What happened after Jacinda Ardern said house prices can't keep skyrocketing

Tuesday, 16 March 2021

House prices, Prime Minister Jacinda Ardern said, cannot keep increasing at the rate they are.

It was November 12, 2020. In the 12 months ending October 2020, the country’s average property value went up by $55,834, according to CoreLogic data.

One metric showed every region except Canterbury saw house prices increase by more than the average worker takes home in a year.

These hikes prompted some public concern, but at the same time the “median voter” was seeing their capital gains skyrocket. And voters like to feel richer.

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When asked about the issue in the Beehive, Ardern insisted access to homes for first-home buyers was important, she had concerns about affordability, and that the Reserve Bank had the tools to impact the market.

She also said data showed an increase in first-home buyers since 2017.

That one sentence jumped out: “It just cannot keep increasing at the rate that it is.”

But they could – and then some.

In the four months ending February 2021, average property values rose by $74,388 according to CoreLogic.

It’s fair to say Ardern didn’t specify a time limit. Of course, at some stage, she’ll likely be correct and price increases will slow down.

But since she made that comment, access to the exclusive club that is home ownership has got even tougher for a lot of New Zealanders.

It was hard enough already. Home ownership is already at its lowest rate in 70 years, with only about 64 per cent of Kiwis living in homes they own.

What’s happened since November?

The Reserve Bank brought back loan-to-value (LVR) restrictions, removed last year because of the Covid-19 pandemic.

From March 1, investors need a 30 per cent deposit and first-home buyers a 20 per cent deposit to get a loan. It’ll go up to 40 per cent for investors in May. The idea here is to dampen investor enthusiasm.

Has it had an effect? The early 2021 housing frenzy has come from investors trying to beat those rules, CoreLogic senior property economist Kelvin Davidson says.

New Zealand Home Loans (NZHL) data for the three months to the end of February 2021 shows a 94 per cent year-on-year increase in the investment space, with first-home buyer submissions also up 30 per cent.

Right now, affordability for those trying to enter the market is at its worst level for at least 17 years. (That said, it has been reported that there has been some easing off in investor enthusiasm.)

But if activity has been brought forward, surely there’ll be a lull later? That is far from certain. Davidson suggests prices “might slow down” later in 2021. But there’s no indication of outright falls.

Finance Minister Grant Robertson has also changed the Reserve Bank’s remit, asking it to consider sustainable house prices. The bank appears as though it will continue to keep interest rates low, though it’s likely too early to say exactly what impact the new remit will have.

It was also announced the Resource Management Act will be scrapped, with a new planning regime introduced next year. It's hoped these changes make it easier to build homes.

The Government is expected to make further announcements on housing policy soon.

‘It just cannot keep increasing at the rate that it is’ – so, why did the PM say this?

Ardern is worried about the negative publicity that accompanies dramatic house price rises, not rising house price, says Ben Thomas​, a former National Party press secretary, and political commentator.

The November comments were quintessential Ardern, he says – empathetic, identifying and articulating a problem (which puts voters at ease), along with giving voice to people’s frustrations.

“She says things like this, for example, climate change is our nuclear-free moment. But she’s not acting as if it’s our nuclear-free moment,” is how he puts it.

Clint Smith, a former communications strategist for Ardern, and a former ministerial adviser, suggests Ardern’s comments likely followed the advice she had at the time. The price hikes we’ve seen “have caught everyone by surprise”, he says.

He points to a pre-election September Treasury report that suggested house prices could fall 5.1 per cent from their March 2020 levels.

In regard to that one particular sentence, Smith suspects Ardern was simply stating it would not be good if prices continued to increase at exceptional rates, rather than “it’s mathematically impossible for them” to do just that.

Professor Iain White, a lecturer in Environmental Planning, who has also written about the language politicians use to speak about housing, says Ardern’s comment about rising house appears quite passive, “almost as if she's a detached observer”.

How a government and Prime Minister speak about housing has a major knock-on effect, he says. If Ardern suggests that Kiwis expect house prices to rise, it sends a clear message: buy houses!

White would like to see this Government use more active language. Consider, for example, if the Government was to commit to do “everything in its power” to tackle affordability, the market would sit up and take notice. That may have a sobering effect.

Why nothing much happens

About a month after stating house prices can’t keep rising at unsustainable rates, Ardern clearly articulated she did want prices to rise.

But instead of huge rises, she said she wanted to see “sustained moderation” or smaller increases.

“I think people expect that you see that in the market.”

It could be argued looking for “sustained moderation” now is a little like sipping on water after downing two crates of beer.

At this point, a lot of first time buyers need to find a lot of extra cash to meet the 20 per cent LVR threshold.

Motu Research senior fellow Arthur Grimes​, who was previously chief economist and chair of the Reserve Bank, says neither major political party is willing to contain house prices as the majority of voters benefit from it.

On this point, there is broad agreement.

“High house prices are great for the Government politically,” Thomas says. “Every election is just a referendum on how well-off people feel right now.”

“The mortgage belt swings elections,” Smith adds. “Those voters are feeling pretty good right now. Costs are down, the equity in their homes is up.”

He says, however, there appears to be growing concern among the public about the next generation’s opportunity to enter the housing market.

“Whether that translates into how people vote, I don’t know.”

So what now?

It's been an extraordinary 12 months and some sort of Government announcement on housing policy appears imminent.

“It’s possible house prices could ease, level off, or even fall,” Grimes says. “It's also possible they could keep rising. We're in uncharted waters.”

Does he see a change coming? “Well, no young person can buy a house, so I see things changing. The only question is when.”

There now appears to be widespread consensus that prices pose a significant problem to New Zealand, White says. But there is no easy fix.

“The Government is doing some good things,” he says. He believes the RMA changes could potentially boost supply and that the Government realises the market will not deliver the volumes of houses needed to calm the market.

Housing Minister Megan Woods told Stuff the Government had been reviewing how to cool the market by “lowering demand from speculators”.

“We are making an announcement on this by the end of this month. We also recognise that we simply need more houses to be built, and I will be making related announcements as part of our response to the housing crisis about a range of measures to increase supply.”

Will it be enough? It's unclear.

When Grimes is asked about the future, he says one final thing: “I teach university students and almost all of them have given up hope of buying a house.”