House prices may be falling lately, but they had been on an upward trajectory for the past 20 years
A new paper has revealed what drove house prices up so quickly over the past two decades.
Read more: House prices hit an all-time high
New Zealand house prices may have been falling lately, but between 2000 and July 2022, median house prices skyrocketed from around $170,000 to a whopping $810,000.
Read next: NZ house prices finally take a dip from dizzying heights
A joint paper by the Housing Technical Working Group found that global interest rates falling, the tax system, and land restrictions have been the key drivers over the last 20 years, Newshub reported.
The group is a joint initiative by Te Tai Ōhanga, Te Tūāpapa Kura Kāinga and Te Pūtea Matua that was established to improve the country’s technical understanding of the housing market.
“The key conclusion is that a combination of a global fall in interest rates, the tax system, and restrictions on the supply of land for urban use were the main cause of higher house prices in Aotearoa New Zealand over the past 20 years,” Dominick Stephens, Housing Technical Working Group chair, told Newshub.
The report, which focused on the Hamilton and Waikato area to draw insights for the rest of the country, found that population growth and construction costs played a more modest role to price increases and that it was the decline of global interest rates which inevitably led to a sustained reduction in borrowing costs in New Zealand and pushed up demand to buy houses.
“If land supply had been more responsive this would have sparked a larger housing supply response, moderating any initial lift in house prices, and putting downward pressure on rents,” Stephens told Newshub. “Instead, restrictions to land supply meant that much of the fall in interest rates was capitalised into, or captured by, higher urban land prices. Higher urban land prices led to higher house prices without increasing the incentive to build dwellings.”
Also according to the report, when land supply is restricted, reforms to the tax system tend to affect the value of urban land rather than supply or rents.
The paper followed a recent CoreLogic report which revealed that New Zealand’s housing market has reached a major turning point, as the number of houses sold that made a gross profit declined.
The company’s latest Pain and Gain report found that the housing market has lost some of its steam post-COVID-19, with 98.1% of property resales making a gross profit in the three months to June 2022 – down from 99.1% in quarter one and 99.3% in Q4 2021, Newshub reported.
