We used to be the half gallon quarter acre pavlova paradise. Owning your own home was the foundation of the “Kiwi dream”. Now it seems that we’ve let that dream slip further out of reach than almost anywhere in the world.
Late last month there was plenty of coverage of the international survey that ranked New Zealand housing as severely unaffordable. Houses in some areas, such as Auckland, are less affordable than New York:
The ideal income-to-loan ratio is around three times an annual salary. But in New Zealand it takes 5.3 times the average annual salary to pay for a house. In Tauranga it takes 6.5 times the average annual salary and in Auckland 6.4 times. In New York, it’s 6.1.
When you can’t afford your own home renting becomes the only option. At the same time the recession has triggered a significant slowdown in the rental property supply. Inevitably, a crisis in the rental market is emerging, as this report on the Auckland situation describes:
Rental market madness
Demand for rental property in Auckland is at crisis point, with some houses now attracting as many as 200 would-be tenants.
Desperate tenants are often having to spend months searching for a place to live, and some even engage in bidding wars. Landlords are sitting pretty.
This site for Kiwi landlords sets it out bluntly:
Housing pressures change the face of rental market
The black clouds of widening house affordability look like having a silver lining for landlords as a whole new demographic, priced out of home ownership, moves into private rental accommodation.
How should the government be responding? Taking the advice of the Savings Working Group would be a good start — implement more significant tax changes to remove the distortions that favour housing as an investment. Stop beating about the bush and bring in a capital gains tax (beyond the family home). Expand the state house building program. These measures would help reduce the cost of housing. But the missing piece of the puzzle of course is to address the other component of the affordability ratio. Wages have got to rise. And we’re never going to get that from a National government.