'A bad thing': Property prices doubling every 10 years increases inequality - expert

REINZ house price data shows over the last ten years, the nationwide median house price has almost doubled, rising 96 percent.
REINZ house price data shows over the last ten years, the nationwide median house price has almost doubled, rising 96 percent. Photo credit: Getty.

'House prices double every 10 years': it's a phrase familiar to most Kiwis, and according to REINZ data, it's true.  For existing property owners this is good news, but for many more, it means homeownership is an impossible dream.

According to Real Estate Institute of New Zealand (REINZ) data, over the 10 years from September 2010 to September 2020, New Zealand's median house price almost doubled, increasing by 96 percent from $350,000 to $685,000. 

Properties in Auckland city rose 138 percent, in the Rotorua district they rose by 126.5 percent and in Tauranga city, by 123 percent. Based on Auckland's current median house price of $955,000, if history repeats itself, in 2030, property buyers could be forking out $1.9 million. 

Inequality researcher and writer Max Rashbrooke said as they can sell and buy in the same market, existing homeowners have a huge advantage. Those who have sold in places like Auckland and retired in cheaper areas, have been able to pick up a huge, untaxed capital gain.

Meanwhile, for those not yet in the market, house prices doubling every ten years puts homeownership further out of reach.

"It's essentially a bad thing....it widens the disparity between the housing 'haves' and 'have nots'," Rashbrooke said. 

Infometrics economist Brad Olsen said irrespective of the COVID-19 pandemic, housing is more unaffordable than ever before. Although house prices have doubled, proportionally, incomes haven't increased by the same amount.  

Buyers may collectively reach a point where they can't afford to pay more, causing demand to drop and house price growth to ease. Or, they may change their spending, putting more towards housing than ever before.

"People are getting to horrendous levels of debt to manage to get onto the housing ladder," Olsen said.

"That's fine when interest rates are low, but if those mortgage rates do go higher, it does raise concerns over just how people will cope with those costs."

Although there are many factors affecting house prices, Olsen's expectation is that house price growth seen in recent years will level off.

"Quite simply, the ability for people to pay - the sheer amount of money on offer - won't be enough to sustain those gains," he added.

Property commentator Tony Alexander said assuming interest rates fall to new record-lows, stay low for many years and migration rebuilds quickly once borders reopen, the growth rate is likely to continue.

But urban development rules which came into effect in August 2020, could see Auckland's housing supply increase above that of the last few decades. Upping supply could have a dampening effect on prices. 

"While there's been a tendency for Auckland to double every 10 years, I'll give it an 80-90 percent probability," Alexander said.

The solution to make housing more affordable isn't simple. Current record-low mortgage rates and removal of loan-to-value ratio (LVR) restrictions until at least April 2021 provide some assistance. For disadvantaged Kiwis, the solution is likely to be in Government social policy. 

"What I'm looking for is the Government to focus on the state housing area - that's where they can make the best difference on provision of housing for the bottom of the pyramid," Alexander said. 

REINZ chief executive Bindi Norwell said as she expects there to be continued pressure on affordability, she would like to see the newly-elected Government re-address issues around the Resource Management Act (RMA).

“[This would] enable houses to be built at scale and in a more affordable manner," Norwell added.