Peter Thompson, Managing Director, Barfoot & Thompson, has seen Australia's efforts to try and curb rising house prices fail, and thinks using the same tactics here won't work either because they don't attack the actual drivers of rising house prices.
Those in favour of trying to put a stop to the rise in Auckland house prices through regulations, rules, restrictions, and penalties need only to look to Australia to see that it will not work.
In Australia they have an extensive range of measures that in theory should slow down price increases. They include a capital gains tax, restrictions on non-residents buying existing property, higher interest rates for investors than owner occupiers, and even sales taxes.
The end result is that the rate of increase in houses prices across Australia in the past 12 months was 15%, while that for its largest city Sydney was far in excess of that at 23%. The median price for a house in Sydney is now AU$1 million – about a quarter higher than it is in Auckland.
Constantly we hear that if we want to tame price rises in Auckland we need to follow Australia’s example.
If these measured are proving ineffectual in Australia, why will they work here?
No longer a rational discussion
Making changes to the regulations governing buying a house can affect buying patterns, as our move to a 20% deposit regime demonstrated. But it did not slow or reduce the rise in Auckland prices to any great extent. It could be argued that the biggest effect the 20% requirement has made has been to make house buying even more difficult for first time buyers and those on modest incomes.
It is hard to escape the conclusion that discussion around house prices in Auckland is no longer as rational as it should be.
Following the same trends as other great cities
What needs to be acknowledged is that community leaders over the past decade or so have rightly set Auckland on course for being a major international city. Among the positive benefits this has delivered are economic growth, more jobs, a growing and multicultural population, and a lifestyle that attracts people, including those of affluence, from around the world.
We see the same thing happening in cities in the United States, Canada, Britain, and Australia, and within those countries house prices in their major cities are also climbing at unprecedented rates.
Ratios by which New Zealand has traditionally measured affordability no longer apply.
Read newspaper reports about the price of homes in Sydney, Melbourne, and Toronto in their local papers and you could be reading about Auckland prices in the NZ Herald.
As here, economists there talk about houses being ‘overpriced’, have concerns about the growth in prices compared to incomes, the ability of people to service their mortgages in the event of an economic downturn, and the need to bring in tougher measures to “make property prices fairer”.
Placebos won’t stop the real drivers of rising house prices
The reality is that while adopting more measures may make some people feel better, the real drivers of rising house prices carry on unabated.
In our situation they include a chronic shortage of property for our growing population, relatively easy access to low cost, long term mortgage finance (the cost of which is going down rather than rising), an affluent population, and people prepared to invest their income in their home.
The real reason most Aucklanders buy property
The simple truth is that the majority of Auckland home owners see their property as the place where they will bring up their family and live out their life. The potential capital gain they might make when they eventually move on is welcome, but for the majority it is a side benefit of providing a stable living environment for the family.
Those that invest in residential property are doing what all economists recommend we all do – diversify our investments across a range of investment options.
Barfoot & Thompson is the largest property manager in Auckland representing some 10,000 landlords. More than 90% of these landlords own only one property. Those with a large stable of properties are rare.
More data needed
Personally, I’m in favour of collecting data that will enable us to measure the extent of non-New Zealanders buying residential property, if for no other reason than it will provide us with hard information about the influence offshore buyers are having on our market.
If it turns out to be true that they are having a significant impact on prices, then we have facts on which to make decisions.
If not, then we might need to accept that we are part of a world-wide trend and that house prices in Auckland are keeping pace with prices being paid in many of the world’s other great cities.
Peter Thompson, Managing Director, Barfoot & Thompson
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