New Zealand Real-Estate Markets Tries To Cool Down
New Zealand is emerging as a test case of whether authorities can restrain rising home prices without tanking the market and destabilizing the economy at the same time. The South Pacific nation’s efforts could offer a blueprint for the many other countries facing a similar dilemma after the coronavirus pandemic. A combination of low rates, economic stimulus and changes in buying patterns as people work remotely is pushing real-estate values higher all over the world, pricing out many first-time home buyers. The problem is particularly acute in New Zealand, where housing supply failed to keep up with population growth over much of the past decade. Home prices have risen more than 30% in the past year, according to a property-price index from the Real Estate Institute of New Zealand. The country’s home-price-to-income ratio, a measure of affordability, is the highest compared with the long-run average among 30 key economies analyzed by research firm Capital Economics. For each economy, the firm created an index setting at 100 the long-term average of the ratio of home prices to incomes. New Zealand’s score on the index was 178, or well above its long-term average. By comparison, the U.S. score of 93, or just below its average, was the sixth-lowest on the list. Governments have several tools at their disposal to influence real-estate prices, including boosting housing supply either through direct investment or changing land-use regulations, restricting mortgage lending and offering financial assistance to first-time buyers. Economists and policy makers debate whether central banks should use interest rates to try to rein in housing prices by influencing the cost of borrowing. Higher rates could make mortgages more expensive and cool demand for housing, but they could also have unwanted impacts on inflation or employment, the traditional areas of focus for central banks. New Zealand is pulling every lever. In October, the country’s central bank raised its benchmark interest rate to 0.5% from a record-low 0.25% and signaled more increases over the next year, in part because of skyrocketing home prices. And earlier in the year, New Zealand’s government, in a novel move, directed the central bank to consider home prices when making decisions about monetary policy, even though bank officials warned that would have little impact on the market and could lead to lower employment and below-target inflation. New Zealand has also restricted low-deposit lending, a move designed to reduce risky mortgages and lower the chance of a damaging housing market correction, which could destabilize the broader economy. Starting Nov. 1, only 10% of lending to owner-occupiers can have a loan-to-value ratio of more than 80%, down from the 20% of lending that is allowed now.
Tags : INTERNATIONAL population growth Government New Zealand Policy Makers Home Price Real Estate Institute of New Zealand Mortgage Lending Land Use Regulations