Opinion: New Zealand shows how a housing crisis can turn into a disaster

Justin Giovannitti is a journalist based in Montreal.

The housing markets of New Zealand and Canada have a lot in common. They both own some of the least affordable homes in the world, and both have seen prices skyrocket during the pandemic.Phil Walter / Getty Images

When my fiancé and I decided to announce that we were leaving New Zealand Back in Canada, I prepared myself for awkward conversations. Do not worry. Most of our friends hit us hard with their own plans to leave, turning the early months of 2022 into a long party. For those who stayed, he cut the conversation down to one question: “It’s housing, isn’t it?”

I arrived in Wellington, New Zealand, in early 2020 with my fiancée, who is a New Zealander, to buy a house and start a family. We knew the frenetic Pacific nation housing market would be a challenge, but we lived in Toronto and Vancouver. We considered ourselves ready. We soon learned that New Zealand’s housing problems are similar to Canada’s, but much worse.

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We are finally I decided to buy a small two bedroom turnkey apartment on the outskirts of the sprawling suburbs of Wellington. It was only 800 square feet, the trip would be miserable, and it had no backyard or parking space. There was no grocery store in the area and the government described it as one of the worst in the country in terms of social and economic deprivation. But we thought we A bid can be attempted at the asking price of NZ$750,000 ($602,000).

We entered our local bank in August 2020, Our mortgage application contract. We were elated to show that after a decade of frugal living—literally missing out on avocado toast, biking to work to save bus fare—we’d paid off student debt and had more than six figures set aside for the deposit. An advisor took a look at our bank balances and asked if we were expecting a large family donation. Our smiles are gone. Without a drop of at least 20 percent, the bank wouldn’t even look at our filing papers. A year later, we tried again with the help of a mortgage broker. The result was the same, but housing prices rose 50 percent. We started packing our bags for Montreal, which still has relatively affordable homes.

The housing markets of New Zealand and Canada have a lot in common. They both own some of the least affordable homes in the world, and both have seen prices skyrocket during the pandemic. The rate of home ownership in both countries is declining, but it has fallen even more in New Zealand where landlords and speculators have dominated market. The Pacific nation is now a warning to Canada, as homes are increasingly out of reach of formerly comfortable middle-class families. Canada needs to avoid diving deeper into the well of unsustainable housing and the resulting social problems. A slowdown in the housing market will not magically solve the problem in either country.

New Zealanders found themselves with some of the most unaffordable homes in the developed world before the pandemic. Prime Minister Jacinda Ardern joked back in her days as opposing that the country’s economy was essentially a “housing market with a few parts added”. Since coming to power in 2017, home prices have risen nearly 60 percent.

In both countries, there are many barriers to new construction. In New Zealand, the country’s Byzantine environmental rules make it very difficult to build new subdivisions. New legislation to redistrict almost the entire country to allow for multifamily homes hit a wall of NIMBYism at the local level. Not because of the lack of land. New Zealand’s five million people are spread over an area twice the size of England.

I arrived in New Zealand at a time when there was a brief moment of celebration as the national average paid around NZ$1 million (about $800,000). The epidemic was early on, the country was closed off from the world and many families were rich on paper. But then prices continued to rise, while salaries did not change. While working as a journalist in Parliament, I spoke with Mrs. Ardern as she began to worry that the country was being divided between those in the housing market, and those caught abroad.

The country’s low home ownership rate was a sign of what was happening. With few purpose-built rentals and no such thing as the apartment boom in Canada, New Zealanders largely live in or rent detached homes. As more people price struggling homeowners and increasingly share homes, the proportion of households owning their own homes has fallen sharply over the past two decades from 74 percent to 65 percent, the lowest rate since the early 1950s. In Canada, the rate has been more stable, but it is also declining: In 2016, 67.8 percent owned their own home, compared to 69 percent in 2011.

The Pacific nation now faces a difficult crisis, with rising levels of child poverty and a growing brain drain as young workers head abroad in search of a brighter future. New Zealand’s leaders have largely ranted about affordability while the middle class can buy, allowing the national housing market to spiral out of their control. Amid predictions that prices will now drop by 20 per cent as the country grapples with a cost-of-living crunch – filling your car can cost $2.50 a liter – affordability continues to decline. Despite falling home prices, this is now the worst time in New Zealand in 65 years for first home buyers. why? Borrowing costs have risen and banks have tightened their grip on new borrowers, calling them too high risk.

The median home price in New Zealand in June was around $683,000, down from an all-time high a few months ago. It’s similar to the average Canadian home price of $665,850 (which includes all housing types). However, limited funding and low wages make the overall picture somewhat more difficult for home buyers in New Zealand, where the median annual wage is around $62,000, compared to $70,000 in Canada, according to OECD data. Both countries have seen falling home prices in recent months, but higher interest rates mean affordability isn’t improving significantly in either place.

together Canada and New Zealand The numbers mask the regional differences. Affordability in Toronto and Vancouver is much worse than the national figures show. A young middle-class family looking to enter the market today in either city would also struggle without any parental help. While housing is often talked about in averages and averages, or expensive government programs measured in the billions, each housing story is a personal one. I chose to live in Montreal because it is close to my family and my dollar goes above and beyond. For what we were looking to spend in New Zealand, we could buy a picnic near one of Montreal’s trendiest neighborhoods or a nice suburban section, with room to grow for our family.

We didn’t miss our escape from the regulated and risky New Zealand rental market. How much worse can things get, inspire someone in Toronto? Ms Ardern’s government recently approved a rule change allowing tenants to hang artwork in their apartments with nails. Previously damaging the wall with a nail could have resulted in the tenant’s eviction.

New Zealand’s extravagant house prices did not appear overnight. Prices have grown steadily for most of the past two decades, and while most middle-class parents could continue to help their children move up the property ladder, politicians from both the right and the left could promise to address the problem and then ignore it because their interventions failed to launch. The incumbents in Wellington or Ottawa are not entirely to blame.

However, Mrs. Ardern took on her duties with a prominent promise to build 100,000 homes within a decade. The program became an embarrassing failure, delivering only 1,000 homes in its first five years. Then her government changed course, and demanded a restart 321 million dollars Program to help first home buyer. The country’s Minister of Housing laughed at a triumphant press release in which she announced that only 12 families would be helped.

New Zealand suffers from a national housing obsession. Buying an investment property is the ultimate sign of success in the country. Where Canadian parents can bond with early morning hockey, New Zealand parents talk about buying their children’s first investment property. The single biggest sign of parental achievement is for a child to show promise on the cricket field. It is now estimated that about 7,000 landlords control half of the state’s property. It is difficult to overestimate the number of the country’s leaders who bought into the housing market, diverting capital for more productive uses.

Most New Zealanders will admit that this is a problem, although recent polls have shown little willingness of homeowners to see any decline in the value of their homes. Attitudes have begun to change in recent months as the housing market has grown strangely. Homes are no longer listed with prices, to fuel the already intense bidding wars. The cost of bidding has also increased, with young families being asked to pay more than thousands of legal fees and inspection fees each time they submit their best bid. Not surprisingly, renters in their 30s spend more than $30,000 on bids without getting a spot.

Worse than the economy is the obvious social damage. Every week there are reports warning New Zealanders of a rise in expensive home prices. Poverty rates are increasing, while the country’s meager social welfare network is failing to keep up. Gang violence often makes the front pages, and is a daily reminder of the country’s eroding social fabric.

The health impact of overcrowded and substandard housing on the country’s indigenous population is increasing. Rheumatic fever is a rare but life-threatening disease that is being eliminated in most developed countries. It is still occasionally discovered in First Nations communities in northern Canada. Cases of rheumatic fever are diagnosed every few days in New Zealand, and almost all of them are in Aboriginal children. Many of the cases occur in homes a short drive from the prime minister’s residence. It’s one of the reasons New Zealand’s Children’s Commissioner stated in June that the country is now “one of the worst places in the developed world for a child.”

Back in Canada, I look at New Zealand housing statistics and hope they don’t follow me here. As a colleague of mine told me before leaving Wellington, I’d take off the fire and go back to the frenetic price pan. Maybe a little better, but not far from dangerous. Prices may now come down in Canada, but there is no sign of a real long-term solution. Politicians have made promises, but have not yet backed them up with effective programs. Leaders must pay attention, not only to Ms. Ardern’s rapidly fading popularity at home, but also the speed with which a housing crisis can turn into a disaster.

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