House prices have risen to all-time highs. According to the Real Estate Institute of New Zealand, prices have risen by 30.6 percent in the last year. We’ve seen record high housing prices for fourteen months in a row.
A housing crisis? It’s more accurate to call this as a “housing catastrophe.” For many young people, attaining the Kiwi Dream is now close to impossible.
Anecdotally, there have been many reports of growing intergenerational inequality between the young and the older generation because of continued price inflation. Is this, however, supported by empirical evidence?
According to Statistics NZ, the average annual income of today’s Generation Z is $45,188. In 1998, the average annual income for Generation X was $22,256. In nominal terms, incomes have merely doubled.
Conversely, national median house prices have risen from $164,167 to $826,000 over the same time period. Prices have soared by fivefold. Prices in Auckland and Wellington are approaching $1 million.
In 1998, house prices were about 7 times the gross income for Gen X, today for Gen Z, it is 18 times. Buying a home today is significantly more difficult for Gen Z than it was for Gen X in 1998.
According to Demographia International, from the late 1950s to the early 1990s, the median property price was only two to three times the average annual household income. This figure is now 8.6.
As far as housing is concerned, the data shows that our parents and grandparents had it far easier than Generation Z today.
Back then, it was possible to buy a home with just a single source of income. Today’s couples and spouses must both work to cover their housing cost, whether that is rent or a mortgage.
It may be true that the older generation had higher mortgage rates due to higher interest rates during the 1980s. But mortgage rates have little bearing on the affordability of a home. Even though new buyers today may face trouble with higher interest rates later.
House prices at all-time highs are detrimental to our economic prosperity. A more affordable housing market with lower rent prices is associated with greater social mobility. So far, this tradition has dwindled.
For a variety of reasons, housing affordability has deteriorated. Restrictive planning laws, poor incentives for local councils, local obstructions to urban development, and the Reserve Bank’s monetary responses to Covid-19 fuelled the fire. However, the main reason for this is a lack of housing supply.
House prices have skyrocketed, preventing young people from realising the Kiwi Dream. It’s time we change that.