Overseas migrants and rental property owners have received a lot of undeserved blame for the high price of property in New Zealand. However it may be that a new target is in the sights of those looking for someone to blame for the current level of house prices.
I recently attended a conference on sustainable housing and affordability was a main part of the discussion. An expert panel debated the causes of affordability issues and quite rightly identified the size of our houses as being one of the main contributors to house price costs.
The size of the average New Zealand house in the 70's was 110sqm. The average size of new houses today is over 200sqm. Naturally this is going to have a significant impact on the building cost.
For a number of years the NZPIF has been saying that if people believe that houses are unaffordable then they should lower their expectations and accept smaller homes. However a member of the expert panel declared that the increase in house size wasn't the home owners fault at all. He declared that homeowners didn't even want larger homes. The fault lay with real estate agents who convinced them that they wanted larger homes. How can you have a proper debate about an issue when there is so much denial and ignorance of the facts.
The Productivity Commission identified some key structural factors that underpin the cost of housing in New Zealand:
The size of our houses is an additional and obvious key factor for high property costs, as is the desire by homeowners to have some land around their home.
Many of these factors could be addressed by Government, but some can only be addressed through a change in consumer demand. If consumers want big houses on their own piece of land (especially when close to city centres) then they have to accept that this comes at a cost. It is insulting to homeowners to suggest that real estate agents are the reason they want bigger homes.
There are no easy answers for Government either. If urban limits are extended then there will be higher infrastructure costs. If there is more intensification there will be increased pressure on existing roads, utilities, schools and other community infrastructure. Development costs in many parts of the country are crippling, but to reduce them will lead to higher council taxes which ratepayer often revolt at.
In addition to the above structural factors, there are also variable factors that will affect house prices. These include items such as interest rates, migration and employment. All of these are factors that change over time and therefore have varying affects on house prices. If we weren't in an upward part of the property cycle it is doubtful there would be so many media reports about housing affordability, yet it is the structural factors that have the enduring effect on high property prices.
A final key part of the Productivity Commission's report is that taxation is not the cause of high house prices. This needs to be more widely known, because currently many New Zealanders think that tax changes will have the largest affect on property prices. Clearly this is an uninformed and dangerous assumption.