New Zealand is expected to introduce measures on Tuesday to combat the sharp rise in commodity prices that has driven low and low-income consumers out of the market, and posed a major challenge to Prime Minister Jacinda Ardern’s government.
The country’s success in fighting coronavirus has made it a safe haven for Kiwis and investors, who have invested in real estate, pushing up house prices by 23% in just 12 months, far ahead of wage growth.
Billions of dollars in government incentives and low interest rates have historically continued to heat up the market, while housing availability has returned to a relatively low level in almost 20 years, making it the least expensive among the 36 Organization for Economic Co-operation and Development (OECD) nations.
Finance Minister Grant Robertson has publicly stated that he is looking at measures to reduce lending to investors and reduce potential returns, while supporting other types of investments, but analysts warn that there is no easy adjustment.
“The Minister of Finance will have to throw the whole sink into the crisis,” said Brad Olsen, a senior economist at the Wellington-based economics consulting firm Infometrics.
He said that the conversation that took place in the Kiwi families during the summer was not about COVID-19, but it was a house. So he doesn’t need a silver bullet … he needs to shoot all the dangerous bullets.
Housing prices have doubled over the past decade and successive governments in a country of 5 million have struggled for years to find solutions.
About 1% of New Zealanders are considered homeless or “homeless”, which is twice as high as in OECD countries, and almost twice as much as neighboring Australia.
While Ardern’s government was easily restored to power last year after eradicating COVID-19 in the country and a host of domestic successes, the 2019 completion of its key KiwiBuild project to build 100,000 affordable homes was a significant failure.
DIVISION OF HOUSES
Ardern said on Monday the government would release a list of quick and long-term measures to provide the remaining funds to first-time home buyers and improve housing delivery.
He said that he believes that the program will begin to make a difference in this complex issue.
Affected changes include restrictions on high-interest-only loans and interest-only loans to investors, as well as extending the mortgage period of investment facilities from five to 10 years to overcome tax evasion and reduce tax rates on real estate.
The New Zealand Reserve Bank has already tightened its mortgage laws, and has been asked to monitor housing while setting targets.
Kiwibank chief economist Jarrod Kerr said that these side measures will have a small impact, but do not address the central problem – the apparent shortage of affordable housing.
Jarrod Kerr who is the Kiwibank chief economist said that he is worried that there’s going to be a lot of focus … I don’t think speculation is a problem, but it’s easy to focus on.
He said that the issue they have here is the chronic housing shortage and anything the government can do to increase the provision of accommodation will go a long way in solving this problem.
Some headaches of government irritate investors and homeowners who plan for the proceeds from housing.
“Houses are the biggest cause of division right now,” said Olsen of Infometrics.