- Rising affordability concerns continue to affect New Zealand’s housing market, with a significant proportion of first-time buyers lying below the curve.
- Tried and tested policies can be modified to build a strategic approach that does not hurt the owner-occupiers.
- Other than taxes, improving land supply and developing a solid build-to-rent sector are some key measures that can help cool down the rising prices.
The New Zealand housing market has been plagued with an undersupply of property, contributing to soaring prices in the sector. Housing prices have been trending upwards for over 12 months, with prices reaching close to NZ$1 million in some states. At this point in time, sooner execution of government reforms has become a necessity as delayed action can crowd out the entire group of aspiring homeowners.
Speculations are rife that the current property market situation has worsened housing affordability, which may deteriorate further. At the same time, some experts predict that the market is headed for its peak, against the backdrop of a rise in average housing prices above average household income. Currently, property prices stand at almost double their value recorded seven years ago.
A significant factor behind shooting property prices is the low-interest rate setup that has allowed for a higher number of mortgage loans to be taken. However, a deeper structural problem troubling the sector lies at the heart of the property price surge - the lack of a proper supply system. Meanwhile, an ever-increasing demand for housing is another fundamental issue impacting the property sector.
In this backdrop, let us discuss few target areas that can help New Zealand cool off its housing market:
Solving land scarcity
New Zealand’s land scarcity has been a decade long issue that may not get a quick resolution. Dwindling stock numbers have worsened under the low-interest rate setup, with potential homebuyers flocking the markets for a new house.
As a solution, the government can stir housing construction through grants and funds to increase the housing supply. Though supply has been going uphill over the years, the current housing stock is yet to catch up with rising demand numbers.
Moreover, the government can introduce exemptions for tax deductions in construction projects. These exemptions can be offered on new buildings to make investments in these projects a lucrative opportunity for investors. In a way, the government should prioritise investment in the housing construction sector to promote greater supply and build a strong inventory.
Improving the build-to-rent sector
The build-to-rent sector is a unique and one-stop solution for the looming issues faced by the housing market. The unique agreement structure allows homebuyers to live as long-term tenants without the fear of being kicked out from the property by the landlord.
These properties available on rent are owned by investors who already hold a stake in the development. The build-to-rent model has been highly successful in the UK and could be a pathbreaking transformation for younger homebuyers. It may also solve the supply crunch problem on a large scale in New Zealand.
If carried out smoothly, investors can lock in a worthwhile investment, while tenants will not have to compete with investors in the market. However, the strength of the build-to-rent sector is underpinned by user-friendly regulations and appropriate funding needed to complete the project on a large scale. Thus, these factors need to be in check to reap the rewards of this common yet unique technique.
Paying heed to taxes
The viability of capital gains tax has long been a topic of debate among New Zealand politicians, with the outcome ruling against its implementation due to the political setup. However, this does not take away the fact that this tax could be the last and, at the very least, a helpful resort.
Another feasible option is to opt for subsidies that are strategically offered to promote growth in the sector. For instance, subsidising the development of those construction projects that benefit more than one segment of the market is a good way to start ensuring that enough money is pumped into the system.
Additionally, taxes targeted at prohibiting speculation can also help regulate the market and keep prices stable and within reach of consumers.
All in all, while land tax policies may not be welcome in New Zealand, adopting a targeted approach seems essential to ensure that owner-occupiers are not hurt by the tax structure. Moreover, taking cues from nations undergoing similar housing problems and prioritising actions accordingly is the need of the hour. The sooner these measures are set into place, the lesser proportion of the population is expected to be displaced from the housing market.