The rise of renting
For many years, property investment has been the main way in which New Zealanders have grown their wealth and provided for retirement. Developing a property portfolio is a tax-efficient, cost-efficient option for individuals with surplus wealth.
Capital growth in previous acquisitions leverages funding for further acquisitions, making the process self-sustaining. Better yet, investors can congratulate themselves for offering rental accommodation options that the state does not provide.
Government attempts to limit investment through capital gains taxes or some other mechanism have encountered substantial pushback. New Zealanders want the freedom to invest in property.
The result has been an ever-increasing proportion of the population in rental accommodation and an accompanying decline in the total number of owner occupiers. Over the past 40 years, owner occupancy has declined from 74 percent nationally to its current 62 percent (close to 50 percent in Auckland).
The market alone won’t fix it
House prices — irrespective of media narratives — are not driven by production costs. They are driven by the residual values of existing houses. Like any commodity, scarcity drives values up. Abundance forces values down. Investors and first-time buyers pursuing the same properties create artificial scarcity.
The issue, then, is how to rapidly generate enough housing to meet the demand, given house building is not a rapid process. Irrespective of how many new houses of a particular type are wanted, capacity is constrained.
At best, additional “emergency” housing stock will take several years to be built. New houses are generally commissioned and bought by individual customers, and each house is unique and distinct. To date, most of this type of development has involved large, standalone — not affordable — homes.
This is not a market set up to provide mass housing at short notice. It is certainly not a market to create the housing surplus that would force down values.
