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A friend in the US asked me to explain the NZ housing crisis so I had a go. Thought I'd share it here in case anyone finds it useful. I welcome further insight from people who know more about this stuff than I do. 
Basically it's a supply/demand problem, and right now all the forces are aligned to increase demand without necessarily increasing supply.
Housing is pretty much the only thing the banks will lend you money for, which means your returns will almost certainly be greater than any other investment since it's the only way most people get access to other people's money.
If you have a spare $100k lying around (yes I know this is part of the problem) you can invest it in the stock market or in a business. Let's say you do pretty well and you double your money in 10 years. You've made an additional $100k.
OR you can get another $200k from the bank and get a rental property. The renter covers the mortgage and probably gives you some cash flow while you're enjoying the appreciation.
In the past 10 years, the median house price in Canterbury, the region where I live, has gone from $305,500 to $474,000.
This works out to 4.49% per year, but because you only put in $100k you've nearly tripled your money ($170k capital appreciation on down payment of $100k)
This works out to 4.49% per year, but because you only put in $100k you've nearly tripled your money ($170k capital appreciation on down payment of $100k)
Meanwhile your renter has been paying your mortgage, which over 10 years could be $60k or more in principal, ON TOP OF the increase in equity from the property itself.
So you started with $100k but now you have more than $330k in equity.
So you started with $100k but now you have more than $330k in equity.
Canterbury of course has the greatest housing affordability in Aotearoa. That 10-year total increase is 55.2%.
Nationwide, the median house price has gone up by 96% in the past 10 years.
In Auckland, it's gone up by 138%
https://www.newshub.co.nz/home/money/2020/10/a-bad-thing-new-zealand-property-prices-doubling-every-10-years-increases-inequality-expert.html
Nationwide, the median house price has gone up by 96% in the past 10 years.
In Auckland, it's gone up by 138%
https://www.newshub.co.nz/home/money/2020/10/a-bad-thing-new-zealand-property-prices-doubling-every-10-years-increases-inequality-expert.html
Remember, if you started with $100k, did well in the stock market & doubled your money you now have $200k in equity.
But if you bought a rental for $300k, doubled your house price over that 10-year period, & had a renter paying your mortgage you now have >$450k in equity.
But if you bought a rental for $300k, doubled your house price over that 10-year period, & had a renter paying your mortgage you now have >$450k in equity.
This doesn't include any cash flow you've gotten from the rent once the mortgage is paid.
As a property investor, there's virtually no friction to buy more and more properties. In fact, it's the opposite: the more you invest the easier it is to buy more properties, so your investments accelerate, so demand grows even faster.
As more and more tenants get priced out of the market, the number of renters also goes up, making it an even more valuable proposition for investors.
So what's the solution? Anything and everything to increase supply and decrease demand. Incentivising new builds. Different down-payment requirements on new builds. Changes to resource consent. More medium-density housing closer to city centres. And yes, Kiwibuild.
Making it easier for new homeowners to buy vs investors: Different down-payment requirements first-time homeowners. Government-backed mortgage schemes for first time homeowners.
Capital gains tax. Limits on foreign ownership. Limits on AirBnB—anything at their scale will distort the market.
Feedback welcome from the many people who know lots more about this stuff than I do. Information is power; let's get ourselves informed. (FIN)
Feedback welcome from the many people who know lots more about this stuff than I do. Information is power; let's get ourselves informed. (FIN)
