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New Zealand homes became less affordable than Australia in 2012 as constrained land supply and government levies, combined with low borrowing costs, pushed prices higher, according to a survey.
The median home price in New Zealand’s major urban centers rose to 6.7 times gross annual median household income from 6.4 times a year earlier, according to the ninth annual report by Belleville, Illinois-based consulting company Demographia, released today. House prices in New Zealand jumped 6.7 percent in 2012, with 74,000 houses sold, the most since 2007, according to the Real Estate Institute of New Zealand Inc.
The survey examined housing prices in Australia, Canada, Hong Kong, Ireland, New Zealand, the U.K. and the U.S. A reading of 5.1 or more is considered “severely unaffordable,” while below 3 is seen as affordable.
“It costs too much and takes too long to build a house in New Zealand,” Bill English, the country’s finance minister and deputy prime minister, said in an introductory letter accompanying the survey. “Land has been made artificially scarce by regulation that locks up land for development.”
The structure of infrastructure financing, government levies and higher building material costs than Australia have also raised home prices, English said.
The Reserve Bank of New Zealand has kept the nation’s benchmark interest rate at a record-low 2.5 percent since March 2011 to help revive growth after earthquakes devastated the country’s third-biggest city, Christchurch, and the surrounding Canterbury region. Central bank Governor Graeme Wheeler said in December he would monitor the housing market and was prepared to raise rates if property price rises fanned spending and borrowing.
Auckland -- where home prices surged 7.7 percent in 2012 from 2011, according to broker Barfoot & Thompson -- was the nation’s most unaffordable market, with homes costing 6.7 times the median income, the Demographia survey showed.
“Overwhelming economic evidence indicates that urban containment policies, especially land rationing mechanisms, raise the price of housing relative to income,” Wendell Cox, principal at Demographia, and Hugh Pavletich, who runs PerformanceUrbanPlanning.org, a website on urban public-policy issues, wrote in the report. “Urban containment has been associated with up to nearly 87 percent of house price increases.”
Hong Kong remained the most expensive housing market among those surveyed, with homes costing 13.5 times income, up from 12.6 a year ago. Australian homes became more affordable, at 6.5 times income compared with 6.7 times 12 months earlier.
Hong Kong’s government has introduced measures including higher stamp duties for home buyers to rein in property price that are double what they were four years ago. The government “won’t hesitate” to add more measures to stabilize home prices if the market heats up again, Financial Secretary John Tsang said today in a blog post.
In Australia, a 0.4 percent decline in home prices in the nation’s biggest cities in 2012 contributed to the increase in affordability. Prices of detached houses in the nation fell 0.5 percent during the year, while apartment values rose 0.5 percent, Brisbane-based researcher RP Data said.
“Rising incomes and flat or declining house prices improved the median multiples in Australia’s major markets,” Cox and Pavletich said in the report. “However, each of the five major markets continues to be severely unaffordable, reflecting vastly overpriced housing.”
Vancouver was the most expensive major city after Hong Kong, with the median home price at 9.5 times income, followed by Sydney, with a median multiple of 8.3, according to the survey. The U.S. had the 32 most affordable major metropolitan housing markets, led by Detroit, Atlanta and Cincinnati.
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