Introduction:
First home buyers all across New Zealand are struggling to enter the property market. In this report we will show you how a combination of larger subsidised loans and councils favouring first home buyers, when giving out consents, will enable Kiwi first home buyers to get into the property market. However to understand how we came to this thesis you first need to understand what is causing the rise in house prices.
What are the factors that caused house prices to rise?`
Due to issues exacerbated by Covid, people have had to pay more for materials, land, and labour. As our expert, Rose Ross, a mortgage broker from ANZ, stated inflation and a higher demand for land and materials has led to the rise in the price of houses. Coupled with labour shortages, illness and vaccination policies, and rising wages to attract employees, housing companies and builders have had to increase the costs they charge to the homeowner.
Our expert believes that Covid is largely to blame.
Due to Covid, there was a lot of demand that drove up house prices. There was a lot of disposable income meant for holidays just lying around during Covid. You couldn't go shopping, you couldn't go on holiday. This meant that there was a lot of money floating around in the economy that people used to spend, so they just tended to buy houses as investments.
Who is responsible for the uncontrollable house prices?
Many people believe that the government is responsible for the uncontrollable house prices and them becoming out of control. This is partly true however it is not the full truth as there are many parts to the property market from the government to the real estate agent. The government has a role in the house prices by not delivering on their own promises with the major failure with kiwi build as they only built approximately 1,064 houses out of their promised 100,000 homes.
Property investors from other countries over recent years have had a major impact on the uncontrollable house prices. They have had an impact on the supply of homes within NZ as they buy houses within NZ and rent them out when they are not using them. In some cases, overseas investors have bought houses in New Zealand and left them vacant, which has added to the paucity of houses available for the average person. For a long time the government has welcomed property investors from other countries but up until a couple of years ago they had to put a cap on who is buying houses as they have majorly damaged the supply of houses.
The Reserve Bank has also played their role in causing uncontrollable house prices. It has raised interest rates on home loans over the years and have not been giving kiwis loans to be able to purchase a house. Our expert Rose Ross says that the Reserve Bank is a factor in the uncontrollable house prices by not giving out big enough loans to kiwis.
Who is most affected by the rise of house prices?
First home buyers are definitely most affected by unaffordable house prices. But why? Houses are just completely out of their price range. As we have previously talked about the Reserve Bank is part of the reason for this because they have caused raised interest on houses, and not giving out big enough loans.
People with large families do not often earn enough disposable income to save for a house deposit. This then causes them to not be able to save money to buy a house and forces them to rent. Renting is not ideal if you have a family. You do not get a sense of stability because your landlord can evict you at any time, with only a couple months' notice. This may seem like a lot but, unfortunately, it is not. Single parents are also affected by house prices for the same reasons.
Children's ability to regulate their behaviour at school and in public is influenced by their home environment. According to a study from the UCL Institute of Education (IOE), a child's capacity to manage or guide their attention, thoughts, emotions, and behaviours during childhood may be directly impacted by their home environment. Due to the uncertainty of their family situation, and possibly having to move house, or suburb or even town/city, children’s education and behaviour may be compromised with their school changes and pressures of new beginnings.
How does unaffordable housing affect the economy?
The economy surprisingly benefits from the rise in house prices. This is due to the amount of tax taken on each house purchase is based on a percentage of the price it is sold for. This allows the government to put more money into the economy therefore increasing the amount of money within the economy. The rise in house prices does however cause one negative effect. It causes an increase in rent prices then for renters they pay high prices in rent, causing the amount of left over money to decrease therefore reducing consumer spending.
What are some examples of housing becoming unaffordable in NZ? Plus numerical data
This graph illustrates the rise in home prices from 2000 to 2020. As you can see, Mount Maunganui home prices increased by $50,000 a year between 2000 and 2020. Which is utterly inappropriate and costly, in my opinion. The average salary in New Zealand is $58,000 annually, which is similar to the rate at which home prices have been increasing.
Tauranga's most expensive neighbourhood is Mount Maunganui. With an average house costing $1,454,150. The area with the lowest cost of living is Parkvale. is the suburb with the lowest cost of living, but it's still rather pricey with a typical home price of $703,800.
The Bay of Plenty's suburbs as a whole have all had a very similar outcome with house prices rising a lot. They are predicted to start going down, but it is still a huge problem at the moment. Waihi’s housing price has increased the most out of all of the suburbs in the Bay of Plenty.
This graph shows the average household pay compared to the average house price in each area. This graph highlighted how messed up and out of control housing is in New Zealand. We knew housing was unaffordable but seeing it in a graph like this is crazy.
Where should houses be built to match the interest of first homebuyers?
We have found that 60% of NZ first homebuyers are located in Auckland this is concerning as the city has very limited building space. However the Auckland city council is doing something to combat this problem as they confirmed 105,000 dwellings in the past year. This is positive because 25.4% of these dwellings went to first home buyers/builders. Manukau, Auckland is seen as the best place to build these houses due to the large area of farm land. In Fact this is where the kiwibuild houses built so far have been built. Rose says Auckland would be a optimum place to build as long as the first home buyers will be able to take some changes in where they live.
What are the different solutions to unaffordable housing?
After three weeks of research, we have found a combination of two ways we can get first home buyers into the property market. The first one starts with the Reserve Bank. The Reserve Bank can control the lending markets (loans). They need to give out bigger loans, with lower interest rates on them for first-home buyers. This is quite a big but relatively easy fix. This could be the stepping stone to solving the housing crisis, not only in New Zealand, but all over the world.
Another solution we have come up with is to do with the Council. The council needs to be favouring the first home buyers with building consents. For example, instead of giving a property investor consent to build because they have more money does not mean you should. This solution is solving two things. It is stopping people from being greedy by buying lots of land and houses. The second one is the fact that it is favouring first home buyers so they can get the land and consent to build on it. The council also needs to give faster building consent to everyone but predominantly first home buyers first home buyers.
Who should implement these measures to make housing affordable?
Many people believe that the government has got us into this mess therefore they should be responsible to get us out. Although the government has taken a major role in making houses unaffordable, however they do not have the full power to get us out. This is because only the reserve bank has the power to lower interest rates and the ability to give out loans whether or not they
Are subsidised from the government. But when it comes to councils favouring first home buyers when giving out consents the government has full control of who gets consents and who does not.
Conclusion.
In conclusion, this report has covered all the main points about the housing crisis in New Zealand. We have said why there is such a problem, what caused it, who is responsible for it and how we can solve it. The way that we will finally be able to overcome this crisis is a combination of many things.We have found two solutions that stand out. By giving out larger subsidised loans and councils favouring first home buyers, when giving out consents. We will enable Kiwi first home buyers to get into the property market.