It’s been more than 10 years now that the real estate prices are shooting up at a dramatic rate in New Zealand. This is particularly true of Auckland where the number of newly constructed buildings are far from meeting the rise in population.
In the largest urban area of the country, the average price of a house was around $916,900.00 last year, up 2.2% from the previous year. Since 2010, the number of homes for sale in the city has actually dropped by 58%, which has pushed up the average price by 88%.
But for buyers, the shortage situation can also land some incredible opportunities. In this article, we tell you what you need to know about the housing shortage in New Zealand and what it means for buyers.
Demographic growth and housing shortage
According to a recent report by the Organisation for Economic Co-operation and Development (OECD), a major factor for pushing up housing prices in New Zealand is the high level of immigration, especially since 2012. New Zealand has been facing skill shortages for the past few years and implemented schemes to attract a qualified workforce, preferably young, who have the skills and the financial means to invest, a good knowledge of English, and can easily fill an available job.
For the New Zealand government, immigration is above all a means to ensure the development and competitiveness of the national economy. As a consequence, legal immigrants make up the bulk of immigration flows, and Illegal immigration is limited. That’s also because of the insular nature of the territory, which facilitates the control of population movements. But the problem is that the housing supply did not follow, and New Zealand is not able to house its newcomers anymore —who usually want to settle in Auckland. But even outside of Auckland, prices have been soaring, even in the apparent absence of strong population growth.
The roots of the lack of housing supply
For some experts, the explanation is simple. The construction sector just can’t catch up. The supply response is highly constrained by restrictive and complex town planning rules. The governance of land use is marked by a number of rules, from land clearance to environmental standards. The administrative hassles are so numerous for real estate companies, estate agents and builders that many of them are deterred to develop housing projects.
The construction sector has also been pulled down by insufficient working capacity. Selected immigration has partly solved the skill shortage crisis in New Zealand, but it has increased the need for unskilled workers to provide them with housing. The construction industry does not have enough skilled workers to meet the demand, hampering any rapid progress and considerably increasing the cost of construction. Moreover, since the early 1990s, the supply of new homes moved from low-cost housing to high-end real estate, became less and less affordable.
The failure of housing policies
Some say the housing shortage in New Zealand will be the demise of the Labour Coalition, who have failed to solve it adequately despite making it a high priority. In 2018, the government passed a law prohibiting foreigners from buying residential properties. The law provided that non-resident investors, i.e. people who are neither New Zealand citizens or permanent residents in New Zealand, will not be able to purchase existing homes or other residential land. The provisions remain different for commercial property investment.
Expected to stop the hike in real estate prices, the reform really aimed at preventing investors living abroad, especially in China, from buying homes in New Zealand… The housing shortage was attributed to the growing property appetite of foreign investors with a higher purchasing power than New Zealanders. But some figures show that foreign investors make only 3% of the investors…
This reform was also supposed to leave more opportunities for the local Kiwis, but it didn’t. New Zealand house prices are still among the highest in the world. The average home price in Auckland is the seventh highest in the world, while Christchurch and Wellington are also considered “severely unaffordable” by the Demographia International Housing Affordability Survey of 2019.
At the same time, the Labour coalition government also launched the KiwiBuild scheme aimed at building 100,000 homes over 10 years. 1,000 were scheduled for the first year, but only 47 were built early 2019. The Housing Minister already had to take a step back and admit that the government won’t meet the target. Some critics also noticed that these houses were actually way more expensive than the average!
The persistence of buying opportunities
These reforms barely impact the numerous kiwis who wish to buy a house or apartment as a pied-à-terre. Each investment project is different in New Zealand, depending on the reason for the purchase of a property and a first home mortgage. For buyers who are looking for quick bucks, the situation can look pretty bright. In light of the housing shortage, getting buyers at a later stage or renting your flat will not be an issue!
For those who have a limited budget, it will be easier in low-density areas. The coastal areas and the low-populated hinterlands are beautiful regions with amazing nature and transport infrastructure. The demand for long-term property is low, but it can be an opportunity for investing in tourists rentals or simply for a secondary home. Property lawyers can help you with that. A house on the Lake Taupo or a flat in Queenstown to capitalize the skiing season are key investments.
For a buyer who wants to get regular rental incomes and mid-term or long-term capital gains, it’s advised to invest in student flat in city centres, where most educational institutions are located, and where the prices are climbing the fastest. Even though the prices are already very high, a flat in the centre of Auckland could be a great and easy investment as the management can be given to rental agencies. Trust lawyers can help you set up a partnership.