Housing crisis: Kiwis can't travel so they're pouring money into property, expert claims

The rapid rise in house prices over the past year has been blamed on many factors - usually lack of supply, low interest rates and 'FOMO'.

Now we can add border closures to that list. 

"When you look at the true patterns of Kiwis right across New Zealand, we love to travel and we love property,"  Vanessa Taylor, chief executive of realestate.co.nz, told The AM Show on Wednesday.

"If you take one of those away, that's 50 percent of our lives and we're probably going to focus on property, and that's absolutely what's happened since COVID hit our shores - can you believe - a year ago."

New data from realestate.co.nz has the national mean asking price up 12.7 percent since this time last year - now $796,789 - up $89,575, close to the mean annual household income of $102,000. 

Taylor said a lack of supply was just part of what's behind the record double-digit percentage increase nationwide.

"The challenge that we have - and we have had for quite a long time - is the supply right across New Zealand. 

"You heat up that demand because we take away that ability to spend - I believe it's about $8 billion Kiwis spend on travel every year. If we're not spending it on travel, we're certainly looking to property - and that's heating up demand."

The hottest market was far-flung Gisborne, asking prices up a whopping 39.4 percent in just 12 months. In February 2020 the average home cost $437,579 - now it's $610,060. 

"Gisborne is gold," said Taylor. "Gisbornians, they love auctions down there - almost 60 percent of homes that come onto the market... People in the Gisborne area - both real estate agents and obviously buyers - love to buy and sell via auction." 

Last week, Reserve Bank Governor Adrian Orr said auctions can create "irrational behaviour" and "FOMO", driving up prices. 

"Don't get caught up in it - understand yourself, understand your earnings power - that's unrelated to who might be standing in the auction beside you, and hold strong. Don't get caught up in the frenzy," ," he said, stopping short of calling for a ban.

"People want to create this sense of scarcity, this sense of urgency, because that maximises the price that the seller can make. You have to think about, as the buyer, you don't have to be involved in that. You don't have to own your house today. You can sit and wait, you can continue to rent, you can do alternative things with your money."

Vanessa Taylor.
Vanessa Taylor. Photo credit: The AM Show

A report from analysts Demographia last week said the shift to remote working in 2020 might have pushed up prices in locations outside city centres. 

"House prices have escalated amidst the pandemic in a number of housing markets, even as incomes have been dropping for a large portion of middle-income households. This is in large measure a result of substituting telework for physical commuting, which gave households the flexibility to seek new housing with more space, indoors and outdoors. This rapidly developing demand shock drove house prices up."

Taylor said the laidback lifestyle Gisborne offers - no commutes, lower prices, and beaches - is making it an attractive place right now.

"If we have the ability to work remotely, why not Gisborne?" 

Supply issues look set to continue for the foreseeable future, with listings down 24 percent on this time last year.