New Zealand’s Housing Minister, Nick Smith, has set an ambitious target to improve the affordability of New Zealand housing back to its long-run average of four times household incomes. From Interest.co.nz:
“The target that I’ve given to my ministry goes back to those long term affordability measures – which is the ratio of incomes to house prices. That’s what really matters. Historically that number’s been about four for New Zealand,” Smith said.
“Currently in Auckland it’s seven. I’ve set that long term objective of getting it back to four. That means incomes are growing faster than house prices and you need that repeatedly over a period of a decade or two to get those ratios down,” he said…
“If you look at housing ownership in New Zealand, it’s been going backwards every single year since 1987. In other words the decline in home ownership from about 75% in New Zealand back to about 65% has occurred over that period,” Smith said.
“And if you’re looking for some instant magic bullet that the government can wave and change those 20 year trends you’re mistaken. It’s about doing the hard yards in those important areas I’ve identified,” he said, referring to the Productivity Commission’s study on housing affordability and its recommendations for improvements in land supply, building materials costs, council infrastructure costs, productivity and compliance costs.
Obviously, it’s an election year in New Zealand, so Smith’s affordability target is no doubt politically motivated. It is also short on details as to how it will be achieved and over what time frame.
Interest.co.nz’s Bernard Hickey also notes the enormity of the task in restoring New Zealand housing affordability to four times incomes:
To get that multiple back to four would imply house prices remaining flat in Auckland for 19 years with average annual wages growth of 3%, as is currently the case. Or it would imply house prices dropping 43% for the multiple to be rectified.
Nevertheless, with home ownership rates in New Zealand plummeting over the past two decades – from around 74% in 1991 to 65% in 2013 – with the young bearing the brunt of the decline, restoring housing affordability is a worthy ambition for the Government.
Obviously, to achieve such an outcome would require fundamental reform to Auckland’s constipated planning system, preferably alongside tax reforms aimed at removing speculative demand from the market (e.g. abolishing negative gearing and implementing a broad-based land tax).
To date, there have been positive signs, with the National Government implementing some policy reforms to housing aimed at boosting supply (explained here) – albeit not nearly enough to achieve Smith’s stated target.
Irrespective, at least the National Government has recognised that housing is far too expensive in New Zealand, and that the constipated planning system is a stranglehold that must be broken if housing is to be made affordable for families. This is a far cry from the policy inertia evident in Australia, where Australia’s politicians have yet to even acknowledge that problems exist.
