of 60,000 to 120,000 homes. And looking forward, expectations that demand will continue to outstrip supply have been baked into house prices today,” the economists said.
However, the ANZ economists emphasised that homebuyers and policyholders must also change their expectations and accept house price stabilisation or even gradual real house price declines.
“Not only would this help affordability; a managed supply-induced decline in house prices is a much better outcome than a painful correction, which is a risk under the current market structure. Although policy change can take time, engineering this sort of response in an orderly way is certainly possible, as shown in Canterbury post-earthquakes,” they said.
