Once upon a time, most people thought housing markets were indestructible. Then along came the Global Financial Crisis in 2008, and people got hurt. Since then, we’ve watched housing markets much more carefully for signs of a problem.
Lending is falling
Recently, the Reserve Bank published its latest set of data on mortgage lending.
Our country’s total mortgage debt is now $227.8 billion, and it’s rising at a rate of $50 million every day.
But lending to property investors has started falling. It looks like the Reserve Bank’s rules requiring investors to have a 40 percent deposit are having some effect. Time will tell whether this is a temporary effect – like with the earlier loan-to-value ratio rules – or if it’s lasting.
Right now, it’s a welcome respite for first home buyers, especially in Auckland. According to the numbers, it’s slowly becoming less likely that they’ll be outbid by property investors. Of course, that’s not to say the struggle to buy a home is easy in a property market where the average price is over $1 million.
There is still a very real risk that a generation of New Zealanders will never own their own home.
Interest rates could rise
Unfortunately, the path that the National Government has put the country on is leading towards another kind of risk too.
Interest rates are very low right now, and that’s one of the things that’s been fueling the housing affordability crisis. With low interest rates, investors could afford to borrow a lot to buy their second, third, or fourth investment property. That extra demand drove house prices up, because new houses weren’t being built fast enough to meet the demand.
First home buyers had to compete with these investors. Because the Government wasn’t willing to help first home buyers by cracking down on demand from investors, or by building more affordable houses, some first home buyers were forced to take on huge mortgages at low interest rates.
The risk is that interest rates could rise. Economic commentators are starting to predict that rates rises are a very real possibility in the next 12-18 months. A mortgage that’s just affordable now may be too expensive in 18-24 months’ time with higher interest rates.
The National Government has let the situation spiral out of control by failing to take sensible, pragmatic action. Their hands-off approach has expanded the risk.
We need a real housing plan
This is exactly why the Green Party has said we need a plan to carefully reduce house prices to a more affordable level, over time. Market crashes hurt, but that’s what’s at risk.
What the Government should have done is tackle supply and demand together, by stepping in to correct a clear market failure and building thousands of affordable homes. At the same time, the Government should have clipped the wings of speculative housing investors from here and overseas, with a capital gains tax (excluding the family home) and a requirement that to buy a home in New Zealand, you must be a citizen or permanent resident. First and foremost, homes should be for living in, not speculating on.
That’s what a responsible Government would have done to manage the risks around the housing market.
Read more about the Green Party’s housing policies:
- Home for Life: rent-to-buy programmes for new, affordable homes and working with the community housing sector to build more houses
- Homes not Cars: our emergency response plan to help fix homelessness
- Faster into Homes: helping young people with student loans save for their first home
- Safe and Secure Rentals: our plan to improve the lives of people who rent by reforming the Residential Tenancies Act
- Healthy Homes: a Warrant of Fitness for rental homes and insulating another 200,000 homes
- Fixing planning rules to build more affordable, greener cities with better quality of life