Most New Zealanders aspire to own their own home and I would encourage all New Zealanders to save for and buy their own home, yet I know this will never happen. It never has happened and it never will happen, and this is not because of the current round of rapid house price increases.
People who aspire to own their own homes have always worked hard to achieve their goal, so this is not a new phenomenon. What is new is the raised expectations of people who want to live in the best areas, have more rooms, more space, 2 cars and internal 2 car garages and all the mod cons. And that’s just in the house. They still want overseas trips, better cars and non essentials such as Lotto, alcohol and cigarettes.
Recently there have been letters to the Editor, newspaper articles and comments from some politicians, saying that something should be done about rising house prices. “Young people squeezed out of buoyant housing market†was the heading of a media release from United Future Revenue spokesperson Gordon Copeland.
In this section of the Herald on Thursday October 2, 2003, lecturer Keith Rankin put forward his idea to make housing more affordable to low income earners by taxing them. Keith that makes them more expensive not less expensive. Making things more expensive is not the way to help people to acquire them. Greedy sellers, real estate agents and landlords have been charged with selling and renting properties for more than they are worth according to some newspapers.
But are they? Who says what a property is worth? The real estate agent, the seller, the valuer or the buyer who puts their hand in their pocket and agrees to pay a certain sum of money for a property? It is buyers and sellers who make up the property market. Sellers have always wanted to maximise what they can get for their property and buyers have always tried to minimise what they have to pay.
It may not seem like it right now, but it is the buyer who determines what a property is worth by agreeing to buy it at a certain price.
The rental market is one of the biggest industries in New Zealand. It is characterised by having a large number of buyers (tenants) and an almost equal number of suppliers (landlords). Both parties have equal access to information on what is available and how much it costs, mostly through newspaper classified advertisements. Because it is a large market, with many suppliers and widely available information, it is one of the most transparent markets in existence. If a landlord provides a property above the widely known market rate, tenants will not take it and it will remain vacant. Even if this were the case, the Residential Tenancies Act gives the tenant power to lower the rental price to market levels. These facts make it extremely unlikely that landlords can provide rental accommodation for more than it is worth, as determined by the tenant market themselves.
Are people being squeezed out of the property market? I don’t think so.
It has always been hard for most young people to buy their first home. Personally I saved for years before buying my first home and most people I know did exactly the same. Many people who decide they are going to buy a home work two jobs and sacrifice spending to save the deposit. To my knowledge this has been happening since at least the 70’s and is likely to continue happening. Interest rates in the late 80’s were around 20%, and people said homes were unaffordable. Yet people bought them. When house prices rose in the 90’s and people said they were unaffordable, people still bought them.
It is a shock when house prices move up quickly and it is a shame that some people may no longer be able to afford the home they had their eye on a few years ago. But this happens sometimes. Over the decades, whenever house prices rise rapidly there is an outcry that people are greedy and over value their properties. Yet when you look back at those house prices everyone says how cheap they were.
There is no doubt that the number of people buying a home instead of renting a home has been decreasing over the past 10 years. Most people say housing has become unaffordable. Yet the AMP/Massey University home affordability study shows that while affordability has declined over the past 18 months, housing at present is not as unaffordable as it has been in previous years.
Rather than unaffordability, perhaps a key reason for the reduction in home ownership is due to a change in priorities. There are many more things to spend your money on nowadays and there has always been social pressure to keep up with the Jones. People may be putting TV’s, DVD’s, Sky, expensive cars or overseas trips ahead of home ownership. This is not to say that home ownership is an achievable choice for all people and all people who rent choose this as an option. Renting a home has always been a cheaper option, at least in the short term, and is the only option for many low-income families. However the short term low cost of renting a home and the flexibility that rental housing offers has made it a preferred option for an increasing number of people.
House prices have certainly risen steeply in many areas around New Zealand over the past 18 months, to the benefit of existing homeowners. This has made it difficult for first homebuyers who may now have to buy in a different suburb or purchase a smaller property than they would have liked. However the market conditions we are currently experiencing have happened before and they will happen again. It is always difficult to purchase your first home and usually involves some sacrifice, however the benefits of home ownership are long term and require a long-term outlook for those who want to participate.
We should encourage the young to take a long term view of housing, make some sacrifices, accept that their first home is unlikely to be their dream home, and point out the long term benefits of home ownership. Most existing homeowners have made this sacrifice in the past and are glad they did. We do not need well-intentioned changes in legislation to help those who do not want to help themselves. The consequences would only push house prices further ahead.
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