The home affordability challenge - NZIER Public Discussion Paper 2014/4

18 July 2014

Fixation with home ownership causing economic and social despair

New Zealand’s crippling home affordability rates cannot be fixed by a single solution such as changing immigration policy or urban planning rules, or imposing a capital gains tax or lending ratios.

This is one of the key findings from the latest New Zealand Institute of Economic Research (NZIER) report – The home affordability challenge.

“There is no one fix to rule them all,” says Shamubeel Eaqub, principal economist at NZIER. “It’s not just Chinese investors, it’s not just a lack of an effective capital gains tax, it’s not just councils’ planning rules, or cheap credit.”

“With that many variables in the mix, the solutions will be complex and perhaps the most effective measures could come from unexpected corners, like rental market reform.”

New Zealand has one of the least renter-friendly regimes in the OECD, so renting is not seen by many as a viable long term housing option. Eaqub says if tenants were offered better security of tenure, and able to treat their rental like their own home, many could be willing to forgo home ownership.

The report explains that New Zealand’s obsession with home ownership is one of the key reasons that it took so long for New Zealand’s economy to recover after the 2008 Global Financial Crisis. “Our reliance on future capital gains to pay for debt-funded spending caused a long hangover when households realised they needed to pay off the mortgage.”

Eaqub says if New Zealanders are not cured of their housing fixation, the nation’s financial and economic stability will continue to be put at risk every time there is a recession.

The fixation with home ownership is also causing social inequity and despair. “People fear being locked out of a traditional route to financial security, as almost 70 percent of New Zealand’s household net wealth is stored in housing. At today’s prices, an average Auckland home will take 50 years to pay off on an average Auckland salary. In the early 1990s, the average Auckland home took 30 years to pay off.”

Home ownership rates are at their lowest since 1951 – but rather than obsessing about that, it is a trend New Zealanders should embrace.

“Economies prosper when people invest in business, not just housing. We need to create level-playing fields for different types of investment, and parity between renting and owning, to support a much needed cultural change around housing.”

For further information please contact:
Shamubeel Eaqub
Principal Economist
021 573 218