Kiwis are behind New Zealand's runaway house prices. Not buyers from China or Singapore

"A few years ago, if you bought a property and sold it in the next three years, you'd done well if you broke even. Now, we're seeing that you can buy a property and sell it six weeks later and make NZ$30,000 (US$21,100). It's very much a seller's market."

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It isn't just Dunedin feeling the heat - the housing market is on fire all across New Zealand. But while there has been anger in the past over foreign buyers who were seen as driving prices up, real estate agents speaking to This Week in Asia say local demand has led the surge, thanks to ultra-low interest rates, a rapid recovery from the pandemic, and cashed-up Kiwis wanting to invest because they cannot travel.

Returning New Zealanders and wealthy investors have capitalised on the situation, contributing to house prices jumping 23 per cent in the past 12 months, far ahead of wage growth. 

"The number of residential properties sold in February was at the highest February levels for 14 years," said Real Estate Authority (REA) chief executive Belinda Moffat. "Median prices for residential property across New Zealand increased by 22.8 per cent from NZ$635,000 in February last year to NZ$780,000 this February, a record for the country."

Robinson said a lot of the demand was coming from New Zealanders who are buying another house but not selling their original property. "They've got such good equity on their original home that they're basically saying, 'We'll hang on to this and use it as a rental'. So, we're not seeing new homes come onto the market, while those that are available are disappearing very quickly."

Diego Traglia, a real estate agent in Auckland - New Zealand's largest city, and the fourth least affordable housing market in the world - said much of his clientele over the past 12 months had been investors or those who owned multiple properties. In the past two months, one in every three loans approved for Auckland home purchases had gone to investors, while in the fourth quarter of last year, 40 per cent of all property sales in the city were to people who owned multiple properties.

Traglia said while he had sold a few properties to investors overseas who were trying to offload funds, this was not a common scenario. "If you're not a Kiwi, or don't have residency, you just don't buy in New Zealand," he said.

This is particularly the case since New Zealand in 2018 banned non-resident foreigners from buying existing homes in the country, with the exception of Australians and Singaporeans due to free-trade deals.

Georg Chmiel, group executive chairman of real estate technology company Juwai IQI, said the latest developments could potentially spark a reconsideration of this ban. 

"New Zealand is finally coming to grips with the fact that local buyers have caused the unaffordability crisis, not foreign buyers," he said. "We know that foreign buyers tend to increase supply, because they prefer new construction and are willing to buy in the pre-construction phase, when their purchases help a developer get the financing needed to start building." 

Chmiel said he would like to see New Zealand's foreign buyer rules move closer to those of Australia, which allows foreign buyers to purchase new buildings, vacant land or establish dwellings if the intention is to knock the existing building down and replace it with more housing than there was previously.

The boom has drawn so much attention that New Zealanders are even flocking to the real estate industry for work. This year, for the first time, a job as a real estate agent became one of the top 10 most sought after in the country, according to the country's Tertiary Education Commission.

"The number of new licences the REA issued in the second half of last year was up 45 per cent compared with the same period in 2019," the authority's chief executive Moffat said. "This is a significant spike."

Still, no one is disputing the need for an intervention in the property market. The spike in house prices and rentals has contributed to nearly 1 per cent of New Zealand's population being classed as homeless or "severely housing deprived", almost twice that of neighbouring Australia, according to a study by the University of Otago.

While home prices have been a hot topic of conversation - and a divisive one, pitting first-time buyers against those raring to use their capital gains to acquire more properties - the chatter peaked earlier this month when new sales data showed the rise in median house value.

The difficulty renters and first-time buyers face in trying to enter the market is what prompted Prime Minister Jacinda Ardern's Tuesday announcement that the government will pour NZ$3.8 billion into a scheme to accelerate the pace of building new houses. Also to be implemented are a suite of policies intended to curb property speculation in New Zealand's housing market - which has become the least affordable among the 36 wealthy Organisation for Economic Co-operation and Development nations.

"New Zealand's housing crisis is long-standing and will take time to turn around," Ardern said. The last thing our economy and homeowners need is a dangerous housing bubble, but a number of indicators point towards that risk."

The suite of policies includes the removal of a tax "loophole" for property investors, and looser income criteria for first home grants. Ardern said the new measures were necessary as property investors were now the biggest share of buyers, adding that more than 15,000 people who already owned five or more properties bought another property last year.

Robinson, the real estate agent from Dunedin, said many of those Ardern pointed the finger at might not be uber-wealthy investors. For example, he said, those with five or more properties might only hold 10 per cent of the paid-up value of each property, with the rest being held by the bank as collateral for the mortgage - so someone with a five-house property portfolio might only have put down NZ$600,000.

"So, it doesn't mean you're absolutely wealthy, you may just be using property as a vehicle to move forward," he said.

Brad Olsen, senior economist at Wellington-based economic consultancy firm Infometrics, said investors would suffer the most under the new policies, but the government was in a tricky place.

"There's support for addressing the housing crisis generally, but not necessarily the political will or public will to support policies that would lead to lower house prices, which are necessary if housing is to become more affordable," he said. 

"There's a lot of FOMO, the fear of missing out," said real estate agent Robinson, adding that when he asked some young couples if they had made an offer, he was sometimes told they had already made up to 10 bids. "In Dunedin, we should see around 600 to 700 properties on the market but it's sitting around 240. We get up to eight offers on every property."

This article originally appeared on the South China Morning Post (SCMP).

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