A house under construction in Auckland, New Zealand, on June 13. Unlike its peers in Australia and Canada, New Zealand has found bipartisan consensus on improving housing affordability. Photo: Bloomberg
The View
by Nicholas Spiro
The View
by Nicholas Spiro

New Zealand’s housing reforms lead the way on tackling affordability and speculation

  • The Ardern government has exceeded its peers by not shying away from policies that address the underlying causes of excessive price appreciation
  • Countries that have resorted to scapegoating foreign investors or been reluctant to antagonise wealthy homeowners should learn from the Kiwi example

There are housing bubbles all over the place. The most epic one by far is in New Zealand. Even before the Covid-19 pandemic erupted, house prices were outpacing those in other advanced economies, notably Australia and Canada, two of the world’s hottest property markets.

However, since the virus struck, the surge in New Zealand’s home values has been off the charts. According to data from Knight Frank, they have risen a further 41 per cent in 2020-21, the second-fastest rate in the world after Türkiye, whose stratospheric inflation rate masks the much lower increase in real terms.
The persistent price gains have exacerbated New Zealand’s housing affordability crisis. According to the International Monetary Fund, the country ranks first in Asia in terms of increases in price-to-income and price-to-rent ratios since 2015 and is in the top six globally.

Just like other countries suffering from unsustainable housing booms, successive governments pledged to make homes more affordable but achieved little. For a while, it appeared Prime Minister Jacinda Ardern’s Labour-led government, which came to power in 2017 promising to fix the housing crisis, would go the way of its predecessors.

Not only was it forced to abandon its original target of building 100,000 affordable homes within 10 years because of poor take-up, prices continued to soar following a decision in 2018 to ban most foreigners from buying existing properties.
Yet, in the past few years, New Zealand has grasped the nettle of housing reform. A slew of meaningful measures that tackle the key drivers of the boom have catapulted the country to the forefront of policy action to rein in speculative demand and help increase affordability.

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The combination of the sheer scale of the imbalances in the market, the intensity of the public outcry at spiralling prices, and political agreement that urgent and effective action is required, has proved a potent catalyst for reform.

Shamubeel Eaqub, an economist at Sense Partners in Wellington, said the fact New Zealand had “decades of experience screwing things up” in the housing sector made the current reform agenda all the more impressive.

At a time when many other countries with severe housing problems – including Canada and Australia – are shying away from policies that address the underlying causes of excessive price appreciation, New Zealand is directly confronting the issues.

First, the government has empowered the central bank to make house price stability a top priority. While its decision last February to amend the Reserve Bank of New Zealand’s mandate to take home values into account when setting policy stole the headlines, the consequential measures have been on the macroprudential and tax fronts.

An advertisement for a residential property in Auckland on June 13. The New Zealand government has empowered the central bank to make house price stability a top priority. Photo: Bloomberg
In an effort to curb riskier lending, the central bank reintroduced caps on loan-to-value (LTV) ratios on mortgages last March and subsequently tightened restrictions, having temporarily removed them at the start of the pandemic. The central bank is also considering imposing debt serviceability limits next year.

Furthermore, policymakers have tilted the playing field away from investors – the main driver of new lending, particularly high LTV mortgages – in the past two years. Instead, they have tilted it towards first-time buyers despite strong opposition from investors’ associations.

Last year, the government stripped investors of their right to claim mortgage interest as a tax-deductible expense. It also extended the period in which profits on the sale of an investment property are taxed to 10 years from five.

Second, while New Zealand has taken a tougher approach in trying to dampen speculation, it has cleverly sought to channel investor demand into new supply. Tellingly, it exempted new-build properties from the tax clampdown to help encourage building activity.


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The move is part of a wider effort to ramp up supply to help improve affordability. Restrictive zoning laws, a cumbersome residential development consent process and capacity constraints in the construction sector have contributed to a shortage of housing.

However, a political consensus on reforming the housing market by freeing up land supply and fast-tracking developments has significantly improved New Zealand’s chances at successfully addressing affordability.

Last October, the government and the opposition National Party announced they had teamed up to pass legislation on overhauling planning laws by allowing the development of medium-density housing in all major cities. The IMF noted that the reforms marked “a major departure” from previous schemes focused on low-density housing.

Measures aimed at boosting supply will take years to bear fruit. Moreover, New Zealand’s property market is already slowing, crimped by tighter credit conditions and rising interest rates. Between March and May, house prices contracted 0.9 per cent. It was the biggest drop over a three-month period since the end of 2010, according to data from CoreLogic.

Yet, given the longevity of the boom, it is doubtful whether the slowdown even qualifies as a correction. The real question is whether the recent reforms can improve affordability and reverse the sharp decline in home ownership. “If ever there was a chance to turn things around, this is it,” said Kelvin Davidson, chief economist at CoreLogic in Wellington.

New Zealand has already made headway by correctly identifying and tackling the underlying causes of the housing sector’s woes. Other countries that have resorted to scapegoating foreign investors, or have been reluctant to antagonise wealthier homeowners, would do well to take a page out of the Kiwi book.

Nicholas Spiro is a partner at Lauressa Advisory