Prime Minister Christopher Luxon wasn’t willing to say he wanted average house prices to fall in real terms, when asked at a press conference on Monday.
Last week, Housing Minister Chris Bishop told reporters average house prices were too expensive and needed to fall to improve affordability.
“We want housing to be more affordable for New Zealanders. That is a major work stream for this government — average house prices in NZ are too expensive,” he said.
“The flipside of house prices falling for people who own homes, is that they become more affordable for people who don’t own homes”.
Luxon was not willing to go this far, when asked by Interest.co.nz on Monday, and only said he wanted to see “downward pressure” on purchase and rental prices.
When the Coalition has previously referred to “downward pressure” on rental prices it has meant slower-than-otherwise increases.
Luxon went on to say the Government was working to increase the supply of four components of the housing market: owner-occupied, rentals, social housing, and emergency housing.
But when asked if that would mean lower prices, he repeated that he wanted “lasting downward pressure on house prices”.
“I’d love to see a combination where New Zealanders were able to access cheaper housing, more affordable housing, and have higher incomes, so that we could actually increase the number of Kiwis having homeownership”.
The Prime Minister’s careful choice of words may be intended to avoid the backlash that hit Metiria Turei, then Green Party co-leader, in 2016 when she called for lower house prices.
Her political ally, Labour leader Andrew Little, called her “irresponsible” and then-Prime Minister John Key described similar comments by economists as being “crazy”.
Chris-cross
On Tuesday, the Housing Minister said the whole Cabinet was behind his push for affordable housing — including the possibility of further decreases in real selling prices.
“We need to make housing more affordable, that means house prices falling, and it also means average incomes rising, as well,” Bishop said.
The long term goal was to get house prices back to between three and five times the average household median income. High housing costs were keeping young New Zealanders out of ownership and imposing “enormous fiscal costs” on the Government.
This policy position has partly inverted the political spectrum, with Labour leader Chris Hipkins arguing in favour of protecting asset prices.
He told reporters a broad reduction in house prices would be “problematic” as recent first-home buyers would lose their equity and may even end up bankrupt.
“I don't think that's something that any responsible government should aim for, but I do think we should be aiming to increase housing supply and we should be aiming to take the heat out of house prices”.
It would be better to have incomes catch up with current prices, rather than attempting to bring about a housing market collapse, he said.
Affordability rout
Since that mini-drama in 2016, the median house price has climbed more than 60%, to $770,000 according to Real Estate Institute of New Zealand data, while the Corelogic house price index has increased almost 70%.
While house prices have fallen about 16% from their peak in late 2021, they remain unaffordable by historical and international standards — similar to in 2016.
The International Housing Affordability Survey defines “affordable” housing as being three times income or below. New Zealand’s ratio in May was 6.6, albeit down from 9.3 in November 2021.
House price to income multiple
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Interest.co.nz’s Home Loan Affordability Report found the typical first home buyer in New Zealand would need to save for 5.5 years to get a 20% deposit for a house.
The calculation is based on a couple in their late twenties working full-time and earning the median pay rate for people their age, and buying a house at the lower quartile price. The pair would then spend a third of their after tax income paying the mortgage.
In Auckland, this hypothetical couple wanting to buy one of the city's cheapest homes would need to save for 7.4 years and spend 45% of their income on a mortgage.
Bishop was expected to report to Cabinet in March with more details on the party’s plan to push local councils to rezone large amounts of urban and rural land for mixed residential use.
Luxon said there would be more to say on this policy “shortly”.
Economists at BNZ have forecast house prices will begin to climb next year as mortgage rates fall, the economy recovers, and property-friendly Government policies add to demand.
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