Why are the house prices still increasing?

3 MIN READ September 22, 2016


Why are the house prices still increasing?

It is not surprising that we are continuing to see increases in house prices across the country despite new lending restrictions being introduced by the Reserve Bank on 1st October. These new LVR rules are not being put in place to directly effect house prices, but more so ensure stability in the banking sector if we were to see a boom/bust and down-turn in the economy as a result. The new LVR policy will take some home owners and investors out of the market in the short-medium term, however those who have experienced good growth in the value of their existing properties will still have enough equity to take out new lending to buy a new home or for investment purposes.

It is important to note it is not the investors who are driving up house prices, it is a simple case of demand and supply. If we focus on Auckland in particular we have a major housing shortage, so we need investment in newly built homes in order to catchup (unfortunately there is a long way to go). Given we already have a housing supply issue, experiencing net migration of $69,000 for the year to August only puts more pressure on the housing shortage, leading to rising rents and house prices.

What should be done?

What we can be sure of – in the short-medium term there is no one silver bullet to fix the housing shortage, and slow down rising house prices. Policies the government needs to review now in order to ensure we can get on top of this housing issue in years to come are:-

Resource Management Act – we need to free up more land for large scale development of residential dwellings
Building Consent Process continue to speed up this process without compromising quality
Immigration – we don’t currently have the housing nor the construction capacity for net migration of 69,000 people pa (Working Visa’s need to focus solely on industry where there is a skills shortage and require a minimum employment period of 12 months in that industry)
Capital Gains Tax on Investment Property – all other sources of income are taxed so why should property be any different
Foreign Buyers Land Tax – many other countries already have these policies in place including our friends across the Tasman.

If you are looking for advice about home ownership or investment property contact our mortgage team – we would love to help out!

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