New Zealand’s housing system eats it’s young

Last month I penned an article showing how New Zealand’s housing market has swallowed the economy, accounting for a record high share of the nation’s gross domestic product (GDP) and household income:

Global dwelling values versus GDP

New Zealand relative housing size is bigger than other English-speaking nations.

Separate data from Capital Economics also showed that New Zealand’s consumer spending growth is especially sensitive to changes in house prices, meaning that if a significant housing correction takes place, it is more likely to plunge the economy into a recession:

Consumption spending versus house prices

New Zealand consumer spending highly correlated to house prices.

A new wellbeing report released by the Treasury shows that New Zealand’s house price growth has dwarfed other OECD nations:

New Zealand house price growth vs OECD

New Zealand leads the OECD for house price growth.

However, the wealth benefits of this growth have been captured by older Kiwis, leaving younger generations and other non-home owners much worse off:

The increase in overall wealth driven by the housing boom and other factors has disproportionately benefited older age groups, as shown in Figure 79…

New Zealand wealth by age

This situation is cause for concern in a context where owner-occupation rates are falling and are lower than the OECD average and where the benefits of home ownership are not equally distributed. Rates of home ownership are higher for Pākehā, for older new Zealanders and for people who are not disabled. The growing gap between owner-occupiers and others thus contributes to a number of inequities between major demographic groups…

Housing affordability is a particular problem for low-income renters, with Aotearoa New Zealand being the worst country in the OECD on one measure. In 2019, over half of renters in the bottom income quintile spent more than 40% of their income on rent…

New Zealand rental affordability

It is unfortunate then that renters not only face high levels of unaffordability for their rents but are also finding it increasingly difficult to accumulate a sufficient deposit to transition into home ownership. Estimates by CoreLogic suggest that the number of years required to save a house deposit for the average household has nearly doubled in the past decade…

Time to save a deposit

Home ownership has declined steadily since the 1980s, with most of the decline among people under the age of 60, reflecting a steadily increasing age for first home purchase…

New Zealand home ownership rates

The decline has been such that our rates of owner-occupation are now below the OECD average.

Commenting on the launch of the report, Treasury Secretary Carelee McLiesh noted that “since the turn of this century, the gap between [the] wealth of the over 65s and under 35s has more than doubled”. This is illustrated in Figure 79 above, with a 65-year-old’s wealth now 6.3 times that of a 35-year-old, compared to 4.3 in 2001.

So basically, the massive increase in house and rent prices over decades is locking younger Kiwis out of home ownership.

The upshot is that New Zealand has transformed from an egalitarian society where social and economic success were open to all into a class-based society where ‘dynastic wealth’ is now the main determinant of one’s success.

Unconventional Economist
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Comments

  1. GonzificusMEMBER

    I imagine, this side of the Tasman Sea, intellects vast and cool and unsympathetic, regard this Middle Earth with envious eyes, and slowly and surely they draw their plans against us, to increase our debt, we still have a way to go yet.

  2. Hugh PavletichMEMBER

    … Further reading …

    ANZ New Zealand lifts its Servicing Sensitivity Rate, which it uses to stress test mortgage applicants, by 45 basis points … Gareth Vaughan … Interest Co NZ

    https://www.interest.co.nz/personal-finance/115610/anz-new-zealand-lifts-its-servicing-sensitivity-rate-which-it-uses-stress

    How can Wellington improve its economic wellbeing? … Dr Eric Crampton OPINION … Stuff NZ

    https://www.stuff.co.nz/business/opinion-analysis/300577365/how-can-wellington-improve-its-economic-wellbeing

    You might not have heard of ‘dynastic wealth’. It’s hurting a lot of younger Kiwis … Kate Newton … Stuff New Zealand

    https://www.stuff.co.nz/national/explained/128492002/you-might-not-have-heard-of-dynastic-wealth-its-hurting-a-lot-of-younger-kiwis

    World watching NZ housing market as Auckland labelled ‘canary in coal mine’ … Geraden Cann … Stuff New Zealand

    https://www.stuff.co.nz/business/128396590/world-watching-nz-housing-market-as-auckland-labelled-canary-in-coal-mine

    • Hugh PavletichMEMBER

      London calling: Inside the fight to halt the exodus of Kiwi workers … Jane Phare … New Zealand Herald
      … behind paywall …

      https://www.nzherald.co.nz/business/the-exodus-what-kiwi-employers-are-doing-to-fight-the-skilled-worker-shortage/5YVSZA3HIB6J4RBD3UFENWES4E/

      Nothing’s going to stop thousands of cooped-up young Kiwis from heading off now the borders are open but their departure can only exacerbate critical shortages of skilled workers. In the first of a five-part series, Jane Phare looks at what employers are doing to retain skilled workers, and what part the Government will play in terms of immigration.

      Newly trained occupational therapist Jenelle Thomson doesn’t hesitate when asked why she left New Zealand in February to take up a job in Brisbane.

      “It was the money,” she says. That and the cost of living in New Zealand, and the possibility of buying a house in Queensland much more easily than in Auckland. Thomson, 25, hasn’t looked back since heading across the Ditch. She left behind the prospect of a job as an occupational therapist earning $55,000 a year at Middlemore Hospital after graduating from AUT.

      In Brisbane she started on $76,340 in a private practice. If Thomson transfers to clinical work in a hospital, she is likely to earn more than $100,000. Her Kiwi partner, a civil engineer, is earning $30,000 a year more than his previous job in Auckland.

      Their weekly grocery bill is $140 for themselves, and includes cooking two meals a week for two flat mates, compared to more than $200 a week in New Zealand. The couple are saving to buy a house about half an hour out of the city for $545,000. … behind paywall … read more via hyperlink above …

      • Camden HavenMEMBER

        Europe is in need of people too, I’m in Spain now, glad I chose France to live.

        • Hugh PavletichMEMBER

          Camden Haven … To avoid becoming million dollar mortgage slaves, recently this young Kiwi couple explained on TVNZ why they are heading for Spain …

          Brain drain: Kiwis heading overseas as living costs rise … TVNZ

          https://www.1news.co.nz/2022/04/18/brain-drain-kiwis-heading-overseas-as-living-costs-rise/

          I’m getting constant reports of people selling up here to exit NZ.

          Generally they are very concerned about a 3rd term of Labour as the National Party is sadly just so weak.

          One wonders if current National leader Christopher Luxon is former leader Todd Muller Mark 2.

          It really is spooky.

        • working class hamMEMBER

          Something wrong with Spain? I really like the idea of siesta’s.

  3. Now that you mention it, i reckon that NZ might have eaten @Phanny as well.

    • The Travelling PhantomMEMBER

      They live on flesh young meat? I’ll never go
      there then

  4. Yep, they ate their young just like us. Cooked in a broth of low interest rates.

  5. I’d go there for holiday before boring ‘ol Tassie but way too cold most of the time! Wonder what the attraction of living there is?

    • GarethMEMBER

      It’s pretty easy on the eyes and being a small country with a small population it’s not completely stuffed environmentally. That’s why I would move there.

  6. Hugh PavletichMEMBER

    Barfoot & Thompson’s median price down by $99,000 from its December peak … Greg Ninness … Interest Co NZ

    https://www.interest.co.nz/property/115627/barfoot-thompsons-median-price-down-99000-its-december-peak

    Auckland’s largest real estate agency experienced a dramatic decline in sales volumes in April, with selling prices also dropping.

    Barfoot & Thompson sold just 615 residential properties in April, down from 1107 in April last year. That’s a fall of 44%.

    It was the lowest number of properties the agency has sold in the month of April since 2008, apart from April 2020 when New Zealand was in a Covid-19 lockdown. … read more via hyperlink above …

  7. Hugh PavletichMEMBER

    New Zealand … March 2022 new residential building consents / approvals …

    … Artificial blowout in politically / planning engineered dangerous and unsustainable bubble medium density …

    … Where is the ‘real need’ affordable new detached housing for young families in particular ? …

    … Australia ? …

    More multi-unit dwellings than stand-alone houses consented in a 12-month period for the first time as the number of new homes being consented goes through the roof … Greg Ninness … Interest Co NZ

    https://www.interest.co.nz/property/115630/more-multi-unit-dwellings-stand-alone-houses-consented-12-month-period-first-time

    The number of new homes being consented shows no sign of slowing down in spite of the prevailing economic uncertainties.
    A record 5303 new dwellings were consented in March this year. That’s the highest ever for any month of the year, and is up 26% on March last year, according to Statistics NZ.

    Consents are also running at record levels on an annual basis.
    In the 12 months to the end of March, a record 50,858 new dwellings were consented, up 24% compared to the previous 12 months.

    That was the first time the number of homes consented had passed 50,000 in any 12-month period.

    March also marked an important milestone in the type of dwellings being consented.

    Over the year to March, 25,475 multi unit homes such as townhouses, apartments, home units and retirement village units were consented, overtaking the 25,383 stand-alone houses that were consented in the same period. … read more via hyperlink above …

    Building consents issued: March 2022 … Statistics New Zealand

    https://www.stats.govt.nz/information-releases/building-consents-issued-march-2022

  8. Yup. It costs around 700k to buy a stand alone house in levin, a dreary town with crap weather 90 mins drive from Wellington, a city of 400 thousand. You can buy a nice house in a goodish suburb 10k from perth cbd for 5 to 600k. If i was a young kiwi i would be out of there stat. Brand Nz is confected marketing spin so that gushing left wing wealthy hollywood types will like them and tell them how much better they are than america and its nasty trumpians. The country has really been hollowed out culturally and economically by a pathetic woke elite.