House prices rise fastest in NZ

New Zealand is an outlier when it comes to the property market, but recent increases in the rate of construction and falls in house prices could go some way to restoring balance, an economist says.

The Reserve Bank has issued a research note comparing the New Zealand housing market with those of 12 other developed countries in Oceania, North America and Europe. It noted that the drop in interest rates seen globally and a strong increase in population in New Zealand in recent years had created an ‘‘outsized’’ impact on house prices in this country, because the supply of new homes had been slow to respond.

While several countries had experienced rising house prices in recent years, the rate of increase was highest in New Zealand.

‘‘The progression of New Zealand house prices until the GFC [global financial crisis] was broadly in line with those in most other countries; but the pattern changed after the GFC,’’ the researchers wrote.

‘‘Real house prices in New Zealand flattened for a few years following the GFC, before undergoing a rapid escalation. The rise in New Zealand house prices since 2008 exceeds that of all other economies in our sample.

‘‘Ranked just below New Zealand are Canada, Germany, Sweden and Norway. However, in several other economies in continental Europe, real house prices remained even below their benchmark levels even by 2021.’’

New Zealand was at the upper end of the international spectrum on price-to-rent ratio and the price-to-income ratio, too.

The rate of house price increase had outpaced growth in rents in New Zealand more than in other countries in the sample.

The central bank noted that tax rules in New Zealand also favoured housing over other investments.

New Zealand had the steepest drop in mortgage rates since the GFC and the fastest population rise. But the number of dwellings per inhabitant remained low in New Zealand and below the OECD average.

The researchers said that while the rate of construction had increased since the early 2010s, the pace of increase had not matched population growth. Construction costs were high by international standards.

The number of dwellings per 1000 people dropped from 394 in 2010 to 387 in 2018, while it increased in almost all other countries.

‘‘The rise in New Zealand house prices since 2008 exceeds that of all other economies in our sample.’’

Reserve Bank researchers