Housing Affordability

Accoring to an article on the New Zealand Herald website, the country's three largest cities are now among the 50 least affordable cities in the OECD in relation to local wage rates. Given that over 60 percent of the population lives in the three main centres (Auckland, Wellington and Christchurch) this means that a high proportion of the population are likely to be priced out of the property market.

Australia also did very poorly in the survey, with Canada taking out the top spot as the country with the most affordable house prices. This is a major concern since traditionally, both Australia and New Zealand have been part of the exclusive club of high wage/cheap land countries that includes the United States and Canada.

One of the authors of the survey blames red tape and planning restrictions for high property prices and there seems to be some truth in this - property developers in Canada and the US don't (in most areas) have to deal with legislation like the Resource Management Act and have a lot more freedom to build on city margins.

However, there are other important reasons for the high cost of housing in New Zealand. The number of people with second homes is increasing while the lack of a capital gains tax and high withholding taxes help makes property more attractive than other investments. Mortgages are now easier to get than ever before, and many people rush into buying expensive homes at high interest rates for fear of missing the housing boat altogether.

Immigration is another big factor. Immigration levels are relatively high in New Zealand and the vast majority of immigrants move to the three main centres, with Auckland receiving the lion's share. Desite the US being a relatively affordable country for housing, Los Angeles came out as the world's least affordable city. Los Angeles, as many Americans will tell you, has a very high level of immigration with many people arriving illegally from Mexico.

Reducing red tape and easing planning restrictions will help ease the housing shortage but such reforms can only go so far. Much of the land around Christchurch and Auckland is good quality agricultural land and councils are right to be concerned about urban sprawl swallowing up good, flat agricultural land in a mountainous country like New Zealand.

Declining home ownership should also be a major concern for the National party. Historically, home ownership makes voters (especially women) more conservative and declining home ownership will play into the hands of the Labour party who can promise to "solve" the housing problem with token schemes that don't really fix the problem.

High property prices are also linked to family formation, and US evidence suggests that voters in states with a high proportion of home owning married couples are more likely to vote Republican.