He says its housing market is caught in a cycle of speculation and has become a casino
A property expert has explained how the Auckland housing market became so unaffordable, and suggested an unpopular path to reverse it.
Dr Michael Rehm, senior lecturer in property at the University of Auckland Business School, said that the city’s housing was not always unaffordable.
At the 1966 Census, the $9,900 average home price in the city was just under three times the average household income. However, in June 2018, the median home price ballooned to $850,000 – more than eight times the median household income and therefore considered to be “severely unaffordable.”
Rehm noted that the city’s housing market has been caught in a cycle of speculation and has become a “casino.”
“Investors bet squarely on capital gains. As investors represent a substantial share of home purchasers in Auckland, an effective anti-speculation housing policy targeted at this group will likely go a long way to winding down the casino and re-establishing housing affordability,” Rehm said.
“Policymakers have recently ring-fenced rental property losses thereby cutting off hundreds of millions' worth of annual tax rebates to negatively-geared investors. This will help but it does not go far enough.”
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Rehm pointed out that, contrary to the belief of politicians and other experts, the main driving force behind unaffordable housing is financialisation of housing – adding that lenders’ willingness to extend increasing amounts of mortgage debt in proportion to borrower income has facilitated the city’s severely unaffordable house prices.
“If society desires affordable housing it must implore its political representatives to enforce the existing anti-speculation ‘intention test’,” Rehm suggested.
“Furthermore the Government should be urged to support the Reserve Bank Governor as he undertakes a more intensive and intrusive regulatory approach including heightened capital ratios and a debt-to-income limit tool.”
“The path to affordable housing will be particularly unpopular and painful for some but a controlled descent is better than a crash landing,” Rehm concluded.
