New Zealand’s success in fighting the coronavirus has spread an unexpected problem: skyrocketing house prices.
When the pandemic first struck, most experts expected house prices to fall. Instead, prices have risen more than 19% over the past year, putting them out of reach for many people who want to buy their first home.
The government, which has come under growing criticism for its response to the housing situation, on Thursday announced the first of what it says will be a series of moves to address the issue by ordering the central bank to consider the impact on house prices when making decisions.
Reserve Bank Governor Adrian Orr said they welcomed the new guidance, which is “in line” with his own advice to government. The central bank has also announced that they are moving to ban lending to housing investors.
But some observers say the trends announced so far will have little impact on upward price movement, which is driven by underperformance and record low interest rates.
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“He is delighted to see a move in the right direction,” said Shamubeel Eaqub, an economist with Sense Partners who has written extensively about New Zealand’s housing problems. However, he said, he expects house prices to “keep at a tight knot” without further strong intervention.
Eaqub said that over the past 30 years, New Zealand has not built enough homes, especially rental units. And he said politicians are finding themselves in paradoxes – they want prices to continue to rise for those who have homes, and to fall for those who do not.
New Zealand has overcome a community outbreak of the virus, allowing most of its life to return to normal, and its economy has declined strongly as a result. GDP grew 14% higher than the December quarter, eliminating most of the virus-induced contraction from earlier last year. Unemployment remains at a low of 4.9%.
The country’s sovereign credit rating was raised this week by Standard & Poors, making it the first developed country to receive such a vote of confidence since the outbreak began.
But that success has helped fuel the housing market.
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The median home price jumped in January to New Zealand $ 730,000 ($ 544,000), an increase of 19.3% from a year earlier, according to the latest figures from the New Zealand Real Estate Institute. In Auckland, the largest city, the median NZ price hit an interesting $ 1 million.
These prices are high by almost any comparison to other developed countries, especially considering that most homes in New Zealand do not come with double glazing, central heating or other features that are common appreciation in much of North America and Europe.
Finance Minister Grant Robertson said the increases could not continue.
“We’ve been very clear that what happened in the last three months of last year is unsustainable,” he said, “and that’s why we need to change the options.”
This story was published from a wire group group with no text changes. Only the headline has changed.