We are seeing more activity being talked about by the Government, the Reserve Bank and others about the need to ensure that the housing market, particularly in Auckland, does not get too carried away. This is a good thing (as long as it turns into action) as the Government’s own figures show that housing has over half of the assets held by households in New Zealand and accounts for virtually all of the household debt.
This reliance on housing for household wealth means that New Zealand and New Zealanders are vulnerable to any sell-off in house values. This has been a cause for concern for quite some time but no sell-off has yet eventuated. Up until 12 months ago the Government and Reserve Bank were happily seeing a “soft landing” scenario for housing with prices stagnant; therefore going down in real (or inflation adjusted) terms.
Usually it takes a material increase in net immigration to fuel a house price rally but this has not occurred this time though with low interest rates being a key driver. Currently net immigration is hovering around zero; so heaven knows how much higher prices would go if we returned to the immigration levels of 5-6 years ago!
Given all this, public debate and discussion on the need to rein in house prices is welcome but the time is rapidly approaching when this talk needs to turn into action. This is where I get frustrated with the speed of action to rectify a clear imbalance in the economy.
New Zealand businesses often have the advantage of being able to move quickly and this should also be the case for our Government compared to larger overseas countries. However, this doesn’t seem to occur and housing is another example of this. There was an excellent report on helping housing affordability by the Productivity Commission but that was released 12 months ago and nothing of substance seems to have changed and house prices continue to march upwards. Instead the Reserve Bank has a consultation document out regarding some of its alternative ways to prod the banks towards lending less to the housing market and the Government is making noises about a new Crown agency being needed to become involved but neither the RBNZ nor the Government have taken any significant direct action to date.
This is a situation that cries out for a quick, co-ordinated response before NZ’s housing imbalance worsens. Instead we may not see anything meaningful implemented in 2013 and it may even be delayed next year because of being caught up in the run into the 2014 election. This would be very disappointing given this country’s clear need for its mix of household assets to become broader than its current reliance on housing.