Why supply of property in New Zealand needs to improve

To make property in New Zealand
more affordable, government should focus on improving the supply of housing in
the country.  That’s the recent
conclusion of a Reserve Bank of New Zealand study into the country’s housing
market.

The New Zealand Herald reports that ‘the pace that new housing can be
built is a ‘critical factor’ for house prices, and needs to be the focus of any
long-term policy’ according the country’s central bank.

Suggestions to make property in New Zealand more affordable

In its submission to the
Productivity Commission’s investigation into home affordability, the central
bank said that recent research has shown that the New Zealand housing market
has failed to respond to changes in housing demand over recent years.

The submission said: “Evidence
suggests that significant supply constraints lead both to bigger house price
booms and eventually to nastier house price corrections.

“Policy should focus on
regulation that gets supply conditions in the housing market right and removes
barriers that impede productivity gains in the construction sector.”

The commission was asked to look
into the factors that affected the affordability of property in New Zealand and
to look at ways if increasing the affordability of homes.

The central bank also said that a
‘sensible tax structure’ would also help and that inflation indexing the
treatment of interest would reduce the benefits of property investment.

The submission continued: “A more
appropriate tax treatment of the inflation would probably largely eliminate
reported tax losses on residential rental properties even near the peaks of the
housing booms.”

Property in New Zealand reached
its peak in 2007 as house prices rose by 180 per cent in real terms between
1990 and 2007.  In some urban
centres and popular holiday locations, prices increased by over 200 per cent
during the same period.

Since the global financial
crisis, house prices have fallen by around five per cent although house prices
had gone from around two and a half times personal income to five times
personal income between 1990 and 2007.