Rising house prices may cost us dearly

When a brick-and-tile unit on a cross lease section in a modest North Shore suburb sells for $982,000 you know something is seriously wrong with an economy that is supposed to be in the depths of recession.

That’s just one of the crazy property stories that has come out post-Covid as the house buying frenzy goes nuclear and prices keep soaring – up 20 per cent on last year already.

It’s not just house prices that seem to be off the scale; ask any tradesperson how they’re tracking and they’ll tell you business has never been better.

I’m part of the problem; we were in the throes of a build before the lockdown and trying to finish the work in the aftermath has been an exercise in patience. Everyone is juggling multiple jobs, wait times for building supplies are long and people keep telling us they’ve never known things to be this frenzied.

Consequently we’ve been without heating most of the winter and without a kitchen for even longer – but we finally got the kitchen last week (still no heating though).

However, I’m the first to admit that we’re the lucky ones. I’m painfully aware how smug and entitled I must sound, complaining about these things when so many young people have given up on the prospect of even owning a home. They would kill to have my problems.

And I know it makes me culpable for soaring house prices in other ways; if you spend money renovating a house, you expect to get the money back if you sell.

There’s nothing new about a crazy property market in New Zealand. During the early 2000s, when prices were increasing at an alarming rate, we paid a ridiculous amount of money for a rundown old villa in a less-than-desirable part of town because we were in fear of missing out. Since then, the problem has only worsened. Last week, Prime Minister Jacinda Ardern suggested prices couldn’t keep rising but she didn’t seem to offer much in the way of explanation for her confidence that they won’t. Her preferred solution seemed to be to leave it largely in the hands of the Reserve Bank.

Ardern’s reluctance to talk up a political solution might be understandable; the wealth effect of rising property prices is presumably a major contributor to economic confidence at the moment. And no one wants to be the politician who killed the golden goose by slamming the brakes on too hard; the backlash would sweep them out of office.

That’s why there has been so little political will in the past to confront the crisis of home ownership by tackling soaring property prices, rather than by trying to manage it through doomed schemes like Kiwibuild.

But a property crash won’t be pretty either. And nor will the resumption of the brain drain of New Zealand’s best and brightest young people once the world reopens its doors and they decide there’s nothing for them here. And why not, when the only path to wealth seems to be property ownership and that has been denied them?

A property crash won’t be pretty . . . nor will the resumption of the brain drain of New Zealand’s best and brightest young people once the world reopens its doors and they decide there’s nothing for them here.