There was a rather revealing headline in the Herald on Sunday today (12 May). It read
“One in 8 Auckland homes on market were bought during boom, may now sell for loss”.
The first line of text noted that “New data shows one in every eight Auckland homes going on sale is at risk of selling for a loss or minimal profit”.
The clear implication seems to be that even though the housing market in Auckland boomed between September 2020 and January 2022 to the point where the median house price was some 11 times the median household income in Auckland – a ridiculously unaffordable level of prices – it is somehow shocking and regrettable that house prices have fallen slightly in the last year or so, to the point where house prices are only wildly unaffordable.
The other implication is that, notwithstanding the recent slight pull-back in house prices, the great majority of houses being offered for sale currently – seven out of eight – will still sell for more than they cost when purchased.
I have deep sympathy for people who, as in the accompanying Herald article, are forced to sell their home at a loss because of circumstances beyond their control – losing a job, experiencing a relationship break-down, and so on. People can suddenly find themselves in a desperate situation through no fault of their own.
But it is surely a serious indictment on policy-makers in central and local government that it is taken as holy writ that houses should almost always be able to be sold for more than they cost years earlier, despite their being older and presumably in poorer condition than when they were first purchased.
We talk about “getting on the housing ladder”, with the clear implication that once that has been achieved, no matter how modest the house acquired, the lucky buyer is going to be OK, with house prices “guaranteed” to rise faster than almost all other prices and certainly faster than incomes.
The tragedy of the still wildly unaffordable house prices – the median house price should be around three times the median household income in well-functioning markets, not around nine times as in Auckland – is that a very substantial minority of New Zealanders, perhaps 40% of our entire population, will never be able to afford to own the roof over their head. They will arrive at the “normal” retirement age of 65 and either be forced to continue to work or live in utter destitution: certainly, at the cost of renting even a very modest home (which of course reflects the price of houses) it is simply not possible to live comfortably on New Zealand Superannuation.
Far too many New Zealanders already suffer from serious financial stress because of the ridiculous price of houses. The problem is only going to get worse unless the Government delivers on the promise made by the Minister of Housing, Chris Bishop, who, in a major speech near the end of February, said the Government is aiming to get house prices back to where the median house price is between three and five times the median household income. To protect himself from the anger of thousands of property-owning voters, he did say that that was his ambition over the next “ten to twenty years”, but if he is at all serious New Zealanders better get used to the idea that house prices will not be rising steadily year after year into the indefinite future.
Increasingly, as houses get older and in need of repair, and if the market is working as it should do, they will sell for less than they cost to buy.
But what about the land they sit on? Surely that won’t decline in value? Certainly there will always be land which has special appeal: that will quite likely rise in value faster than other prices and faster than incomes. But given New Zealand has a great abundance of land, section prices should be nowhere near where they are currently in most of our cities. That implies that section prices are likely to stagnate or decline from present levels if Mr Bishop delivers on his promise.
In an earlier article on this blog I quoted the case of a 455 square metre bare section on sale in Drury – nearly 40 kilometres from downtown Auckland – for $842,000 including GST, or $1,850 per square metre ($1,609 per square metre excluding GST). This is more than 10 times the average price per square metre of sections in the US. This difference is caused primarily by the tight restrictions imposed by local governments on where houses are allowed to be built.
Those who demand that housing be confined within tightly prescribed urban boundaries – as is true in all our major cities – must be told again and again that they and they alone are primarily responsible for the appalling social costs arising from the outrageous price of housing in New Zealand’s major cities.
Don Brash
12 May 2024