‘I mean, it is a lovely home, but... wow’
One villa, 38 years, 13 sales and a $2.06m price hike - we track the history of New Zealand’s redhot housing market through the fortunes of one home.
Let’s start after World War II. About 140,000 New Zealanders serving overseas returned and needed somewhere to live. In 1947, 50,000 births were registered, a record number at the time. Enter the Baby Boomers, (those born between 1945 and 1964), who some argue ‘‘pulled up the property ladder on today’s youth’’.
After the war, the state built a lot of homes. It put them within reach of buyers through the State Advances Corporation, which offered loans at about three per cent interest. In 1936, only 50.5 percent of households lived in homes they owned – by 1971 it was 68.1 per cent.
Social norms had changed, said John
Tookey, a housing market expert and Professor of Construction Management at AUT.
Before the war, it was common for Kiwis to live in homes owned by others. The post-war generation, however, grew up in their own houses – and their children, the Boomers, saw homeownership as a birthright.
Tens of thousands of homes were built over the following decades and the maturing Boomers were treated to a golden age for first-home buyers. Almost 40,000 dwellings were consented in 1973. Housing was plentiful. Homeownership
rates were rising. But the good times couldn’t last.
May 17, 1983: The house sells for $36,500
First recorded sale. About 3.3m people live in New Zealand. About 18,000 dwellings are consented that year.
A National government, led by Robert Muldoon, was in power. Broadly speaking, the economy was struggling. The UK had joined the European Economic Community in 1973, closing off a vital market to exporters; and the price of oil had shot up dramatically on the back of a global oil crisis. Muldoon’s government borrowed huge amounts from overseas to prop up its flagship ‘‘Think Big’’ plan, an early 1980s policy aimed at stimulating the economy by building major industrial projects such as refineries and dams.
In 1982, the Auckland Regional Authority formalised the Metropolitan Urban Limit (MUL), a planning scheme designed to control urban sprawl, essentially drawing a line around where you could build a house. In the aftermath of
World War II, planning rules in New Zealand had been rather relaxed, but more onerous rules were emerging.
The Priced Out report told an anecdote of one unidentified planner warning councillors that the MUL would lead to major increases in house prices. The rules would create an artificial scarcity of land, the planner warned.
July 26, 1988: The house sells for $180,000
About 3.45m people live in New Zealand. About 19,000 dwellings are consented in 1988. CoreLogic’s Property Values data goes back to 1989. That year, the average price of a house is about $119,000. In Auckland, it is about $157,000.
The Muldoon government left the country heavily in debt, meaning there was much less money and appetite for state housing.
The 1984 Labour government decided to enact widespread deregulation of the economy. This was known at Rogernomics, named after then-Finance Minister Roger Douglas.
New Zealand’s economy, once tightly controlled by the Government, became a ‘‘laissez-faire’’ experiment in unregulated capitalism.
People piled money in to stocks. But in 1987 Black Tuesday dawned, the market crashed, and Kiwis became more wary of such investments. Housing suddenly seemed like a much safer bet. The number of homes being built dropped off, falling massively from the mid-70s, and the population continued to rise.
Major social changes meant young people were leaving home and renting
before marriage, creating more pressure on the market.
In the mid-1940s, there had been, on average, about 4.5 people living in a single house. That number began to drop off.
The Reserve Bank Act was passed in 1989, creating New Zealand’s Central Bank. It was dedicated to keeping inflation under control, wielding the official cash rate (OCR) as its main tool. The idea is that a low OCR will encourage borrowing to stoke up the economy when it needs a lift.
But the problem is when the price of money is low, too much of the borrowed money goes into housing.
June 7, 1994: The house sells for $275,000
About 3.6m people live in New Zealand. About 23,000 dwellings are consented. The average price of a house is about $141,000. In Auckland, it’s about $183,000. The average hourly wage is about $15.
The Building Act of 1991 seemed like a good idea at the time. It was, in part, supposed to reduce the cost of housing by loosening restrictions on builders.
But the Act ended up enabling substandard work, which resulted in the leaky homes debacle.
It later emerged that some local authorities issued consents when they shouldn’t have. This spooked councils, who became much more cautious about granting consents.
At around this time, Auckland’s market was really beginning to heat up. From 878,223 people in the Auckland urban region in 1991, there were 1.3m by 2013, and apartment buildings and population density were increasing. But home-ownership rates were falling.
In 1991, 73 per cent of Kiwi households lived in a home they owned – the highest rate on record. But, by 2001, it was 67.8 per cent and falling.
The planning environment had also become much more prescriptive, leading to tougher local authority rules and making it more expensive to build.
Around this time, the extra costs associated with new developments (roads, pipes etc) ended up being front-loaded onto the cost of a new house.
‘‘Unlike in the 40s, 50s and 60s, when the central government paid to develop infrastructure through the Ministry of Works, now the councils are forced to do it,’’ said business journalist and housing commentator Bernard Hickey.
‘‘And because councils don’t want to borrow money or put up rates, eventually they need to frustrate and stop new developments.’’
The Resource Management Act, introduced in 1991, certainly made building homes more challenging. While it has undergone changes over its lifecycle, the current government has committed to more sweeping reform, which it hopes will put a stop to the endless complaining and nimbyism that blocks development.
Yet Motu Research senior fellow Arthur Grimes (who was previously chief economist and chair of the Reserve Bank), wasn’t optimistic about the impact of any reforms.
‘‘No matter what the Government does, I think the planning fraternity will make it very hard to develop.’’
Through the 1990s, price inflation was brought under control in New Zealand. This meant interest rates dropped off and loans became more accessible.
A perfect storm was brewing in the housing market. The country was seeing a decline in the number of homes being built, while credit was becoming readily available.
October 20, 2006: The house sells for $720,000
About 4.2m people are living in New Zealand. Close to 26,000 homes are consented; 7000 of those were in Auckland. The average price of a house is $365,750. In Auckland it is $478,265. The average hourly wage is about $21.
The Global Financial Crisis arrived in 2008 and house prices dropped.
In Auckland, the average price of a house fell from $525,569 in March 2008 to $480,000 in March 2009, according to CoreLogic.
To get the economy moving again, the Reserve Bank slashed interest rates. But all that did was make expensive mortgage payments much cheaper. House prices quickly recovered.
‘‘Interest rate reduction did little to stem job losses and business closures. But this had a major effect on house price inflation, sending both Auckland’s – and to a lesser extent Christchurch’s – to stratospheric levels,’’ AUT housing expert Tookey wrote in a 2016 policy paper titled The Mess We Are In.
October 31, 2011. The house sells for $965,000.
About 4.4m people live in New Zealand. Just over 13,662 homes are consented; 3700 of those are in Auckland. The average price of a home is about $393,000. In Auckland it’s about $543,000. The average hourly wage is about $26.
The Global Financial Crisis was in the rearview mirror. Mortgages were cheap and the planning process remained uncompromising.
‘‘You saw a fall in interest rates drive a massive increase in house prices. And structural under-building meant there was not a supply response when prices went up,’’ Hickey said.
The housing problem was now often described as a ‘‘crisis’’ and the Nationalled government passed the Housing Accord and Special Housing Areas Act in 2013 to encourage fast-track developments and to make some houses more affordable. It was dropped last year.
Loan-to-value (LVR) ratio measures were also introduced in 2013 to stop banks behaving irresponsibly and lending too much but the Reserve Bank later admitted they likely made it much harder for first-time buyers to get into the market.
Another policy called the ‘‘bright-line’’ test aimed, in part, to place restrictions on those ‘‘flipping’’ (or selling) homes not long after buying them.
The test required people who sold a property (that wasn’t their home) within two years to pay tax on any capital gains. It was extended to five years in 2018.
Thousands of new homes were built in Christchurch as arduous planning rules were essentially suspended after the 2011 earthquake. This is often cited as an example of how we can fix the housing crisis.
Jacinda Ardern replaced Andrew Little as Labour leader in August 2017 and pressed then-Prime Minister Bill English on his suggestion that surging prices were ‘‘good problems to have actually’’.
She became prime minister two months later.
Auckland’s median house price rose
about 20 per cent since she made those remarks, while the national median price went up 37 per cent.
February 2, 2019. The house sells for $1.7m.
About 4.9m people live in New Zealand. More than 37,000 properties are consented. The average cost of a house is about $680,000. In Auckland it’s more than $1m. The average hourly wage is about $32.
In 2018, the Labour-led government introduced restrictions on overseas ownership of housing.
Sales of state housing were also largely stopped. Ardern’s government committed to an extra 100,000 Kiwibuild homes over 10 years but dramatically missed its firstyear targets and scrapped the target in September.
Housing affordability worsened, with prices now seven times the median household income.
September 3, 2020. The house sells for $2.1m.
The population is 5m. The average cost of a house is about $752,928. In Auckland it’s close to $1.1m. New housing consents hit a 46-year record high in the year to October. The average hourly wage is about $33.
The Covid lockdown sparked fears of a deep recession so the Reserve Bank temporarily scrapped the rules, lowered the OCR and printed a lot of money for banks to lend.
Against the predictions of several economists, house prices skyrocketed. Home-ownership rates have fallen
sharply. Ma¯ ori and Pacific people and those in the Auckland region are the worst affected. Ownership rates were the lowest in 70 years in 2018.
There were 23,000 households waiting for a state or social home at the end of November. This number has more than quadrupled since the Labour-led government was elected in 2017.
Not much was likely to change to the market as a whole, said Grimes, the Motu Research senior fellow. The Government would prioritise the ‘‘median voter’’, who typically owns a home, rather than act in the interest of those who aspire to own, he said.
A14th sale doesn’t seem likely anytime soon, according to the real estate agent who sold the Auckland villa in September last year.
It underwent a significant renovation before being sold to the current owners, who are likely to settle there, said the agent, who asked not to be identified. Grey Lynn was an extremely desirable Auckland suburb. Median prices there were $1,617,750, according to CoreLogic.
Was the agent shocked to hear the price of the home shot up by $400,000 from February 2019 to September 2020? Again, not really.
‘‘It’s a very popular area. There’s good solid houses, good public transport. It’s close to everything … restaurants, bars on Ponsonby Road. It’s very sought after.’’
And Auckland prices continue to rise, as do prices around New Zealand.
This particular home, according to the latest CoreLogic data, appears to be now valued between $2.2m and $2.4m.