There is a programme on TV which I like to watch called “Place In The Sun”. There are various versions of it but the central idea is that average English people have decided they want a second home for holiday purposes located in a sunny place such as Spain or Portugal. They get taken through five properties and choose which one they like the most and sometimes make an offer and end up with an agreement on camera.
In every episode the commentator notes by how much prices have fallen since before the global financial crisis with the common decline being 30% but some areas having prices down by over 50%. Most of the properties which people view are of a price around about $300,000 New Zealand dollars and for that people get usually a two bedroom unit in a complex of apartments sharing a pool with some sort of a view and often some very daggy furniture or apartment layout.
I mention my watching habits because recently I have seen a few episodes of a less good programme made in America called “House Hunters” The central premise is of an American couple shifting somewhere around the world or within the US. They get to see three houses then choose which they prefer. The most recent episode I saw looked at a couple seeking a home in Texas near one of the major cities.
For about $300,000 they were being shown four to five bedroom houses with multiple bathrooms and usually modern fittings. That sort of thing if viewed in the first programme would cost upwards of NZ$1mn. And in New Zealand such a dwelling in or near our major cities would cost you a lot more. So my question is this. Why are houses so cheap in America, or at least around Dallas and Houston?
Part of the answer is an absence of land use restrictions in the state of Texas. That state never saw the soaring prices and house construction boom of so many other parts of America and the world up to 2008. Development land is in plentiful supply and it looks like few people buy with the thought that their asset will rise much in price. You can build a house anywhere by the looks of it and that ever-present opportunity for more supply keeps prices and speculative actions of buying and building in check.
That is not the case in most of the world and certainly not the case here in New Zealand. You cannot build wherever you want. Councils limit the quantity of land which you can build a house on. That helps keep section prices high and encourages buying for capital gain as we expect land use restrictions to remain and probably tighten in some areas for conservation purposes. And having bought for such reasons, we will not vote for politicians who say they will radically free up residential land. The system will not change.
There are of course other reasons why our house prices are so much higher than offshore. Our houses tend to be individually designed so we see almost no cost savings from bulk production of standard walls etc. and we pay for architectural services and extra consenting inspections from councils. Production of building materials in New Zealand occurs in an oligopolistic industry (very few producers, not quite a monopoly) and this lack of competition keeps prices high.
We also suffer from a lack of skilled builders which seems to be getting more acute as infrastructure and commercial building activity picks up and in spite of many handy Kiwis either returning from Australia or no longer going there.
Throw in the booming population growth in Auckland on top of land use restrictions, low interest rates and realisation that interest rates will be at low levels for decades, and you get what we have already seen since 2009 – rapidly rising house prices in Auckland with more to come. For the moment though investor attention is on the rest of the country – meaning now is the time to look for what you want in Auckland before those investors turn back to our biggest and fastest growing city.
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