With data today showing that Auckland house prices are surging upwards faster than ever, it is clear that focusing only on supply is not working. As I noted back in April – any market is about both supply AND demand. Its economics 1.01.
The Hon Nick Smith is doing great work on increasing housing supply. But even he admits that will be a long term solution. The problem is that in the short term, demand is pushing prices to ridiculous levels. And once prices rise it is much harder to get them back down. It’s what economists call the problem of “sticky prices”. They go up relatively easily, but are much harder to deflate. This is because rather than accept a lower price, vendors simply withdraw from the market and wait.
This means every month that the Govt does nothing to address demand, prices are getting locked in to ever higher levels. The impact is not only on first home buyers. Inevitably rents have to rise to cover the cost of capital invested in rental housing – and that hits those who can least afford it. When average weekly rents are nearly as high as the minimum wage, and often higher than benefits, it is little wonder that poverty is a growing problem.
When as reported in the NZ Herald today that 8,500 New Zealand homes are listed on a Chinese website for off-shore buyers it is also clear that there is an issue with foreign demand. Even if they only make a small portion of the overall demand it only takes a few well heeled buyers at the margin to propel the whole market upwards. Ask anyone who has been to an auction.
As I also noted back in April – a Holland or Holyoake National government would never have sat on its hands whilst foreign buyers pushed housing out of reach of ordinary New Zealanders. Neither should this one. Forget the one-eyed unbelief about foreign buyers. Open both eyes and do something.