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The Lyall Bay suburb of Wellington. New Zealand ranks among the world’s most expensive housing markets.

Photographer: Mark Coote/Bloomberg

It's Beautiful and Virtually Covid-Free. Just Don't Try to Buy a House There

Prices are surging for even the most dilapidated homes in New Zealand, one of the world’s most unaffordable property markets.

Famous for its handling of the pandemic, its stunning mountain scenery and its trailblazing prime minister, New Zealand is now becoming known for something else — one of the least affordable housing markets in the world.

House hunter Femke Burger has just one word for it: brutal.

The 32-year-old insurance case manager has been looking for a home in the country’s capital, Wellington, for 10 months, often jostling with up to 100 other people at public viewings. She saw about 60 properties and had 10 offers rejected before finally succeeding. In that time, asking prices soared, forcing her to expand her initial budget of NZ$700,000 ($493,000) four times just to compete.

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Femke Burger at her rented property in Wellington.
Photographer: Ainsley Thomson/Bloomberg

“That 10 months has cost me upwards of NZ$150,000 in terms of house price values. It’s just mind blowing and I don’t quite know how to make sense of that,” she said. “I’m offering everything I have — I won’t have any savings left in order to make this happen, and that’s a really scary prospect.”

New Zealand now ranks as one of the most expensive housing markets relative to income in the OECD. Auckland, home to a third of the country’s population, is the fourth least affordable city in the world, according to urban planning consultancy Demographia.

There are fears that house prices have entered bubble territory. They surged more than 20% in the year through February, taking the national median to NZ$780,000. In Auckland, it jumped to NZ$1.1 million.

Behind the explosion in prices is ultra-loose monetary policy that has sent borrowing costs to historic lows and fueled a rush into higher-yielding investments such as property. Those forces are driving up values globally but New Zealand, which vanquished Covid-19 and is recovering sooner than most, has become a poster child for the boom.

Every week seems to bring new stories of unimaginable prices being paid. In March, a modest three-bedroom bungalow in the desirable Auckland suburb of Greenlane sold at auction for NZ$5.98 million, some NZ$2.6 million above its local council valuation, according to real estate website OneRoof.  

Even dilapidated houses, known as “dungers” in New Zealand, are in hot demand. In January, a tumble-down, three-bedroom house with peeling paint and boarded-up windows sold for NZ$1.81 million in the Auckland suburb of Avondale, revealing the value of the land it sits on to developers.

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A “dunger” in Auckland that sold for NZ$1.81 million. 
Source: Ray White Green Bay

Prime Minister Jacinda Ardern, who came to office pledging to close the gap between rich and poor, is under increasing pressure to cool the market as more and more first-time buyers are locked out.

Ownership has fallen to the lowest rate since the 1950s — 65%, in a country where owning your own home has always been a cultural rite of passage. Home owners are typically 14 times wealthier than non-home owners, according to government figures.

Wellington couple Kathryn and Blair Duckett feel left behind. They have struggled to save the required 20% deposit for a mortgage while bringing up three boys and paying rent to live in an area with good schools.

“How the hell do we manage to save NZ$200,000 for a deposit and live?” asks Blair, a 46-year-old surveyor. “If we didn’t need a deposit we would have had a house years ago. We can service a mortgage, we have never missed a rent payment.”

Kathryn, 47, explains they chose to put their children’s education ahead of buying a house, but being forced to make that choice still hurts.

“We don’t tell people we are renting, it’s a stigma,” she said. “People say we’ve missed the boat.”

The median house price is now 6.7 times the average annual household income, according to Infometrics. To get back to an affordable multiple of about three, the economics consultancy estimates there would need to be a 55% drop in house prices or a 123% lift in household incomes.

Housing Frenzy in New Zealand Exposes Perils of Ultra-Low Rates
A property for sale in the Johnsonville suburb of Wellington.
Photographer: Mark Coote/Bloomberg

The government has started to roll out a suite of measures to tilt the playing field in favor of first-time buyers and away from investors, who have long enjoyed tax breaks and are often able to outbid newcomers.

But the scale of the problem is daunting.

In February, Finance Minister Grant Robertson passed part of the responsibility for moderating house-price gains to the central bank, requiring it to pay more attention to the property market when setting monetary and financial policy. That could see further macro-prudential restrictions imposed on investors, such as debt-to-income ratios and limits on interest-only lending.

Then last month Ardern clamped down on tax rules that encouraged speculative investment in residential rental property. The ability of investors to claim mortgage interest as a tax-deductible expense will be phased out, and the period in which profits on the sale of investment property are taxed will be extended to 10 years from five.

Kelvin Davidson, senior economist at property research company CoreLogic, said the measures are unlikely to have much impact on prices in the near term given the weight of demand. “What we’re expecting is a slowdown in sales, not as much activity, but in terms of prices just slower growth, not falls,” he said.

The New Zealand Property Investors’ Federation has slammed the changes, saying they will reduce the supply of rental properties and drive up rents as landlords try to recoup the extra costs. The real issue is a lack of housing supply, it said.

“New Zealand will need to see an extended period of high building levels to address the undersupply of housing before the housing crisis is addressed,” said Brad Olsen, a senior economist at Infometrics. “The government’s housing package is an important start to addressing housing concerns, but more is needed to free up land for more houses.”

Housing Frenzy in New Zealand Exposes Perils of Ultra-Low Rates
An auction at a real estate agency in Wellington.
Photographer: Mark Coote/Bloomberg

The Ducketts see little in the government measures for them. “It’s just a tease,” said Blair. “You get your hopes up again and again and then they get dashed. And eventually you just give up.”

For Femke Burger, however, her tortuous house-hunting saga has reached a happy end. Last week her NZ$825,000 offer on a two-bedroom, semi-detached unit was accepted.

“I ended up spending significantly more than my original budget, and I ended up buying something I never would have considered at the beginning,” she said. “There have been some significant compromises, but I’m still really happy.”


— With assistance by Tracy Withers